Subprime mortgage collapse leads to tightened financial regulations for all

Currently our Senators are debating the creation of a stand-alone government agency to protect American consumers from the aftermath of another subprime mortgage collapse. This proposed agency (CFPA) would be regulating and overseeing a vast breadth of financial agencies, most of which have no ties to our economic crisis. Because of this it seems that companies that had absolutely nothing to do with the subprime mortgage collapse would be “penalized” for the alleged actions of Goldman Sachs by facing new regulations which many fear would lead to new business and legal costs forcing some businesses to close their doors.

Opponents of the CFPA claim that not only are they being punished and regulated for a situation that they did not help create, but that the new regulations will actually worsen our economic situation in many ways. A recent study by Joshua Wright (George Mason University Professor) estimates that the creation of the CFPA will reduce job creation by 4.3 percent or approximately 60,000 fewer jobs every year. Because the CFPA would oversee car dealers that offer loans, payday advance lenders and payday stores, many existing industries are lobbying against the implementation of new regulations. Also, entities such as Payday Lenders are already regulated by strict State laws, sometimes limiting APR’s to as low as 36% (or a mere $1.38 charge per $100 borrowed) which arguably puts them out of business.

There are also some recent news reports which claim that our senators need to dig a little deeper to find the true culprits behind the subprime mortgage collapse, alleging that those responsible may not be the ones currently under scrutiny.

I hope that a proposed “protection” bill will actually provide consumers with some form of protection, and not simply eliminate more jobs.