Wednesday, May 19, 2010

Big Brother is Watching Part II

One of my favorite movies is The Lost City starring Andy Garcia, which tells the story of the Castro revolution in Cuba through the eyes of a very successful, but non political, nightclub owner in Havana. At a key point in the movie, after the revolution has taken place, the head of the Musicians' Union goes to Garcia's character's nightclub while his staff is rehearsing for the upcoming show. (The nightclub features Xavier Cugat-type dinner shows every evening.) The head of the union informs Garcia's character that saxophones are no longer permitted in the orchestra because saxophones were invented by a Belgian and Belgium represents Western Imperialism as evidenced by their activities in the Congo.

I love the scene because it is a great depiction of what happens when the government starts micromanaging our lives. A prejudice against an ideology can lead to the banishment of a musical instrument.

Unfortunately, we may not be too far away from this kind of micro management in the United States if the government does not start scaling back. The new Bureau of Consumer Financial Protection as it exists in Senate Bill 3217, gives unprecedented powers to one agency of the federal government to control not only the financial landscape of the United States but to dictate what we as individuals can borrow and how we as Americans will be allowed to manage our finances.

I want to begin with a quotation taken from Richard Shelby's (R-TX) website on May 6, 2010, since after reading much of the bill, I believe that his summary of key points does do this issue justice.

Shelby states:

Under the Dodd bill, the Consumer Financial Protection Bureau would issue rules without considering their impact on the safety and soundness of financial institutions. ...Unfortunately, the Dodd bill would create a massive new bureaucracy with unprecedented powers to regulate small businesses and consumers. The Consumer Financial Protection Bureau could dictate exactly what forms businesses must use, who they can provide services to, and how they can sell their products. Control over American businesses would shift from entreprenuers to bureaucrats in Washington.

Perhaps the most troubling aspect of their approach is that it assumes that consumers need benevolent bureaucrats to make decisions for them. In order to make that happen, the Dodd bill authorizes the new Consumer Agency to collect any information it desires.

Small businesses across this country fear the massive and potentially very intrusive new bureaucracy created under the rubric of consumer protection. They have every right to be afraid.

This massive new government bureaucracy has the power to place individuals under oath and demand information about their personal financial affairs. The new bureaucracy is also required to report to the IRS any information it gets that it believes may be evidence of tax evasion.

Why does their new bureaucracy need these incredible powers? Because their bill envisions the Bureau analyzing and monitoring American's behavior and then issuing regulations to stop them from doing things the bureaucrats deem 'irrational' or inappropriate. ...

One of the strongest proponents for the new consumer bureaucracy has been the Treasury's Assistant Secretary for Financial Institutions...Allow me to read into the record a couple of quotes from a paper entitled, "Behaviorally Informed Financial Services Regulation' co-authored by the Assistant Secretary Barr in October of 2008.

The Secretary writes, 'Because people are fallible and easily misled, transparency does not always pay off'...He writes that 'regulatory choice ought to be analyzed according to the market's stance towards human fallibility. Product regulation would also reduce cognitive and emotional pressures relating to potentially bad decision making by reducing the number of choices...Disclosures are geared towards influencing the intention of the borrower to change his behavior; however, even if the disclosure succeeds in changing the borrower's intentions, we know that there is often a large gap between intention and action...'

The Dodd bill fails to take any reasonable steps to hold the Bureau accountable. The Bureau receives all of its funding from the Federal Reserve, beyond both Congressional and executive oversight. The Bureau has complete discretion on how it spends its budget...

For the full text of Shelby's remarks log on to and search for financial reform remarks on May 6, 2010.

Tomorrow's post will examine the make up and authority of new bureau of Consumer Financial Protection taken directly from SB 3217 as it appears in amendment 3739.

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