Appelbaum notes a rogue’s gallery of companies bought up by the big banks: Associates First Capital, Fleet Finance, Household International, something Audit Inspector General Dean Starkman has repeatedly pointed out, and writes that:
By 2004, the consumer finance industry had largely been folded into the banking industry, and the finance arms of bank holding companies were making at least 12 percent of all mortgage loans with high interest rates, according to data reported by lenders under the Home Mortgage Disclosure Act.
And this is news, as far as I can tell. The Great Greenspan is calling for a consumer-protection agency. Or, well, sort of:
He said the administration’s plan to create a consumer protection agency was “probably the right decision.”
Salmon is right to say that Appelbaum’s story shows pretty convincingly that the Fed can’t handle consumer protection. That isn’t its primary job and it isn’t built to think like that. The Post (emphasis mine):
Throughout the lending boom, consumer advocates trooped regularly to the Fed’s monumental marble headquarters on Constitution Avenue to offer specific accounts of abuses in financial transactions. But what seemed powerful to advocates often was dismissed as anecdotal by regulators.
“The response we were getting from most of the governors and the staff was, ‘All you’re able to do is point to the stories of individual consumers, you’re not able to show the macroeconomic effect,’ ” said Patricia McCoy, a law professor at the University of Connecticut who served on the Fed’s consumer advisory council from 2002 to 2004. “That is a classic Fed mindset. If you cannot prove that it is a broad-based problem that threatens systemic consequences, then you will be dismissed.”
As the anecdotes piled up, so did the frustration of advocates. By refusing to conduct examinations of lending affiliates — by refusing to look systematically — the Fed was basically preventing itself from finding systemic problems.