Barney Frank vs. the Government
The argument against the government's effort to force financial companies to offer some "plain vanilla" products is that it's direct government intrusion into the marketplace. "I remember the days when the bars had to serve food if they were going to serve liquor," said Barney Frank at Thursday's hearing, "and they served [the most] God awful food known to human beings, and I think you know trying to force someone to do good is a very, very qualitatively different, and I think often futile, effort, rather than preventing [someone] from doing bad."
(Plus there's this bonus: because banks are responsible for losses over $50, they've put a ton of time and energy into figuring out how to limit losses. They make sure their customers have fast and easy access to 800 numbers to report stolen cards. They have sophisticated transaction monitoring software and they call you proactively if they see spending patterns that suggest fraud. They have reward programs for merchants who confiscate cards. Etc. Do you think they would have done any of this if you were on the hook for bogus charges? Nope. Instead, they would have spent the past four decades claiming that stuff like this simply wasn't economically feasible and consumers needed to be more careful with their credit cards.)
The "plain vanilla" requirement would accomplish something the financial industry hates: it would make it easy for consumers to compare products. Even if you're planning to buy something non-vanilla, the price of the vanilla product provides a baseline that makes it easier to compare companies to each other and easier to see exactly how much you're paying (and what extra terms you're agreeing to) for the more complex products. That's good for consumers.
Tim Fernholz has a more sanguine take. But I'm with Drum on this one: Right now, we need to err on the side of reforming the financial sector and curbing what Felix Salmon calls its "lucrative opacity." If the regulations prove problematic, the dominant moneyed forces in American politics will be able to lift them. But if they prove insufficient, there will be no will to improve them absent another crisis.
Photo credit: AP Photo/J. Scott Applewhite.
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