The world has been abuzz with news of the high and mighty taking defiant, tone-deaf stances to their own detriment, as well as that of the public. The scandal engulfing the Murdoch media empire may be the sexier story, but the woeful tale of the banking industry and Republicans joining forces to thwart new consumer protection efforts will do more to anger the man on the street in the long run.
To say banks and Republicans in Congress have not done themselves any favors with their handling of the new Consumer Financial Protection Bureau is an understatement.
They attempted to thwart the White House's plans for the new watchdog agency at every turn. And at press time, it looked like they will have achieved at least a partial success: the new group's powers will apparently be pared back before it even opens its doors. In fact, the bureau began operations last month without a confirmed director. Given the political scuffle over Elizabeth Warren, its creator, it's not a sure thing Congress will approve President Obama's second, more politically viable candidate, Richard Cordray. (See the Outlook article)
I've talked to a number of bankers in recent months, mostly at small- to medium-sized institutions, and the reaction to the new agency is almost universal: They can't stand it. They hate the idea of more regulation and higher compliance costs. To an extent, their irritation is understandable. All businessmen want to keep costs low. But the lack of institutional memory is downright shocking. And the "Who, me?" mindset is spectacularly tone-deaf. After all, the malfeasance that drove the world economy into recession occurred less than three years ago. Have they already forgotten? Here's a reminder. In the dark days when the taxpayers had to bail out institutions supposedly "too big to fail," the phrase "populist outrage" was ubiquitous. It may yet make a return.
With time, that mood has abated somewhat. But it has not died. Bankers are deluding themselves if they think they've won back the hearts of their retail customers. But they don't recognize the war against an enemy far greater than a new agency, or President Obama or even higher compliance costs. As the classic cartoon Pogo could have told them, the enemy is them.
This is a textbook care of irrationality, as defined by behavioral finance gurus. Banks refuse to recognize that they have lost the trust of customers, and that they have been grossly over-confident in their ability to police themselves effectively. Worst of all, they have self-destrutively fought the government's efforts to help restore the public's trust.
Rather than blocking attempts to help squeezed consumers, the industry should be concentrating on the big picture. The fragile trust of their customers is gone, and unlike the economy, it is not on the road to recovery — even in the slow lane. The consumer protection agency had momentum behind it for a reason.