Why Warren's Consumer Finance Protection Agency was needed (before the Dems killed it)
Rorty Bomb (via Baseline Scenario) makes an excellent distinction between innovation in normal products, like those sold in a supermarket, and innovation in financial products, like those sold by your smiling big bankster:
To start, there are two major problems when it comes to the popular discussion of financial innovation:
1) You think financial innovation is about making more money quicker. Admit it. You think financial innovation means that you become rich quicker. This is one reason why scammers target Americans so often ...
2) You have a cynical relationship with marketing. Every day you see lots of advertisements telling you that eating a candy bar will make you into a better person, clicking on an online ad will introduce you to attractive women, and purchasing a Dodge Charger will make up for men’s 30 years of stagnant wages and record high unemployment. You don’t think these things are true like physical laws are true. But you don’t think they have absolutely no impact on your life, as they construct a relationship between yourself and the things you buy. Your relationship with the advertising industry is complicated, and outside the bounds of this post, except for one particular – you don’t think that a better product is predicated on higher risk.
Picture you going to buy laundry detergent, and you see your favorite brand, and then next to it you see the same brand, same price, but with a “Now With UltraClean Technology – Making Clothes 10% Brighter!” sticker. You may think that UltraClean Technology is real, or you may think it is a gimmick. But what you don’t think is that it makes your clothes 10% brighter because there’s an even chance it could make your clothes 10% less bright, or there’s a small 5% chance it will melt your clothes.
Or cause millions to lose their jobs, their houses, their health insurance, and even their lives.
There are some places where you understand this tradeoff. If one lottery ticket pays off $5, and another costs the same but pays off $100, you know it’s less likely you’ll win on the second ticket. Same with roulette wheels. But when the same dynamic is folded under the rubric of “innovation”, it’s very difficult to tell the signal from the noise.
The ways these two issues blur together is how a lot of financial innovation gets sold. You can pack in a little extra risk through derivatives or leverage, to get a little bit higher payoff. People think that this is innovative, or they think this is a cynical marketing ploy, but they don’t necessarily think what they are getting is risk. This was the whole debate over reverse convertible bonds, where someone “innovated” putting a naked put into a cash position and calling it a bond, giving it a higher payout through more risk. Retail investors are prone to think this was made by the best and the brightest so it must be an innovation over a regular bond, so it must mean more money. At worst they think this is advertising as “cheap talk”, the same talk that convinces them to buy all kinds of things that they’ll never use. What they miss is the danger and risks that have been unloaded onto them by the financial system.
At least for us, that's what the last thirty years of the neo-liberal ascendancy have been about: Shifting the risk lower on the class ladder. (That's just what happened with the bailouts: The banksters shat the bed, and promptly put us on the hook for $22 trillion to pay for the cleanup squad. Aided cheerfully by the legacy party currently in power, and their post-racial candidate for President at the time.) And the beauty part? The banksters are shifting the risk, and then charging us rents for it!
So, that would be one reason it would have been nice to have had Elizabeth Warren's Consumer Financial Protection Agency: To avoid defective products that shift undisclosed risks. Of course, Obama's owners made him kill that idea. The moral I draw from that story is that all financial products should be regarded as defective until proven otherwise: Caveat emptor, in other words. And the moral I draw from that is get off the grid as much as you can. There's no reason the health insurance industry should be the only rent-seeking industry to go into a death spiral.