Tuesday, June 7, 2011

FLG's Hostility Toward Elizabeth Warren

Some readers have questioned FLG on his repeated assertion that nobody in Washington that drives him more nuts than Elizabeth Warren. Well, in broad strokes, there are two issues:

1) FLG is convinced that leverage is the culprit in the financial crisis. Warren is only concerned about leverage tangentially in that she thinks banks are pulling fast ones on customers.

2) FLG just doesn't buy the whole customers were duped. Look, he buys that the average consumer doesn't understand finance in general. Shit. FLG is an MBA candidate who has taken a bunch of finance course and he doesn't feel like he understands finance. But then there's stuff like this from a commenter over at Megan McArdle's:
I used to regularly get calls from people claiming that the mortgage company had "defrauded" them - usually by selling them a variable rate mortgage that the caller would claim that they insisted they did not want.

Every time, I'd ask them to fax me the mortgage papers. And every time, at the first page of the fax would be the loan disclosure form that stated in large bold letters that the loan was a variable rate loan. And every time, the caller's signature would be on that page.

FLG used to be in charge of the computer code that printed some of those documents and, to quote Willy Wonka, it's all there, black and white, clear as crystal. So, FLG agrees with this sentiment by Megan:
More disclosure just means more blindness.

If a person is borrowing hundreds of thousands of dollars and can't be bothered to figure out whether their loan is a fixed or variable rate, then no amount of transparency is going to help. So, then what do you do? Mandate that only plain vanilla products, however those are defined, are the only products?

Banks have done shitty and stupid things, such as forging documents and foreclosing on people who paid cash for homes, but FLG just doesn't buy that a consumer financial protection regulator is going to be a net benefit to anybody.

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