A rather distressing bit of news from Bloomberg as the Senate votes for cloture on financial reform this morning at 11:
Almost four out of five Americans surveyed in a Bloomberg National Poll this month say they have just a little or no confidence that the measure being championed by congressional Democrats will prevent or significantly soften a future crisis. More than three-quarters say they don't have much or any confidence the proposal will make their savings and financial assets more secure.
While opponents of the bill from either side of the aisle will likely interpret these poll numbers as an affirmation of their views, I don't think that's right. Call me elitist if you want, but I have a hard time believing that most of the people surveyed understand the issues in this bill. Or perhaps they understand too well: One person quoted works at a check-cashing shop -- a payday lender -- and should rightly fear what this legislation will do.
The driving forces behind the lack of confidence in this measure come from the complexity of these issues, wild misinformation spread from every corner about what's in the bill, a feeling that bankers deserve and haven't received enough punishment, and a general distrust of government institutions in the wake of the crisis -- not the measure's substance. As an example, the poll also revealed 60 percent of people think the TARP bailouts were unnecessary; however, those bailouts, while unwieldy, badly executed, and not egalitarian, were necessary to protect the economy.
Take this e-mail to Andrew Sullivan complaining about the financial-reform bill as a second example: "We had plenty of regulations and regulators on the job already, and they couldn't get past Barney Frank and his gang." Except that the majority of independent mortgage brokers who drove the subprime bubble were not regulated at all and that neither Frank, Fannie Mae and Freddie Mac, nor the CRA caused this crisis. If people don't understand what caused the crisis, they won't understand the response.
The public is justified in its skepticism. Regulators failed in the last crisis, and shouldn't expect much trust from Americans until they demonstrate they can provide stability in the financial sector over time. My hope, though, is that politicians and regulators don't mistake that mistrust for actual opposition to what the bill will do, since failing to follow through -- either on today's Senate votes or on effective rule-making -- will exacerbate the chances of a future crisis. Making the bill work, though, will certainly "soften" and likely prevent future crises.
-- Tim Fernholz
