A Fighting Chance (22 page)

I finished my presentation and glanced nervously around the room. No one spoke.

I looked at Damon. He looked calm, unusually calm for Damon. Then he said: “Comments?”

I could feel my heart pounding. This was like the day I stood on the corner holding hands with five-year-old Amelia, waiting for the school bus on her first day of kindergarten. My prayer that day was intense and addressed to all forces in the universe: Please please please be kind and give her a chance. Now I felt the same way, because when they are still young, ideas—like children—can be knocked over so easily.

A hand shot up. Damon called on a man at the far end of the long table. Heads turned. I didn’t know who he was. I didn’t breathe.

“Great idea!” the man said.

I don’t remember anything else he said, just the feeling that I could breathe out—at least a little.

Damon called on someone else and got a similar response. And then a third person offered support.

Damon smiled.

After that came plenty of questions and some real concerns about whether the agency would be strong enough to succeed or if the banks would whittle it down to nothing. People were nervous, but the first guy had saved it. He gave the idea some credibility, some enthusiasm, some wind in its sails.

We were still ridiculously outgunned by the lobbyists and giant banks. But a small army began forming that day as a handful of good guys endorsed the idea and decided to fight for it. I didn’t know it then, but they would become the most important soldiers in the battle that was to come.

Consumer Safety

We had one big advantage in talking about the idea of a new government agency to a skeptical public: we could point to plenty of agencies that had already done a lot to protect consumers.

In the 1970s, the Consumer Product Safety Commission (CPSC) had been created to establish safety standards, recall unsafe products, and ban products that pose unreasonable risks. That agency works to keep us safe from arsenic in toys, car seats that collapse on impact, and, yes, toasters that catch fire. In fact, the CPSC estimates that standards for three products alone—cigarette lighters, cribs, and baby walkers—save American consumers more than $2 billion every year and prevent a lot of terrible injuries.

Congress can pass a law to make something illegal, but the usual “one and done” approach is fairly rigid. Agencies, by contrast, can be nimble. The CPSC didn’t pass a regulation about the safety of, say, infant car seats back in 1982 and then sit around and do nothing for the next thirty-five years. Instead, the CPSC constantly tests new products and gathers new data as things change in the market. When the agency discovers that a new model of infant car seats has a tendency to collapse on impact, it researches the problem, figures out a solution, and issues a new regulation. In many cases, it orders recalls. The world changes, products change, and so do the agencies’ rules.

That could also be the mission of an agency designed to protect consumers from financial traps. New financial products come out every day—they’re often created when just a few new words are added to a long and complicated contract—and the agency could keep up with changes in the industry. It could eliminate deceptive terms and help make disclosures shorter and clearer. And it could stamp out marketing that advertises a 5 percent interest rate in large print and buries the 35 percent interest rate hike in the fine print.

Not surprisingly, a lot of people were dead set against this idea when I first started talking about it. I heard the arguments against the agency over and over, sort of like a continuous-play music list with only a few songs.

The agency would engage in price fixing.
Nope, the new credit agency would have the power to make prices clearer, but it wouldn’t set prices.

The agency would grow the nanny state.
Nope, the agency wouldn’t try to prevent people from charging too much on a credit card or buying an overpriced car. Again, this was about transparency, making the terms of the deal clear and then letting people make their own choices.

The agency would stop innovation.
Nope, banks could still come up with cool new products, but they couldn’t build new things just to trick people about the price or trap people by hiding the risks.

The agency would put banks out of business.
Well, it depends. If a bank built its profit model around tricks and traps, then it would be in real trouble. On the other hand, if a bank wanted to compete straight up and make the terms of its deals clear, then that bank should be very happy about the new agency.

The last point was really important. Through the years, a lot of reputable banks had struggled to extricate themselves from a terrible bind. Their problem reminded me of the drug industry back when snake oil salesmen promised to cure cancer and baldness with just one bottle: the honest players found it difficult to sell an effective product at a reasonable price. Who could compete against companies that were willing to deceive and cheat their customers? After all, when so many contracts were awash in fine print, how could people tell the honest companies from the cheaters?

But in a world where everyone is required to be on the up-and-up, honest banks with an honest product should find it easier to get their message through. Over time, customer confidence should improve. Ultimately, this would be a good thing for the free market. Tell the truth about a product, and customers can take it or leave it. Better products attract more customers, and bad products gather dust on the shelf. What’s not to like about that?

The President Talks Toasters

As some of the nonprofits started to champion the idea of a consumer agency, I did my best to ratchet up my help. I talked to just about everyone I knew (and plenty of people I didn’t know), trying to gin up more support. I knew next to nothing about how to get a bill passed in Washington. At this point, my only experience in the legislative arena had involved an effort to get a bankruptcy bill stopped, and I’d failed at that. But I figured the best way to begin was just to start talking and see if I could convince people that the agency was a good idea.

I found some unexpected support from one of my students. He was a tall, redheaded kid who in 2006 had sat in the front row in my freshman contract law class at Harvard. In fact, he had the honor that year of being the first student called on—and the first to botch the answer. During the year, he had come by my office several times to learn more about the economic pressures on American families. When the crash hit in the fall of 2008, the redhead was in my advanced bankruptcy class. By now, he was volunteering as an unpaid, part-time intern for Massachusetts congressman Bill Delahunt, who represented a district that stretched from the southern Boston suburbs out to Cape Cod and the Islands. In one more twist of fate, Congressman Delahunt had already been working with Congressman Brad Miller from North Carolina—a real hero to struggling families—to try to boost the consumer agency. After the crash, the redhead offered to work with the congressmen to help promote the idea.

And that redheaded student? That was Joe Kennedy, Bobby Kennedy’s grandson. (A few years later, Congressman Barney Frank would retire, and thirty-two-year-old Joe would win his old congressional seat.)

I also went back to our champion from the bankruptcy wars, Joe’s great-uncle Senator Ted Kennedy. The senator and I had talked about the concept of a consumer agency a year or so earlier, but at the time my idea seemed improbable at best. When I talked with him again in February 2009, he was battling a brain tumor, but he was driving himself hard. I told him I thought this was the time to push for the agency.

The senator said cheerfully, “You know the bankers will hate this?”

I said I understood it wouldn’t be easy.

He laughed and said, “It never is with you.”

And just like that, he was in.

Senator Kennedy joined forces with Senator Durbin from Illinois and Senator Schumer from New York and quickly came up with a plan. In early March, the three senators would introduce the consumer agency as a stand-alone bill in the Senate, well ahead of the broader financial reform bill that would be coming later. Congressman Delahunt (with Joe Kennedy’s help) and Congressman Miller were ready to go, eager to take on the fight for the agency in the House. The lawmakers would announce the new bill at a press conference—and I was invited.

I was goose-bump excited. Wow! A year earlier, the agency had been little more than an article in a small policy journal. Now it was picking up steam in Congress. Zing! Bang! I had visions of a huge public push, debates on the floor of the Senate and House, a great signing ceremony.

On March 10, the lawmakers held a press conference inside the Capitol, just a short distance from a flock of reporters whose full-time job was to stake out the Hill. We had some pretty fancy senators and congressmen, right there in person, ready to answer questions. I figured it would be a standing-room-only crowd and that everyone would be breathless to hear about a new idea.

In fact, the whole thing was, um, orderly and efficient. We got some solid news articles out of the announcement, but hardly the brass bands and confetti of my fevered dreams.

Senator Kennedy later gently explained to me how a press conference like this worked. Introducing the bill to the media and the public was a way to signal that the agency was important, and getting a round of news stories about it was really good. But this was just a first step, and big changes take time. Trying to reassure me, the senator said he was confident that someday we would get the agency.

I wanted to believe him, but I had really hoped this announcement would give the bill a lot more momentum than it did. The press coverage was helpful, but after a couple of days, the media moved on. I was impatient—wildly impatient—because I thought that if we couldn’t get the agency airborne now, it would never fly.

Then, nine days after the press conference, the agency got another boost.

President Obama appeared on
The Jay Leno Show
. He was just fifty-nine days into his first term, and he spent a good deal of his time on the show talking about the mess on Wall Street. And then he said we needed better laws to protect consumers who buy financial products—and he talked about toasters!

When you buy a toaster, if it explodes in your face—there’s a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there’s no law on the books that says if that explodes in your face financially, somehow you’re going to be protected.

Now
we were moving! Go, Mr. President, go!

Barney’s In

Meanwhile, the Senate and the House were beginning the heavy-duty work of crafting a bill that would provide the basis for financial reform. The White House was working through its own ideas about reform, but on Capitol Hill, Congressman Barney Frank was in the eye of the hurricane.

I wanted to make my pitch for the consumer agency directly to Congressman Frank, but I dreaded it. I knew he was deeply focused on other parts of financial reform, and I was hesitant to ask him to add the consumer agency to his already heavy burden. Besides, the two of us had met a couple of years earlier, and we’d had a bumpy beginning.

Barney Frank was the gravelly-voiced, smart-as-a-whip congressman who was equally loved and feared in Washington. He was the first member of Congress to come out as gay, and that was back in 1987 when America was a lot less open. I admired his sharp one-liners and his ferocious willingness both to fight for what he believed in and to hammer out compromises that produced half a loaf when most people thought there would be no bread at all. Here was a man who knew how to negotiate.

The congressman represented a portion of Massachusetts that sprawled from the leafy Boston suburbs down to the fishing communities and former factory towns along Buzzards Bay. He had been in Congress for more than twenty years and was now the chairman of the powerful House Committee on Financial Services. When Congressman Frank barked, a lot of people jumped.

The congressman and I were first brought together in 2007 by the Tobin Project, a think tank that put together meetings between academic policy wonks and Washington policy makers. (I was the wonk.) Before the crash, Congressman Frank knew the financial system was crumbling, and he was intensely focused on the need to bring the huge financial institutions—hedge funds, investment banks, giant commercial banks—into a regulatory system that made some sense. The issues were devilishly complex, but Congressman Frank could talk as knowledgeably as any seasoned Wall Street trader about credit swaps or collateralized debt. He was shrewd, he was tough, and he knew what he was talking about.

Of course, that didn’t stop me from arguing with him if I thought he was wrong.

At the meeting in 2007, we duked it out (metaphorically, of course) in front of a roomful of other professors and think-tank leaders. We engaged in a wide-ranging exchange about everything from derivatives and capital reserve requirements to my baby idea for a consumer agency. Underneath all our apparent disagreements, I think we agreed on 95 percent of the substance, but we ordered the priorities for financial reform very differently—and neither of us backed down.

Now it was the spring of 2009. The crash had hit with a vengeance, and the economy was still tumbling. The House would be the first to take up financial reform, which meant that as the chairman of the House Financial Services Committee, Congressman Frank would be the key player in the negotiations involving the new financial rules. He was a champion for the good guys, but a lot was broken, and as he began to sort through the nuts and bolts of reform, he had his hands full with thousands of moving parts. Still, I figured that if the consumer agency had a chance of becoming law, it absolutely had to be part of any package that he moved forward. There wouldn’t be any second chances for the agency.