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<div class="">February 3, 2013</div>
<h1>Friends of Fraud</h1>
<h6 class="">By
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<a href="http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html" rel="author" title="More Articles by PAUL KRUGMAN"><span>PAUL KRUGMAN</span></a></span></h6>
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<p>
Like many advocates of financial reform, I was a bit disappointed in the
bill that finally emerged. Dodd-Frank gave regulators the power to rein
in many financial excesses; but it was and is less clear that future
regulators will use that power. As history shows, the financial
industry’s wealth and influence can all too easily turn those who are
supposed to serve as watchdogs into lap dogs instead. </p>
<p>
There was, however, one piece of the reform that was a shining example
of how to do it right: the creation of a Consumer Financial Protection
Bureau, a stand-alone agency with its own funding, charged with
protecting consumers against financial fraud and abuse. And sure enough,
Senate Republicans are going all out in an attempt to kill that bureau.
</p>
<p>
Why is consumer financial protection necessary? Because fraud and abuse happen. </p>
<p>
Don’t say that educated and informed consumers can take care of
themselves. For one thing, not all consumers are educated and informed.
Edward Gramlich, the Federal Reserve official who warned in vain about
the <a title="Times article" href="http://www.nytimes.com/2007/12/18/business/18subprime.html?pagewanted=all&_r=0">dangers of subprime</a>,
famously asked, “Why are the most risky loan products sold to the least
sophisticated borrowers?” He went on, “The question answers itself —
the least sophisticated borrowers are probably duped into taking these
products.” </p>
<p>
And even well-educated adults can have a hard time understanding the
risks and payoffs associated with financial deals — a fact of which
shady operators are all too aware. To take an area in which the bureau
has already done excellent work, how many of us know what’s actually in
our credit-card contracts? </p>
<p>
Now, you might be tempted to say that while we need protection against
financial fraud, there’s no need to create another bureaucracy. Why not
leave it up to the regulators we already have? The answer is that
existing regulatory agencies are basically concerned with bolstering the
banks; as a practical, cultural matter they will always put consumer
protection on the back burner — just as they did when they ignored Mr.
Gramlich’s warnings about subprime. </p>
<p>
So the consumer protection bureau serves a vital function. But as I said, Senate Republicans are trying to kill it. </p>
<p>
How can they do that, when the reform is already law and Democrats hold a
Senate majority? Here as elsewhere, they’re turning to extortion —
threatening to filibuster the <a title="News article" href="http://www.huffingtonpost.com/2013/02/01/richard-cordray-cfpb_n_2599838.html">appointment of Richard Cordray</a>,
the bureau’s acting head, and thereby leave the bureau unable to
function. Mr. Cordray, whose work has drawn praise even from the
bankers, is clearly not the issue. Instead, it’s an open attempt to use
raw obstructionism to overturn the law. </p>
<p>
What <a title="Mother Jones article" href="http://www.motherjones.com/mojo/2013/02/gop-filibuster-obamas-consumer-watchdog-pick">Republicans are demanding</a>,
basically, is that the protection bureau lose its independence. They
want its actions subjected to a veto by other, bank-centered financial
regulators, ensuring that consumers will once again be neglected, and
they also want to take away its guaranteed funding, opening it to
interest-group pressure. These changes would make the agency more or
less worthless — but that, of course, is the point. </p>
<p>
How can the G.O.P. be so determined to make America safe for financial
fraud, with the 2008 crisis still so fresh in our memory? In part it’s
because Republicans are deep in denial about what actually happened to
our financial system and economy. On the right, it’s now complete
orthodoxy that do-gooder liberals, especially former Representative
Barney Frank, somehow caused the financial disaster by forcing helpless
bankers to lend to Those People. </p>
<p>
In reality, this is a nonsense story that has been <a title="Rortybomb" href="http://www.opensecrets.org/industries/indus.php?Ind=F">extensively refuted</a>;
I’ve always been struck in particular by the notion that a
Congressional Democrat, holding office at a time when Republicans ruled
the House with an iron first, somehow had the mystical power to distort
our whole banking system. But it’s a story conservatives much prefer to
the awkward reality that their faith in the perfection of free markets
was proved false. </p>
<p>
And as always, you should follow the money. Historically, the <a title="Open Secrets" href="http://www.opensecrets.org/industries/indus.php?Ind=F">financial sector has given a lot of money</a>
to both parties, with only a modest Republican lean. In the last
election, however, it went all in for Republicans, giving them more than
twice as much as it gave to Democrats (and favoring Mitt Romney over
the president almost three to one). All this money wasn’t enough to buy
an election — but it was, arguably, enough to buy a major political
party. </p>
<p>
Right now, all the media focus is on the obvious hot issues —
immigration, guns, the sequester, and so on. But let’s try not to let
this one fall through the cracks: just four years after runaway bankers
brought the world economy to its knees, Senate Republicans are using
every means at their disposal, violating all the usual norms of politics
in the process, in an attempt to give the bankers a chance to do it all
over again. </p>
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<br clear="all"><br>-- <br>Art Deco (Wayne A. Fox)<br><a href="mailto:art.deco.studios@gmail.com" target="_blank">art.deco.studios@gmail.com</a><br><br><img src="http://users.moscow.com/waf/WP%20Fox%2001.jpg"><br>
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