President Obama billed his proposal to restructure bank regulation as a plan to close the gaps that caused the recent economic problems. By my reading of the President’s proposal he has left out what could very well be the largest of those gaps wide open.
There is nothing in the president’s plan to teach Americans personal financial responsibility.
The President made the point for the need himself during his speech, “This crisis was not just the result of decisions made by the mightiest of financial firms; it was also the result of decisions made by ordinary Americans to open credit cards, take out home loans and take on other financial obligations,” Obama said.
According to Adam Davidson of NPR’s Money Planet, financial institutions were regulated and regulators have had the power to “make sure that financial products are good and sound and reasonable but for a variety of reasons they have fallen down on the job.”
In a similar statement, economist Ben Stein stated on CNN last night that all the regulations needed were in place when the crisis happened.
Regulatory bodies are fallible; subject to errors, influence, and legal and budget constraints. Regulators failed to prevent this financial crisis yet our President is proposing new regulators and new regulations. This is the kind of “solution” that will lull consumers into relying on government instead of themselves for protection. All will seem fine until some future date when once again we will be in trouble because of, “decisions made by ordinary Americans to open credit cards, take out home loans and take on other financial obligations.”
A better solution would be mass funding of adult education in personal finance. Americans have very little understanding of even basic personal finance and that is a huge problem. Finance is extremely complex. All the regulatory power anyone can imagine will not protect investors that lack the basic tools to even understand how little they know about the complex financial instruments they get themselves involved with. The best of regulations will not stop consumers that fail to recognize their responsibilities when they get involved with these products.
I propose that the President fund personal finance courses for every high school in America and allow every U.S. citizen to deduct the entire cost of a personal finance class from their taxes.
The only way for President Obama to effectively protect Americans against complex credit cards, and loans is to enable Americans to protect themselves. Self sufficiency is good.
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The people who shirked their responsibility are the institutions that made the loans, the bond holders, and the regulators–what amount of educaion do they have? The people who borrowed the money still hold their debts, are going bankrupt, and probably won’t be able to borrow the money again. If they do it will be at high cost. The educated people who would have had the expertise to know that people couldn’t pay the money back didn’t care because their incentives didn’t depend on it. In fact, the consumer credit industry is structured around having people pay high interest and penalties, so these regular people who can’t pay their bills are actually more profitable, especially since the bankruptcy laws have been toughened so that they can’t be absolved of the debts.
Sure, it would be great to help people understand personal finance better, but the structure of the industry needs to be changed. If you think that can happen without additional regulations, you may have a point. Maybe we should just start paying for enforcement and monitoring the cozy relationships between the regulators and the industry.
In any case, I’m tired of hearing about how average people got us into this mess, they share the blame with a whole lot of people whose business it was to know better. Maybe they should just listen to Clark Howard instead.