If you don’t have anything nice to say, then keep quiet. That’s why I have not been commenting on the Dodd-Frank bill. I like what Tyler Cowen wrote, particularly his sentence about the credit rating agencies.


I think that the biggest banks and other large incumbent financial firms will ultimately be the largest beneficiaries, as they will figure out how to game the system and manipulate the regulations to impede upstarts. I will gladly make a bet that our financial system will be more concentrated 5 years from now (or 10 years from now) than it is today, as measured by the share of assets and/or profits of the ten largest financial institutions.

Overall, my biggest gripe is with people who say that the consumer financial protection agency would have prevented the crisis. Obviously, such people are unlikely to read this blog, so I am spitting into the wind, but here goes:

Suppose that we had this agency back in 2005, with house prices rising and lots of people happily buying homes with little money down and occasionally adverse terms (teaser-rate ARMs with prepayment penalties or whatever). My guess is that the agency would have objected to no more than 5 percent of mortgages.

Suppose that the agency had gotten every mortgage to have interest rates and other terms that were within reasonable bounds. Presumably, these loans still would have been made with low down payments on houses where prices were too high. My guess is that relative to what actually happened, the total number of defaults prevented nationwide by the agency’s actions would have been fewer than one hundred. That is because I think most of those defaults occurred because of what happened to house prices, not because of adverse mortgage terms. Look at how poorly “loan modification” has done at stemming foreclosures. And that includes loan mods that went way beyond simply changing the most outrageous terms on the most outrageous mortgages.

Do you think that the agency would have had the willingness and political clout to tell low-income and minority home buyers that they could not afford the houses that lenders were willing to lend them money to buy? Of course, we have no way of knowing. My bet is that the agency would not have taken on this skunk-at-the-garden-party role.

But, again, I’m wasting my breath.