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CFPB must not serve two masters

I’m often amazed at how simple lessons from childhood sneak back up in adulthood and cause you to slap your head in long-delayed understanding. I got so tired of hearing my mother tell me to layer my clothing before going outside in the winter. When I moved to the Northeast, the lesson made perfect sense. Other examples: always retain an attorney when you go into business; hire the very best people you can afford; when nature calls, make sure she doesn’t do so near an electric fence; don’t spit into the wind. Having spent a lot of time in Sunday School as a kid, I’m often surprised at how much conventional wisdom I learned while wearing the frock of an Altar Boy. Matthew 6:24 comes to mind.

“No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.”

Now, I always thought that because the author (God or otherwise) tagged that last bit on there, that this was just another warning to sit still in the pew. In the wake of the financial crash, it has taken on more significance for me. We had Wall Street ratings agencies that sold ratings to both securities issuers and to institutional investors interested in buying those securities. That didn’t work out so well, though these companies have emerged pretty well from the resulting mushroom cloud, despite the barbs thrown in their direction by the Financial Crisis Investigation Commission. We also had Wall Street investment banks that performed research and advised clients on the buy-side at the same time they were underwriting and making markets on new issues. That didn’t work out so well. When the industry got into trouble, we had some large Wall Street players who thought they could serve their own best interests at the same time they “cooperated” with the bankruptcy court to wind down Lehman Brothers. According to a recent story from The Wall Street Journal, that probably isn’t going to work out so well either. It turns out that it’s really, really hard to serve two masters, whether one of them is God or not. As the dust continues to clear, you’re going to hear a lot more stories about Wall Street firms and the government agencies that were supposed to be regulating them. None of these stories will be particularly good. Most will contain lessons that may seem as annoying as Sunday School morality tales. We ignore them at our peril. It seems to me that someone should be bearing this bit of wisdom in mind as the government works to set up the new Consumer Financial Protection Bureau. Who exactly will this new agency serve? Those of us working in the U.S. financial services business have been led to believe that the new agency will exist to regulate our industry with a fair and even hand. I wonder about this. My first clue is the name. While the word Financial is certainly in there, so are the words Consumer Protection. What’s going to happen when someone at the new agency figures out that it’s better for Americans to put their money in a Mason jar and bury it in the back yard than it is to invest in “goat poo” securities? Will they focus on the “Financial” master and help the industry do a better job or will they serve consumers and shut it all down? On the surface, this may seem ridiculous (like having to give away everything you own to really follow a prophet), and yet we are talking about bureaucrats here. I thought it was very upfront of the government to put “Bureau” in the name instead of taking a page from the Taxation Bureau’s playbook and sneaking “Service” in there. Still, I doubt they were thinking about us when they put the name on the door of the new agency. It is possible that I don’t give our government enough credit. Maybe the new agency will be staffed with folks who really understand our business and who are dedicated to making it easier to serve Americans with financial products and services they need to live a happier life. Still, the sooner we figure out who the CFPB is really going to be serving, the sooner we’ll be able to figure out what the industry must do next to enjoy any kind of a future at all. Rick Grant is veteran journalist covering mortgage technology and the financial industry. Follow him on Twitter: @NYRickGrant

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