Even though he’s only been in office for 5 months, this has still be a long time coming.

And there are some important measures being introduced for home loans and consumer protection.

From Wash Post:

Many of the specific proposals will require legislation, and today’s announcement will drop the plan into an already heated debate on Capitol Hill about the eventual shape of reform. The financial crisis has forced broad consensus that changes are necessary, but there are wide disagreements about the details.

The proposed Consumer Financial Protection Agency would have broad authority to regulate the relationship between financial companies and consumers of mortgage loans, credit cards, checking accounts and other financial products. It would define standards, police compliance and penalize delinquent firms. Other agencies, particularly the Federal Reserve, would surrender some powers.

One idea highlighted by the administration is to require that lenders offer all customers standard “plain vanilla” loans with simple features and streamlined pricing, such as 30-year, fixed-rate mortgages. The sale of more loans with more complicated terms would be subjected to greater scrutiny by the agency. It could even require that customers make a written choice to select anything other than a vanilla loan.

The agency would have authority to overhaul a tangled mess of federal regulations that many financial experts regard as outdated, insufficient and inadequately enforced. An oft-cited example is the massive stack of paperwork handed to mortgage borrowers at closing, including several calculations of the true cost of the loan itself.

“Consumers should have clear disclosure regarding the consequences of their financial decisions,” the plan states.

Agreed. And while we can blame consumers all we want for overreaching in the past couple decades, let’s not kid ourselves…had these measures been in place this situation never would have happened.

However, I think the biggest news to come out of this (which isn’t in the story) is that all of the agencies that used to regulate banks will now be folded into one entity. This is so banks can’t pick and choose who will regulate them…and the notion that they could do that before makes my stomach turn. Gee, I wonder who they’re going to pick…perhaps the laziest agency?

Seriously, you don’t think the current system was royally screwed up? Check out how it worked…

Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.

I don’t think you have to be an expert to see that this could easily lead to all sorts of irregularities. So, again, having one agency do this is the smart way to go.

More as it develops…

Goldberg also makes this odd statement:

A justly convicted murderer should be punished regardless of his race. A justly convicted drug dealer should be punished, regardless of his race as well. If we’re punishing a disproportionately high number of blacks, that’s a sign we should crack down on more guilty whites, not give up on punishing crimes.

This is particularly puzzling because Goldberg has argued that anti-statism is at the core of conservatism and is also why libertarians should continue to coalition with conservatives. Obviously, increasing drug prosecutions is not only inconsistent with any conception of limited government, it’s also an expansion of the size of government. And not an insignicant expansion either, given that this can definitionally only be achieved by pursuing people with enough resources to put up a tough fight against drug prosecutions (a fact that at least partly explains the socioeconomic discrepancies in such prosecutions in the first place).

Goldberg’s statement does indirectly suggest one point worth exploring, though – that human liberty is increased when laws are enforced more uniformly; unfortunately, he takes this point to be a justification for the expansion of drug prosecutions.

Much has been written of late about the difference between small and limited government – specifically, small government refers only to the fiscal “size” of the government, whereas limited government refers to the government’s actual powers. If you accept that the State must exist, as even most libertarians do, then one must have a desire that the Stated do well that which it is authorized to do. If the State does its job poorly, then it will actually have a more negative impact on individual liberty than if it does its job well, because at that point enforcement of the laws becomes arbitrary and based on one’s ability to curry favor with the State in some other non-germane arena.

If, on the other hand, the State does its job well, then people may act in reliance upon the law being enforced equally without regards to other issues. So there may be a marginal decrease in liberty due to the existence of the law in the first place, but this is mitigated by the fact that uniform enforcement ensures that people may act in reliance upon the law and without having to curry favor with the State in some other arena. This means less State corruption, less connection between wealth and power, and less fear of interference from the State more generally.

The trouble is that very often uniform enforcement is simply not possible due to the State’s limited resources. Put another way, in the words of the inestimable Wirkman Virkkala, “regulation is not scalable.”

In the case of the War on Drugs, this problem is particularly apparent. For any given drug, there are going to be potentially millions of users spread out over a vast country. The only way to have uniform enforcement of the drug laws in such a situation is to have an incomprehensibly large budget far bigger than the already-incomprehensibly large Drug War budget we have. Other programs, some of which may or may not be enforced in a relatively uniform fashion will need to be scaled back (and thus enforced more arbitrarily). Short of that, given the nature of prohibitions on the possession of banned personal items, the only way to truly enforce the law uniformly would be to turn our neighbors and friends into de facto secret police.

Still, under some circumstances, I suppose it’s possible to enforce such prohibitions in a more or less uniform fashion without creating a de facto secret police force – whatever Singapore’s flaws (and it has many), drug use is not something that flourishes there. Part of that, though, is that Singapore is a tiny nation geographically, and another part of it is that it spends very little on many other types of restrictions, such as economic regulation.

Which brings me to my final point – even regulations that are not outright prohibitions can be uniformly enforced only if they govern a sufficiently small number of actors or if the enforcing agency has the very substantial amount of resources necessary to enforce the regulations uniformly over a large number of actors. Again, they are not scalable. If the regulations are to apply to more actors than the agency has the resources to oversee, then the only solution an agency may follow will be to make the regulations so restrictive as to ensure the reduction of the number of actors over whom they have jurisdiction. In other words, regulatory capture doesn’t just benefit the capturing business – it also benefits the captured regulator.

There is, I think, a solution to this problem: terminate any set of laws or regulations that cannot be uniformly enforced without an unrealistic budgetary expansion, and fully fund those laws or regulations that can be enforced in a relatively uniform fashion. Unfortunately, this is impossible in a two-party system where the Executive is increasingly viewed by both supporters and detractors as omnipotent and where few are willing to admit the unrealistic nature of their pet programs.

Cross-posted at the League of Ordinary Gentlemen.

And after the AIG mess, I say we give it to him. How we allowed one company to take down the entire system still feels unreal to me. How on earth could we allow that to go down? Crazy, crazy, crazy.

But it did happen and we are suffering massive fallout as a result, so we have to make absolutely sure we’re protected. And, like it or not, the only way to do that is give the government more power.

From Bloomberg…

The authority would allow the Treasury, in collaboration with the Federal Reserve, regulators and the president, to step in and more easily combat problems at systemically important institutions on the verge of failure, said the official, who spoke on the condition of anonymity. AIG has received $182.5 billion in government bailout funds, according to the Government Accountability Office.

“We must ensure that our country never faces this situation again,” Geithner is expected to say according to excerpts of his testimony obtained by Bloomberg News. “To achieve that goal the administration and Congress have to work together to enact comprehensive regulatory reform and eliminate gaps in supervision.”

The expanded powers, which require Congressional approval, could help monitor risk and detect problems across an array of financial-services firms to prevent shocks to the global economy such as the one caused by the collapse of Lehman Brothers Holdings Inc. in September. [...]

It would also ensure proper accountability when taxpayer funds are provided to institutions in extreme circumstances, like AIG, which is now 80 percent owned by the government. The authority would provide the government with various tools including the ability to break contracts on executive compensation commitments, like those at the center of the furor over the insurance-giant’s $165 million in bonuses.

More transparency and more accountability.

What’s not to like about this?

And remember, since global commerce is so tied to our banking system, we have a responsibility not only to our taxpayers, but also the rest of the world. Because don’t kid yourself by thinking that China’s public calls to consider replacing our currency in the reserve basket didn’t come as a direct result of letting firms like AIG overleverage themselves to the point of insolvency.