Fed governor wants to see more emphasis on enforcement

Federal Reserve Governor Sarah Bloom Raskin gave a speech last week at the Association of American Law Schools annual meeting last week in Washington, DC. The gist of her speech was that law schools should also include a discussion on enforcing law when teaching their students about the rule of law.

“If the law is worth having, the law is worth enforcing”, said Governor Raskin. Specifically, Governor Raskin was addressing the enforcement of law against mortgage service and processing companies and how proper enforcement could help rein in bad behavior by processors. If not, we run the risk of these companies framing the intensity at which regulatory agencies go after them.

Governor Raskin also quipped that, “[A] failure by regulators to enforce the laws and regulations as strong antidotes to financial misconduct and unsafe and unsound practices by the institutions they regulate establishes de facto acquiescence to the dominant norms of the financial marketplace. At that point, our laws become the resting place for unfair practices and broad disrespect for the law generally.”

What concerned me were her observations at the end of her speech. “What’s more, financial institutions need to understand that they are responsible for assessing the effects their actions will have on consumers and the country as a whole, and factor those considerations into their business decisions.”

Talk about a dampening effect on business decision making. You may as well ask financial institutions to factor in the weight of the world when determining their pricing. Consideration equals delay. Delays equal higher costs of doing business, costs that may not be captured fully in interest rates and fees assessed on consumers.

The premise of this thinking obviously stems from the argument that at the heart of the recession and its slow recovery is bad behavior on the part of mortgage processors, servicers, and big banks, as well as the foreclosures resulting from their bad behavior. I can buy-off on the argument that decreased home values left little in the kitty for consumers to use to fund small business ideas, but I don’t give shrinking equity that much credit for the slow-down in private sector investment that lies at the heart of any economic downturn.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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2 Responses to Fed governor wants to see more emphasis on enforcement

  1. Kenneth J. Ciszewski says:

    You’re right–it’s not completely about shrinking equity.

    This post sounds like an argument for laissez-faire economics. It also sounds a bit like not requiring corporations to dispose of toxic waste safely instead of dumping where ever it’s can because it’s less costly. Let business do whatever it pleases–that’s ALWAYS good for everybody.

    If you believe that, I have some swamp land in Arizona I can sell you.

    Considering the fact that what financial institutions did just a few years ago in the way of packaging mortgages, at least some of which were questionable, into investments and selling them all over the world almost caused a Great Depression to end all great depressions, we have to ask whether or not it’s a good idea to just let financial institutions run amuck or open loop without any regulation.

    We’re not asking corporations to figure in the weight of the world–we’re just asking them not to lie, cheat, steal, or exploit. Obviously, it’s too much to ask, based on history–MCI, ENRON, Global Crossing, Lehman Brothers, the list goes on. Then there were the monopolists of the early 19th century, and the money panic problems caused in 1904 by the lack of regulations that were later put in place but then repealed because business felt they were “too restrictive”.

    Ironically, the financial system, and all kinds of fiat money and investments, are actually based on belief and trust in reasonable fairness. When that belief/trust is broken, financial markets break down, which is what happened to cause the recent downturn. The bad behavior of the financial industry did some damage to the industry itself financially, which means that if it really understood this principle, it would understand that doing things in a trustworthy and reasonably fair and honest way is a requirement for long term stability and success.

    I admit that I’m pretty cynical about all this. I think we need to admit, out loud and in public, that many businesses cannot be trusted. The public record is clear on this, and I suspect that if we actually knew what went on in business every day, we would be appalled. In my opinion, too many businesses cannot resist the temptation to lie, cheat, steal, or exploit.

    Not all, but too many.

    This is the message “Occupy Wall Street” needs to concentrate on.

  2. M Franco says:

    What about the consumers? Why are only businesses the bad guy?!
    Consumers are at fault just the same. If you cannot afford a $100 shirt, then, you should not buy it!

    That was part of the problem! People were told by banks they could get approved for a $1million
    loan. But, you know you don’t make a $1 million a year, then, you should not buy that $1 million house. Or the $100 shirt, if you know you cannot afford it!

    Everyone is at blame. Including the consumers. Stop blaming only businesses. It is well known businesses exist to make money! It is the consumer that knows what they can/not afford!

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