In this morning’s New York Times, Gretchen Morgenson warns of a new wave of foreclosures based on the upcoming $1 trillion dollars in “exploding mortgages.” For a solution, she quotes an article I wrote that will be out tomorrow in Democracy. I argue that a Consumer Product Safety Commission regulates the toaster market so that we don’t buy exploding toasters, and that we need the same kind of safety regulations for exploding mortgages and other financial products.
Morgenson rightly notes that my idea will be laughed off the stage by the anti-regulation folks, who treat the “R” word as a hateful epithet. But we need to get past the days when “regulation” always means “bad.” This anti-government bias is costing millions of families their financial security.
Sure, there is some dumb regulation, but that doesn’t mean all regulation is dumb. Today regulation supports a booming market in tangible consumer goods. Nearly every product sold in America has passed basic safety regulations well in advance of being put on store shelves. As a result, we don’t eat tainted meat or buy collapsing infant car seats, and the free market flourishes.
No one expects every customer to become an engineer to buy a toaster that doesn’t burst into flames, or analyze complex diagrams to buy an infant car seat that doesn’t collapse on impact. By the same reasoning, no customer should be forced to read the fine print in 30-plus-page credit-card contracts to determine whether the company claims it can seize property paid for with the credit card or raise the interest rate by more than 20 points if the customer gets into a dispute with the water company.
No product will be made perfectly safe. A consumer can stuff a toaster full of dirty socks and start a fire — and, even with safety standards, it will remain possible to get burned by credit products. Some people won’t even have to try very hard. But safety standards can make a critical difference for millions of families. Families that are steered into higher-priced mortgages solely because the broker wanted a higher fee would have a greater chance of buying and keeping a home. A student who wanted a credit card with a firm credit limit not an approval for thousands of dollars more of credit and higher fees and interest could stay out of trouble. An older person who needed a little cash to make it until her social security check arrived would have a manageable loan, not one that would escalate into thousands of dollars in fees.
Regulation isn’t always the answer. But it is sometimes the answer.
