I'm from the government and I am here to protect YOU!



Those of you who follow this blog--all three of you--know that I sometimes can't resist the temptation to go off topic and get all political on you guys.  Sorry.  But I justify that by noting that technological change is not the only kind that can radically affect our daily lives.  So can the actions of "we, the people," sometimes known as the "government."

I have blogged before about my concerns over the current tact of our national government--executive, judicial, and legislative, all equally to blame--toward increasing its size and power as well as its influence over we poor, helpless citizens.  OK, I know some of us need the help.  And I agree that it is a legitimate function of government to come to the aid of those who most need it.  But I don't agree that such assistance and protection should be used to the extent that it interferes with the rights and freedoms the rest of us hold so precious.  Or be so cumbersome and overbearing that it prevents the greatest economic system in the world's history from being all it can be.

I also have noted that in my current business, we have seen near-oppressive government regulation, all in the name of protecting citizens from alleged abuse from others in our space.  A solution in search of a problem?  Yes!  I know there are those--including some few in our business--who would bilk people and take advantage of the gullible.  But I also know there are plenty of rules in the books already to punish those scoundrels.  Enforce them!  Don't punish the good guys to get at the few.  And don't at the same time penalize the very people they say they are trying to help.



The latest boondoggle to raise my ire is an interesting article about Richard Cordray, the director of the newly-minted Consumer Financial Protection Bureau.  Were you even aware of this fine governmental agency that is charged with protecting you from the big, bad banks and credit card companies and others who earn their living by loaning money to people?  Did you know that since its humble beginnings late last year it has already hired 800 people.  At least CFPB is doing its part to solve the country's recent unemployment problems by providing nice careers in government for all those folks. 

The article states: The agency is making rules and conducting reviews of financial institutions such as banks, mortgage brokers and issuers of credit cards.“We’re just getting under way, but I believe we have strong authority … to address these problems,” Cordray said, noting that the Consumer Financial Protection Bureau is the first government agency that can regulate a wide variety of financial institutions.

Well.  "The first government agency to address these problems."

What happened to the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of Currency, or the Federal Financial Institutions Examination Council?  Or the National Credit Union Administration, the Office of Foreign Assets Control, the Office of Thrift Supervision, or the Financial Crimes Enforcement Network in the U.S. Department of the Treasury?  Or the banking and financial regulatory and enforcement agencies that exist in every single state in the Union?

Apparently none of them are doing squat to protect consumers so we need another agency to do it.  One that is just getting started with a mere 800 employees.

No, in its extreme concern that we, the poor, ignorant consumers are being fleeced and flummoxed, the Obama administration and enough members of Congress as necessary have created yet another agency to do what all those others have already been created to do but apparently are not.  The reason for creating the CFPB? 

According to the article:  The middle class is getting hammered,” he (Cordray) said, noting that household debt has risen to about $12.5 trillion. More than half that debt is in the form of credit card debt.  “The backbone of this country, the middle class, is under pressure,” Cordray added.

So, because idiots go out and run up monstrous debt on their credit cards, buying things they don't need, we have to anoint yet another Federal agency (with 800 employees and a ton of serious governmental clout) to rain down some serious hell on the scurrilous bastards who are willing to loan those idiots all that money.  The free market side of me says, "So what if banks and other institutions are willing to take that chance?"  Could it be because, with the Fed keeping interest rates at historical lows, this is about the only way left for banks to make money?

Government--MY government and yours, too--should get out of the way.  Allow the market to flush out the idiots.  Enforce sensible regulations, equally and fairly and certainly.  Assure nobody is lying or misleading would-be borrowers.  Hit--and hit hard--anyone using deceptive lending practices.  Require existing agencies to do their jobs. 

But please don't start drafting arbitrary, kneejerk regulation to solve perceived problems and create ad hoc agencies that will exist forever and ever, amen.  Neither the mountain of rules nor the alphabet soup of agencies and the ever-mounting list of "czars" will ever go quietly into the night.

Think I'm exaggerating?  Ask your hometown banker how things are going out there.  Check with just about any small-businessman.  Look at the tremendous amount of cash most companies are stowing away because they are so skittish about governmental meddling in their industries that they are reluctant to invest and expand and hire.  Try to start a new business, borrow capital, or bring a new product to market.  Heck, just try to do your own income taxes if you want to witness government regulation that is out of control.

Quick example of how silly this all is, and why hastily-drafted and ill-conceived regulation creates far more problems than it ever solves: in my business, our customers (students) are able to borrow money from the Federal government to pay for their education.  (Thank goodness for this program or I never could have afforded a college education, nor could many, many others.  If it is properly administered, the taxpayer not only gets well-educated and skilled workers to enhance the tax roles but even makes a few dollars on them in the form of interest when they repay their loans.)  However, in their infinite wisdom, the people who oversee the Title IV loan system have included a serious flaw that encourages abuse.  Based on their "needs," students can borrow far more money than just the cost of tuition and books.  They are able to borrow for what is termed "living expenses."  As an authorized, accredited Title IV school, we are not allowed--by Federal regulation--to limit the amount of money our students borrow.  Many of them see this as cheap money with much lower interest rates than the payday loan operations charge, so they borrow every drop they can, despite our vigorous counseling.  This has created a whole culture we call "check chasers," people who enroll, borrow all they can, then drop out of school.  Then they come back next quarter and do it all over again.  Our schools don't stand for this.  We don't continue to admit students who obviously don't intend to attend class beyond "check day."  Not only is it not right for them to do so, but it also would affect our retention/graduation rate, which is set very, very high by our accreditor.  But thanks to YOUR government's rules, we cannot prevent anyone from borrowing to the hilt. 

Yet the Department of Education and agencies like the new CFPB want to blame us for the mess in which some of these folks find themselves.  And for the staggering rate of student loan debt.

As I've noted often, when the government shows us they can run simple things like railroads (AMTRAK) and mail delivery efficiently, then I'll be more positive about them running other things.  Again, we need regulation.  And we need somebody to enforce those rules.  But how many arbitrary regulations and huge agencies (with acronym names and overlapping responsibilities) can they force down our throats before the entire economy strangles?

I'm afraid we are about to find out.

Don Keith

(Note: comments in this blog are solely the opinions of the author and do not necessarily reflect those of his employer or anyone else.)