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Zywicki in Newsweek: Financial Product Safety Commission Not a Good Idea
Proposals to form a Financial Product Safety Commission modeled upon the Consumer Product Safety Commission are an inappropriate attempt to prevent the introduction of poorly designed financial products to the marketplace, according to Professor Todd Zywicki.
"A credit card is not an exploding toaster," says Zywicki, pointing out that unlike faulty consumer products, complicated loans are actually suitable for some borrowers.
Zywicki's comments are part of a Newsweek article about Harvard professor Elizabeth Warren, a bankruptcy scholar who was appointed to head the Congressional Oversight Panel as it critiques the government's bailout of the banking industry and attempts to provide reform to the nation's financial system.
The Debt Crusader, Newsweek, April 20, 2009. By Daniel McGinn.
Excerpt:
"Warren's big idea is to create a
Financial Product Safety Commission modeled after the Consumer Product Safety
Commission, which ensures the safety of small appliances and toys; such an
agency would have kept the poorly designed mortgages that caused the credit
crisis off the market entirely. 'This crisis started with the cheating of
American families, and [solving it] has to begin there, too,' she says.
It's just one of the ideas she's promoting in her new role. Each month, her
committee's reports create controversy. For February's missive, the panel hired
an outside investment firm whose analysis concluded that the Treasury Department
had overpaid by one third for the ownership stakes it took in big banks last
fall. In a report released last week, the panel explored how, in previous
financial crises, liquidating insolvent banks and sacking their managers led to
a quicker, cleaner resolution of the mess.
"Some of her ideas have sharp critics. 'A credit card is not an
exploding toaster,' says Todd Zywicki, a law professor at George Mason
University, because unlike faulty consumer products, complicated loans are
actually suitable for some borrowers. Zywicki says Warren's views are extreme because she views
every lender as exploitative and every borrower as a hapless victim.
Financial-industry lobbyists are even more critical, slamming her for shoddy
scholarship and radical ideas (though they decline to do so publicly). Critics
also question just how much influence her committee will have. 'It has no
authority, it doesn't have any enforcement power, it [only] makes
suggestions--it's a pulpit at best,' says one lobbyist."