Consumer Financial Protection Bureau

Business and Government Relations

The financial crisis of 2007 -2008 was not a typical financial disruption, but rather one of the most cataclysmic economic episodes the United States has faced in generations. One has to go back to the Great Depression and the Great Crash of 1929 to find a reasonable analogy. Currently, twenty six million Americans are unemployed, cannot find full time work, or have given up looking altogether. Approximately four million families experienced foreclosure on their homes and another four and a half million are facing foreclosure, or are delinquent on their mortgage payments. Nearly eleven trillion dollars in household wealth disappeared overnight, including IRAs, pensions, and other retirement savings accounts (life savings), that were basically destroyed. Both large and small businesses almost immediately felt the effects of reduced demand brought about by the “Great Recession”, the greatest recession in about eighty years. These developments triggered enormous anger amongst the public at large, many of whom believed they were honest and played by the rules, only to find themselves unemployed and seriously uncertain of what the future holds, because the impacts of this crisis will be felt literally for generations These developments create a serious moral dilemma, because the Financial Crisis Inquiry commission concluded that the crisis was avoidable, primarily due to lack of oversight, regulation, and ethics (my underline) (FCIC, 2010): The bare bones summary of their findings was:

“Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; And systemic breaches in accountability and ethics at all levels (FCIC, 2010).”

Arguably, the crisis begins and ends with consumer finance, particularly, home mortgages. The incredibly complex derivatives and credit default swaps that brought everything down could not have existed without willing home buyers. Although consumers did play an important part through “excessive borrowing and risk by households”, business and government played an equally enormous role by allowing outrageously risky, “toxic”, mortgage backed securities to flood the market, creating a house of cards that hurt everybody. President Obama’s antidote to the entire collapse came in the form of the Dodd Frank financial reform bill, now law, which contained roughly ninety percent of what the administration asked for. One aspect of the law focused on providing