AG Foreclosure Settlement: Regulation Run Amok

Politicians are not going to fix the problems that we are in, not at least when there is money to be made in squabbling.  The Obama administration is backing the AG settlement offer.   Mr. Obama's lap dog, Timmy "the Taxcheat" Geithner (People wander why I didn't work for the IRS), put in his two cents saying this settlement was a necessary step forward, and  Elizabeth Warren, the architect of the Bureau of Consumer Finanical Protection, which was part of the Dodd-Frank Act of 2010 said "I still worry, a lot," about changes in the mortgage finance market.

The Republican response, led by Alabama's Senator Rich Shelby immediately attacked the proposal as an enormous overreach by a yet to be defined Bureau of Consumer Financial Protection (CFPB).  Mr. Shelby as well as a whole host of Republican congressmen despise the Dodd-Frank Act for its amorphous creation of additional regulatory agencies designed to create additional regulation of the financial sector.   House Republicans sent a letter to Mr. Geithner requesting proof of the legal authority granted to federal and state regulators to do what was proposed.   I truly don't have an opinion as to whether additional regulation is necessary or not, I do have an opinion on the creation of redundant regulatory arms.  Supposedly, the new CFPB will encompass and phase out the redundant aspects but my experience tells me that government isn't good at shrinking, like my waist line.


Now that we know that both sides are essentially fighting over the bone that is the CFPB, we can now look at the settlement in a new light.  The CFPB, as Ms. Warren has said, will "Demonstrate how we're going to deal with financial institutions who take on too much risk." Essentially, she is looking at the issue of the consolidation of the banking industry into giants like Chase, BofA, and Wells that forging themselves into the "too big to fail" model that precipitated the mess that we all find our selves in today.  Thus, the Democrats, through the creation of this new Regulatory Arm want credit for saving the American people from "too big to fail," and the Republicans, obviously not having the regulatory high ground, want a Legislative response that makes them out to be the White Knights of America's underwater homeowner.

A wise professor once pulled me aside when I was studying business at Valparaiso, and said, "Nic, when you are in government, where you are negotiating deals, make sure you trade apples for apples, and not for oranges."  What he was getting at, not that I have political aspirations, is that politicians tend to trade one thing for another when the fact is that they don't understand the value the items being traded. As long as the perception is that they got a good deal, it doesn't matter.  The problem is that sometimes it takes years to find out if the politician got a good deal.  Thus, if you are dealing in apples, you had better get the equivalent of an apple in return, otherwise you have done your constituents great harm.

The tools that are being put into the settlement agreement are fine.  As I said yesterday, they aren't really anything new, just consolidated to one place.  The $5 to $30 Billion settlement of cash in my opinion is a drop in the bucket when we are considering 1.2 million homes are being repossessed this year with an additional 5 million that are at least 60 days behind on their payments.  So, what is it that is being accomplished, other than a sound bite and picture in the paper?