Coyote Blog

From today's WSJ:

A House subcommittee will hold an "oversight" hearing today on the new Consumer Financial Protection Bureau, the über-regulator that will soon have jurisdiction over most of the country's credit-making institutions. We put "oversight" in quotes because Congress has little say over either the new bureau or its unofficial czar, Elizabeth Warren.

This unprecedented lack of accountability is by Ms. Warren's design. The bureau was the Harvard professor's idea, and she lobbied the Obama Administration and Congress to make it part of the 2010 Dodd-Frank financial reform. That law calls it an "independent bureau," akin to an independent agency like the Securities and Exchange Commission. But that's deceptive. Unlike other agencies, it isn't subject to annual Congressional appropriations.

Incredibly, the law says the bureau's director gets to set her own annual budget by requesting a share of the "combined earnings of the Federal Reserve System." The total she can request is capped this year at 10% of the Fed's total operating expenses (which in 2009 were $5.4 billion). That cap rises to 11% next year and 12% in 2013, and the Fed Chairman has no authority to deny her request. The director can also request an additional $200 million more per year for the next five years from Congress.

This arrangement may be unconstitutional under the separation of powers, and we hope it is soon tested in court. It was a deliberate political gambit to make the bureau less accountable to either Congress or the rest of the executive branch. In July, when its powers fully vest, the bureau will have supervisory authority over banks with more than $10 billion of assets and independent rule-making authority.

Both are cause for worry, given that the bureau will not have to incorporate the views of other banking regulators into its rules when it comes, for instance, to issues of safety and soundness. While the IRS Commissioner and Comptroller of the Currency report to the Treasury Secretary, Ms. Warren and her successors can tell him to crush rocks.

The affront is compounded by President Obama's decision to evade the spirit of the law by letting Ms. Warren set up the bureau without Senate confirmation. Republicans objected to her potential appointment, and even Democrat Chris Dodd said she would be hard to confirm. So Mr. Obama created a special position for her at both the White House and Treasury, letting her essentially create the bureau and hire its staff without facing the Senate. She has proceeded to sign up a raft of liberal antibank populists, such as former Ohio Attorney General Richard Cordray, former AFL-CIO deputy counsel David Silbermann and University of Connecticut law professor Patricia McCoy

Imposing accountability on public officials is hard enough without laws being structured to purposely evade it.

Arizona voters will have a chance to raise the price of a new home and reduce the choice they have in the marketplace with an initiative on the ballot this November:

The proposed measure, which requires more than 153,000 certified
signatures to qualify for the statewide ballot, includes a 10-year
warranty on new homes and gives homeowners the right to choose which
contractors with a decade-long, complaint-free record do repair work.

Having shopped from time to time for a new home, I can say that such homes with extended warranties from quality companies do exist in the marketplace - some builders offer this kind of warranty, and some do not.  All this bill is doing is reducing choice.  It is requiring that consumers no longer be offered the choice of a new home without a 10-year warranty, and will require that all homes carry this more expensive option.  I am sure that what people voting for this bill will hope for is that they will be getting today's less expensive house but with a 10-year warranty added, but that is not the way it works.

Second, this will virtually eliminates the small independent builder.  Though they do not produce a large percentage of the total homes, small builders, often individual investors with a single property, are still an important part of the market.  You might say, surely this is just an unintended consequence!  Well, what if I told you the AFL-CIO, the largest organizer of construction workers in large home builders, is the #1 financial supporter of this bill?  That information might change this from an unintended consequence to the #1 rationale behind the bill.

Finally, one can easily argue that the law is forcing people to pay for something that may well have no value.  Individuals trying to game the system can easily start a company, build some houses, pay off owners, fold up the tent, and move on to a new entity.  Consumers are left with a 10-year warranty from a company that no longer exists.  Which is how the roofing game is played by the bottom-fishers in that industry.  Which means customers have to shop around for well-established companies with long track records and good products, which, if they did so, would obviate the need for the bill in the first place.

Provisions give homeowners the ability to sue without the threat of
being responsible for a builder's attorney and expert fees and require
builders to disclose their relationships with financial institutions.

Just what we need - another industry where the plaintiffs have zero cost to launch any frivolous suit they want.

Yet another would require that model homes reflect the types of properties that are for sale.

I have no idea what this means.  Are there really buyers who are dumb enough to walk through a model, say this is the house they want, and then blandly accept a home that is totally different?

What I perhaps found funniest about the article was this bit of political positioning:

The campaign, called the Arizona Homeowners Bill of Rights
Committee, formed in the midst of this year's housing-mortgage
meltdown. And the committee has attempted to draw links between
financing and construction troubles.

"These same companies that build shoddily also were involved in the
housing-mortgage crisis. They were on both sides of this equation. They
were financing homes above people's means and selling homes that were
defective," said Richard McCracken, an attorney for the measure's
sponsor, the Sheet Metal Workers' International Association, Local
Union 359.

This is kind of a hilarious stretch - talk about guilt by association.  Of course, the bill has nothing to day about mortgages, but since homebuilders were associated with those bad mortgage guys, we should feel free to do anything we want to them.

I heard Obama get asked a question at the AFL-CIO yesterday whether he thought China was a competitor or an enemy.  I am not very good at parsing politician-speak, but he seemed to answer "both." 

How about neither?  Let's try "partner in the worldwide division of labor" or maybe "home of a billion people who would like to trade with us 300 million individuals to our mutual self interest."   Or maybe "One reason we have full employment AND low prices."

Our trade with Canada is 60% higher than with China.  Does that make them an enemy?  Yes, for some of the Democratic candidates.