Standing up to banks

Sunday, Aug. 1, 2010 | 2:01 a.m.

By allowing mortgage lending to get out of control, the nation’s financial institutions were key culprits in the economic meltdown that left Southern Nevada’s housing market in tatters. With the nation on the brink of a monetary collapse, Congress in 2008 issued $700 billion in federal bailouts to keep banks afloat through the Troubled Asset Relief Program. The banks have begun to regain their health but millions of Americans paid a terrible price for the financial folly on Wall Street by losing their homes, their jobs or both.

The resulting Great Recession made it clear that the country’s financial system was in dire need of reform to protect consumers from predatory loans, hidden fees and other nefarious banking practices that helped produce record home foreclosures and credit card debt. While many consumers brought financial problems on themselves by buying homes or purchasing automobiles they couldn’t afford, the banks did their part to stoke this atmosphere with shady lending practices that were allowed to continue because there was no oversight.

Thanks to sweeping financial services reform legislation that President Barack Obama signed into law in July, such oversight is about to become reality. A centerpiece of the legislation is creation of an independent Bureau of Consumer Financial Protection that is intended to make sure that loans extended to Americans — whether for homes, cars, college or other goods and services — are based on fair and reasonable lending principles.

Many players in Washington have given credit for the idea of a consumers bureau to Harvard Law School professor Elizabeth Warren, an authority on bankruptcies. Warren’s name should be familiar to Southern Nevadans because she was appointed by Senate Majority Leader Harry Reid to the Congressional Oversight Panel monitoring the bank bailout, which she chairs. When she and some of her panel colleagues attended a hearing in Las Vegas in December 2008 to determine whether the bailout was helping local economies, they heard a resounding “no” from those in attendance.

By then Warren was used to hearing horror stories about the banking industry. She had already been recognized as an expert on the damage predatory lending could do to consumers. She once told The Wall Street Journal that “student-loan debt collectors have power that would make a mobster envious.” She told the Senate Banking, Housing and Urban Affairs Committee in 2007 that the credit card market was broken. “A growing number of card issuers increase their profits by loading their credit cards with tricks and traps so that they can catch consumers who stumble or mistake those traps for treasure and find themselves caught in a snare from which they cannot escape,” she told the committee.

She had equally astute comments later that year when she told The New York Times why consumers needed better financial protection. “We have basic safety regulations for nearly every product a consumer can buy, except the ones that ruin them financially,” she said. “We would not be where we are today with home mortgage foreclosures and millions of families in bankruptcy or on the brink of economic collapse if we had had better regulation of financial products.”

It is no wonder that Warren has been tough on banks while on the oversight panel. This is the kind of vigor on behalf of the public that the leader of the new consumers bureau should bring to that position. It is a key reason why Obama should nominate Warren to be that leader and why the Senate should confirm her if she is nominated.

The president should not be swayed to bypass Warren simply because banks and many Republican senators don’t care for her. Warren has proved that she is, in the words of Obama senior adviser David Axelrod, “a great, great champion for middle-class consumers across the country.”

The middle class, which by many accounts is shrinking nationwide, sorely needs a strong, independent advocate to protect consumers so we have a better chance of avoiding a repeat of the recession we find ourselves in today.