Plain Vanilla

I normally prefer mint chocolate chip, but if I had to choose one flavor, I'd pick plain vanilla, to which I can always add chocolate, raspberries, chocolate chips, or whatever else my mood desires.

As I read articles by industry insiders, I'm struck by the generally negative attitude toward the Dodd-Frank Wall Street Reform and Consumer Protection Act, as if it would be traitorous not to gripe.

If you think about it, you'll realize the bill is good for most of the commentators.  It basically offers lifetime security to compliance officers and banking lawyers.  They might as well gripe, if that endears them to the corporate teams who hire them.

Two provisions have wide support, even within in the business world.  Title I creates the Financial Stability Oversight Council to keep an eye on players whose activities "threaten the financial stability of the United States," a/k/a "systemic risk."  The Council's task is to identify risks like those created by subprime lending so it can head each risk off at the pass.

The other likable move is Title II, which sets up a liquidation process for firms that pose systemic risk and are on the verge of default.  The Federal government did not have a process like this handy the last time around, other than bankruptcy, which is chosen by a company or its creditors, not the government.  Now, the government can take over the firm and wind down its affairs, not perpetuate it by offering a bailout.  Once a firm enters the process, the only way out is its death.  The bill specifically prohibits the use of taxpayer funds, except for limited loans that can only be made if the firm's assets can and will repay them.  Shareholders and creditors are out of luck until the loans have been repaid.  They will get nothing unless money remains on the table after the firms assets have been liquidated.

These two provisions are easy to support because they don't affect "us."  They only bother the bad guys.

"But what about all the limitations, especially those on mortgages?" asks Virginia.  "Will we consumers be left with few choices, just 'plain vanilla' products?"

"Plain vanilla" seems to have gained currency as the favorite derogatory term to throw at Title XIV (mortgage reform).  Forget, shall we, that the most popular ice cream flavor remains "plain vanilla."  I seriously doubt that consumers are going to miss prepayment penalties, mandatory arbitration clauses or flimsy, virtually nonexistent underwriting standards.  Maybe lenders will, but prior to the 1990s, all of us lived without these features for many years.  Even back then, we had choices -- including adjustable rate and graduated payment mortgages.  Let me hedge the future.  I'm willing to bet that lenders will continue to offer many choices.