Republican Jeb Hensarling, an industry shill who funds his campaigns from too-big-too-fail banks, is the Capitol Hill voice of the financial services industry in Washington.

Now that the US taxpayer directly insures over 80% of the loans in the housing market, the ultimate financial coup for the too-big-too-fail banks would be a relaxation of lending standards allowing them to underwrite profitable, high-risk loans at taxpayer expense. The financial services industry spends millions lobbying Washington to remove the taxpayer protections in place that prevent unsound lending with taxpayer backing. If they were to succeed, they would inflate another massive housing bubble, profit from the origination and servicing fees, and when it implodes, they would leave taxpayers holding the bag.

Through their campaign contributions, the financial services industry “encourages” certain key politicians to spout nonsense and introduce legislation designed to benefit the financial services industry. Republican Jeb Hensarling, who chairs the House Financial Services Committee, raises most of his money from banks, insurance companies, securities and investment firms, real estate, and miscellaneous finance interests.

It shouldn’t be much of a surprise to learn he wants to eliminate the protections put in place in the wake of the 2008 meltdown to protect everyone from the financial services industry.

Hensarling: Dodd-Frank “stands as a monument to the arrogance and hubris of man”

May 31, 2016, Ben Lane

… According to the Republican arm of the House Financial Services Committee, Rep. Jeb Hensarling, R-TX … is expected to announce a Republican-crafted plan to replace Dodd-Frank with a “pro-growth, pro-consumer” alternative, that includes the potential significant regulatory relief for financial institutions, as well as a dramatic overhaul of the Consumer Financial Protection Bureau. …

“So, hear me well,” Hensarling continued. “On behalf of all hardworking, struggling Americans, I will not rest – and my Republican colleagues on the House Financial Services Committee will not rest – until we toss Dodd-Frank onto the trash heap of history.”

Fortunately, unless the Democrats in the Senate fall below 40 Senators, they will filibuster any attempt by Republicans to water down the legislation.

In Hensarling’s speech, he railed against Dodd-Frank, arguing that the comprehensive financial reform legislation did more to harm the economy than help it in the wake of the financial crisis. “Dodd-Frank stands as a monument to the arrogance and hubris of man in that its answer to incomprehensible complexity and government control is even more incomprehensible complexity and government control,” Hensarling said.

Given how poorly the unregulated market functioned during the housing mania, the real monument to hubris of man was the proliferation of Option ARMs, funded by private investors, hoisted on the backs of greedy and stupid borrowers that resulted in the housing bubble. This was private industry responding to conditions in a largely unregulated environment, the quintessential example of failure of the invisible hand of free-market capitalism.

“It is a modern day Tower of Babel. 2,300 plus pages. 400 new regulations spawning tens of thousands of pages of red tape,” Hensarling continued. “And its foundation very much rests on a false premise: that somehow deregulation was the root cause of the crisis. But it was not deregulation. In fact, in the decade leading up to the financial crisis, regulatory restrictions in the financial sector actually increased. It was not deregulation but it was dumb regulation.” According to Hensarling, the “dumbest” regulation of all was the affordable housing goals of Fannie Mae and Freddie Mac, which “incented, cajoled, and mandated financial institutions loan money to people to buy homes that they could not afford to keep.”

Complete and utter bullshit. The lack of regulation was clearly the problem. This nonsense springs up on the political right periodically. A few years ago, a blogger named Kevin Drum beat this idea into submission. As el O, one of our esteemed astute observers notes, “Facts are stubborn.” The housing bubble began to inflate in the early 00s, but it didn’t really launch until late 2003 and early 2004 when private investors began buying low-quality subprime mortgages with interest-only and negative-amortization terms. And it wasn’t primarily the degradation of borrower quality that was the problem: it was the toxic nature of the loans they made. If the loans would have been limited to conventionally amortizing 30-year mortgages, the degradation of lending standards from subprime wouldn’t have caused a housing bubble and price crash. But even the subprime problem wasn’t a response to government mandates; it was a private-sector embrace that lead to a huge decline in market share for the GSEs. If this had been a problem caused by government mandates, the market share for the GSEs would have gone up, not down. It wasn’t until 2005, at the tail end of the bubble, that Fannie and Freddie got heavily involved in buying toxic garbage, and that wasn’t in response to government mandates, at the time the GSEs were still private entities succumbing to private-sector greed. They didn’t buy these loans to meet some government quota, they bought the loans because they foolishly thought they were profitable investments. The entire narrative spun by the political right is bullshit — annoying bullshit that ignores facts. (See: The big right-wing housing bubble lie)

…According to Hensarling, “roughly 20% of the people who qualified for a mortgage in 2010 will no longer be able to qualify due to (the QM rule’s) rigid debt-to-income ratio.”

I thought Republicans wanted to weed out unqualified borrowers. Isn’t that why they oppose incentives to loan to low-income and poor credit individuals? If someone has too much debt to successfully make consistent payments, they are a bad credit risk, and they shouldn’t get a loan. Is this the group he champions?

And one of the worst aspects of Dodd-Frank, according to Hensarling, is the creation and rise of the CFPB, which Hensarling calls a “tyrant” comparable to a “Soviet Commissar,” due to its wide-reaching power. “Dodd-Frank has turned the Orwellian-named Consumer Financial Protection Bureau, not to mention the Financial Stability Oversight Council, into tyrants,” Hensarling said.

Hensarling is so full of shit that it’s difficult to take him seriously, but I give him points for creativity in his endless posturing and pontification on behalf of his political campaign donors.

“With respect to the CFPB, it is a case study in the overreach and pathologies of the unaccountable, administrative state run amok. At almost every opportunity, the Bureau abuses and exceeds its statutory authority, which is already immense,” Hensarling continued. “The Bureau operates with such secrecy, unaccountability, and bureaucratic tyranny it would make a Soviet Commissar blush,” Hensarling added. “It acts as judge, jury, and executioner, all without accountability and all without due process. This should alarm every American, because as we become less governed by the rule of law and more governed by the whims of Washington regulators, fear, doubt, uncertainty, and pessimism are sown.”

In other words, the financial services industry is pissed because their the CFPB is beyond the reach of their lobbying efforts.

According to Hensarling, the Republican plan to repeal and replace Dodd-Frank will undo much of the harm done by the law, and will be based on six principles, which are: 1. Economic growth must be restored through competitive, transparent, and innovative capital markets

2. Every American must have the opportunity to achieve financial independence

What he means to say is that every American must have the unrestricted right to sell themselves into debt slavery to serve the interests of the financial services industry.

3. Consumers must not only be viciously protected from force, fraud, and deception, but also from the loss of economic liberty

And when those interests conflict, “economic liberty,” the unrestricted right to use any product offered by the financial services industry, must prevail.

4. Taxpayer bailouts of financial institutions must end, and no company can remain too big to fail

Nice idea, but it’s all lip-service. Hensarling knows he will lobby for bailouts if his donors get in trouble.

5. Systemic risk must be reduced through market discipline

LOL! What? ROFLMAO! I can’t believe he said that with a straight face.

6. Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by Washington bureaucrats

An by simplicity he means removing all regulations that inhibit the ability of financial services industry from capturing an ever-increasing percentage of workers’ incomes.

“The most important feature of our plan, the essential core of our plan, will be to provide vast regulatory relief from Washington micromanagement in exchange for banks who choose to meet high but simple capital requirements,” Hensarling said.“It will be an election, and it will essentially be the functional equivalent of a Dodd-Frank off-ramp. If financial institutions elect to hold strong, Tier I capital, they will gain strong regulatory relief from both Dodd-Frank and Basel’s burdensome regulations and capital standards,” Hensarling continued. “In a nutshell, if a bank chooses to have a fortress balance sheet that protects taxpayers and minimizes systemic risk, then bankers ought to be allowed to be bankers and grow our economy,” Hensarling said. “It is that simple. In addition, as I said in our principles, we will end taxpayer bailouts and repeal Titles I and II of Dodd-Frank.”

Of course he will allow these off-balance-sheet holdings to be exempt from any regulatory requirements, allowing the too-big-too-fail to become as large as they want as long as they create a fictitious balance sheet that meets Congress’s unenforced regulations.

Hensarling said that another part of the Republican plan is significantly change the structure of the CFPB, by putting the agency on a Congressionally-controlled budget, and creating a bi-partisan commission to oversee the CFPB.

Such a move would make the CFPB accountable to idiots like Hensarling, which serves only the financial services industry at the expense of everyone else — which is why he proposes it.

“Let us remember ultimately though that this is not a debate about deregulation or regulation. It is really a debate over the future of the economy, and the hopes and dreams of millions,” Hensarling said. “On one side are those who believe ultimately in the Progressive vision of a ruling elite who ultimately can decide for the rest of us about our credit cards, our checking accounts, our mortgages, because they are smarter than us,” he continued.

I think the housing bust and the 2008 financial meltdown proved that lenders and investors are not as smart as a toadstool, so regulators needed to clarify “smart” things like that lenders should evaluate borrowers’ ability to repay the loan.

“The rest of us still passionately believe that the true source of our prosperity is not to be found in Washington. It is to be found in freedom and free markets and free enterprise,” Hensarling concluded. “We believe that well-functioning, transparent, and efficient capital markets will provide a ladder of opportunity. When all Americas have greater opportunities, the economy will rise with them. So it’s a choice between two different futures and two different visions.”

Prior to the housing mania and bust, I would have believed the above platitudes — but not anymore.

I questioned whether or not the legislators who passed the Dodd-Frank financial reform would succeed in preventing future housing bubbles. Back in January of 2013 I wrote that the new mortgage regulations will prevent future housing bubbles, and later I wrote that new mortgage regulations change how real estate markets work. Based on the evidence — declining sales caused by higher prices — I am becoming more hopeful that we really and truly are witnessing the end to the cycles of boom and bust in California real estate.

The last piece of the puzzle is whether or not people’s attitudes change. Real estate is religion in California, and the resurgence of kool-aid intoxication is an ever-present threat, but if people start to accept that house prices only rise with inflation and that excessive mortgage debt is a real burden, then the market lacks a key ingredient necessary to create a full-blown financial mania. Perhaps I succumb to my own optimism bias, but I want to believe people finally want to stop the madness.

With any regulation, there is fear that it will either be changed or enforcement will be lax. Obviously, industry shills like Hensarling will always lobby for change,and while it’s still possible future generations may forget the folly of the last decade, it’s unlikely our generation will: these new regulations are here to stay. A far larger concern is the lack of enforcement and oversight, and if the issue were left up to the agencies or the federal reserve, that would still be a big concern, but that’s not where enforcement will come from. Civil lawsuits from future loanowners decrying their inability to repay the loans is what will keep lenders in line. I take comfort in that.

And I also take comfort in knowing Hensarling will fail and his financial services industry masters will not be happy.

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