I always enjoy reading something by one of my dissertation committee members in the major news outlets. Todd Zywicki writes
Instead of a new consumer financial products safety commission, Washington should revise the disclosures it mandates for mortgages, its tax and other incentives that encourage overinvestment in housing, and the incentives for homeowners to walk away from their homes. Our current problems are caused by misaligned incentives and the rational response of consumers and lenders to those incentives. It's not a crisis of consumer protection. A new agency premised on the erroneous belief what consumers need is to be protected from themselves is likely to do more harm than good.
Best I can tell, almost all proposed regulations depend on the assumed ignorance of consumers. Someone must be the victim. The current "reforms" to the mortgage industry are a case in point. Create a safety product commission and the problem virtually disappears. However, many foreclosures are perfectly rational, the borrower weighed the costs and benefits of being foreclosed and chose optimally. Ignorance was not the problem; the incentives were. Maybe the Obama Adminstration should establish a Financial Market Incentive Alignment Commision instead.
