Guest Op-Ed to by "Banker with a Conscience"

February, 2011

These weekly pieces are written by a very influencial "Banker with a Conscience," and submitted to my Blog as Guest Op-Eds. Gets you into the mind of someone at the very top of the financial services sector; how they see the current global economic crisis (the mess), as well as various government and private sector solutions to get us out of it.  Hope you enjoy reading them.   


This week we will cover a couple of topics, not really too much related, but equally important.

First, as we predicted in previous notes here, the demand for housing (as evidenced by the recent statistics on sales of existing homes) is dropping quite literally through the floor.  While other indicators of economic recovery—auto sales, retail sales, and job creation, to mention a few are showing signs of improvement, housing is becoming ever more seriously stagnated.  We need to reemphasize the connection between a healthy housing market and a healthy economy.  America has more than half a century of having the housing sector be a critical engine of economic growth, wealth creation and, most importantly, jobs. 

It is just critical that we all pull together to take steps to increase demand for housing.  We have people that want to own a house and have the means to own a house, we have lenders ready to lend.  We need to help move people beyond their fears and to take advantage of low prices and low interest rates.   The obvious opportunity is the tax credit program for first time buyers, particularly those in moderate income circumstances.  What our legislators seem to be missing is that we are not going to be building many new houses (read “employing people to build new houses”) until the existing inventory is greatly diminished.  We can only achieve that with legions of buyers that are currently sitting on their hands.   This is just classic human behavior—bad news in the housing market begets more people waiting on the sidelines for conditions to improve.  That, of course, causes more bad news and down the spiral goes.  Lessons from the Great Depression—“Do Something”—anything is better than slowly descending into a frozen market with no buyers and no liquidity in this important household asset.   Legislators:  WAKE UP.  You need to take action to increase demand.

The second topic concerns the Consumer Financial Protection Bureau.  We have a dedicated, smart and knowledgeable special advisor to the President, Elizabeth Warren, who is helping shape the organization.  In every possible way she is acting as the Director of the Bureau.    For lots of reasons, her name has not been formally put into nomination.  I think it is time we all agree that she is immensely qualified for the job at hand, she is doing a job the American People want done.  While some in the industry and some pundits are opposed to her nomination, the fact is that the banking industry would be well served to have a smart a capable leader in the role as the first director.  The evidence is, from the staff she is bringing together, that she understands the issues at hand and is trying very hard to achieve balance.

The open question I would have for her and her new colleagues is this.  After we tackle the very real issues of clear disclosure, what is next.  If a financial product is clearly disclosed, easily understood, and enjoys demand from consumers, is that a “hall pass” or is their additional scrutiny necessary because of the fees or interest rate involved?  If she is committed to the idea of a free (but fairly regulated, level playing field) market, then except where a product would violate national or local usury laws, there should be no reason to challenge a product just because of price—any more than you would challenge a price on any other consumer good.



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