Banking Deregulation Denialism
Businessweek’s Robert Berner and Brian Grow examine the OCC’s role in blocking state regulation of subprime lenders in an in-depth article. Berner and Grow mention several “defenses” of the agency that are prime examples of “denialism” in the face of obvious problems. Consider this exchange:
“There is no question that preemption was a significant contributor to the subprime meltdown,” says Kathleen E. Keest, a former assistant attorney general in Iowa who now works for the Center for Responsible Lending, a nonprofit in Durham, N.C. “It pushed aside state laws and state law enforcement that would have sent the message that there were still standards in place, and it was a big part of the message to the industry that it could regulate itself without rules.”
“That’s bull—-,” says Hawke, the former comptroller [of currency]. . . . [H]e denies that federal preemption played a role in the subprime debacle. Hawke blames much of the mess on mortgage brokers and originators who, he says, were the responsibility of states. The current head of the OCC . . .concurs. “To claim that it is our fault from preemption is just a total smokescreen to shield the fact that the state mortgage brokers and mortgage companies were just not regulated,” Dugan says.
I’ll believe that when I hear the proportion of problematic loans originated from these “state mortgage brokers and mortgage companies,” compared to the proportion of loans from the banks the OCC stopped the states from regulating. But even if it’s substantial, who’s to say that an imperial OCC would not keep trying to expand its authority, Watters v. Wachovia-style, to such brokers, provided they had some nexus of affiliation to banks? Moreover, both comptrollers’ arguments are aimed at a straw man Keest did not even propose–that OCC alone caused the crisis. Neither confront the real charge: that their interference with states helped contribute to the crisis. Why not follow Chris Cox’s line, admit that the deregulatory program failed, and try to learn from it?
The next denialist tactic is deployed by an industry group: “regulate us marginally more and the economy will collapse!”:
[T]he American Financial Services Assn. (AFSA), a national trade group, sued to block Ohio municipalities from passing lending laws that conflicted with state statutes. The Ohio Supreme Court later sided with the industry. AFSA’s goal was to ward off conflicts between federal, state, and local rules, says [its] spokesman . . . . “Different municipalities moving different anti-predatory lending legislation … would have brought the credit markets to a screeching halt.”
Just as the diversity of municipal garbage regulations has brought the garbage industry to a halt. Or multifarious municipal noise regulations have brought the car stereo industry to a halt.
Reading articles like this, all one can hope for is a growing public ability to critically examine “arguments” which boil down to shibboleths, all-purpose word-formulas deployed not communicatively but strategically to shut down conversation. Critical thinking helps us identify the motivations behind the maumauing of regulatory proposals. As an appellate brief put it,
Rather than vigilantly and publicly enforcing consumer protection laws, the OCC has in recent years frequently intervened on the side of national banks or their operating subsidiaries against the consumer. . . . That the OCC sides with banks rather than consumers when their interests conflict is not wholly surprising given its institutional interests. Depository institutions may choose not only between state and federal regulators, but also among federal regulators, leading to “charter competition” in banking.
The OCC has a financial stake in attracting financial institutions to its charter because
it is funded by assessments from the banks it regulates, rather than by Congressional appropriations. In 2005, 97% of the OCC’s operations were funded by revenues from assessments.
Facts like these should lead us to reconsider other regimes, like PDUFA, whereby the payor of the regulatory piper appears to call the tune.