Todd Zywicki

Todd J. Zywicki is George Mason University Foundation Professor of Law at George Mason University School of Law and Senior Fellow of the Mercatus Center. He is the co-author of “Consumer Credit and the American Economy” with Thomas A. Durkin, Gregory Elliehausen, and Michael E. Staten (Oxford University Press, 2014).

Who’s Afraid of Consumer Credit? A Discussion with Todd Zywicki

CCredit

The market for consumer credit has been subjected to an ever increasing amount of federal regulation since the 2008 crisis. The Dodd-Frank Act created the Consumer Financial Protection Bureau to intervene in consumer credit markets and protect us from the rapacious lenders who devour household income and place consumers in unmanageable levels of debt through stealth and manipulative business practices. The predictable results have been a marginal increase in the cost of credit and its decreasing availability to lower income consumers as the CFPB’s rules price them out of this market. Todd Zywicki, co-author of Consumer Credit and the American…

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Your Credit History (the Accurate Version)

Wallet with cards

The story is a familiar one: Irresponsible consumers and rapacious borrowers collide in a frenzy of consumption that takes down the American economy and banking system. Only heavy-handed government regulation can rein in the excesses, providing comprehensive regulation of the consumer-credit economy and protecting vulnerable groups of Americans from exploitation by lenders who goad consumers to take on more debt than they can handle to sustain a consumerist lifestyle they can’t afford.

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When Friedrich Hayek Met Bruno Leoni

This year would have been Bruno Leoni’s 101st birthday but for his tragically early death in 1967. Leoni was an Italian lawyer cum academic who was one of Europe’s leading classical liberal thinkers in the post-War era. Friend to the leading classical liberals of the age—counting Hayek, Buchanan, and Alchian as friends—Leoni was not only a pioneer of law and economics thinking but also an early adopter of public choice theory.

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The Connection Between Individual Liberty and Article III Courts

On January 14, the Supreme Court heard oral arguments on an issue that may seem somewhat dry and technical to the average person, whether parties to a bankruptcy case can consent to have a Bankruptcy Judge enter a final order resolving their claims in a bankruptcy case. Contrary to the seemingly narrow and special nature of the issue, however, the outcome of the case could have profound implications for individual rights and the administration of justice in the federal courts.

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The Corporatist Legacy of the Auto Bailouts

Events of the past month have brought to a close the unique experience of the U.S. government’s auto bailouts. In early December the government sold its last remaining stake in General Motors. And at the dawn of the New Year the United Auto Workers health care trust sold its stock in Chrysler to Fiat for $4.35 billion, giving the Italian automaker 100% ownership of the company.

The Treasury Department estimates that in the end it will lose approximately $10 billion on its $49.5 billion investment in General Motors. Despite this extraordinary negative return on taxpayer dollars, President Obama took to the airwaves to tout the deal as a successful “bet [that] paid off,” and that the bailout saved the American auto industry from “collapse” and, implicitly, that the loss of billions of taxpayer dollars was worth it to save the industry.

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Making Financial Regulation AntiFragile

Antifragile

Nassim Nicholas Taleb, best-known for his theory of “the black swan,” is back with a new book, Antifragile: Things that Gain from Disorder. A sprawling, somewhat disorderly book (although it is far from clear that the book gains from its own disorder), Taleb’s latest entry is also a provocative, insightful book that holds the potential to provide a new approach to many social and economic issues, particularly issues of finance and financial regulation. Taleb’s central contribution in this book is to introduce a new analytical concept into our understanding of the world—antifragility—and to explore the way in which becoming aware of…

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The Next Financial Crisis: What Will the Market ‘Expect’?

Financing-Failure

In signing the Dodd-Frank Financial Reform Act President Obama claimed to much applause, “And finally, because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes. (Applause.)  There will be no more tax-funded bailouts -- period. (Applause.)  If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.  And there will be new rules to make clear that no firm is somehow protected because it is ‘too big to fail,’ so we don’t have another AIG.” Yet there is a…

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Policy-Based Evidence-Making at the CFPB II: Response to Adam Levitin

Thank you to my friend Adam Levitin for engaging me on my critique of the CFPB’s recently-issued—but potentially invalid—“Ability to Pay” and “Qualified Mortgage” rules.  One thing I particularly enjoy in engaging with Adam is that I can follow the logic of his argument and the data to which he is relying, which makes such dialogues useful because it makes it possible to clarify the relevant issues rather than obscuring them.  That’s not always the case and I appreciate Adam’s clarity of exposition.

Allow me to summarize my original post.  My goal was to assess the CFPB’s claim that its extraordinary independence from standard oversight and accountability procedures is justified in light of its claim to be an “evidence-based policy-making” body, constrained by the “data” and thus it needn’t be constrained by other typical accountability measures such as a bipartisan agency structure, Presidential removal power, or effective congressional oversight through the appropriations process.

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Policy-Based Evidence-Making at the Consumer Financial Protection Bureau

New mortgage rules released by the CFPB show why heightened oversight is necessary.

The BadgeThe Consumer Financial Protection Bureau is one of the most powerful and least accountable regulatory agencies in American history.  Immune from budgetary oversight by Congress and headed by a single director who cannot be removed by the President, the agency wields unconstrained, vaguely-defined powers to regulate virtually every consumer and small business credit product in America.  The Bureau has defended its extraordinary independence by claiming that its regulations will be “evidence-based” on unbiased, unimpeachable economic evidence, and thus is above the usual political concerns that justify bipartisan commissions and engaged congressional oversight.

The Rules

Last week’s issuance of its new rules on residential mortgages (summarized here), however, shows why the new regulator can’t be trusted to regulate itself. The rules impose new burdens on lenders to ensure borrowers’ “ability to pay” their loans and create a safe harbor for so-called “qualified mortgages” that are perceived as especially safe by regulators, such as fixed rate mortgages and—don’t laugh—loans issued according to Fannie Mae and Freddie Mac’s underwriting criteria. 

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Regulatory Decadence and Dodd-Frank

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Enacted swiftly in the wake of the financial crisis, the 2,319 pages of the Dodd-Frank Financial Reform legislation contain a thicket of rules overhauling the entire American financial system, creating a bevy of new regulatory entities.  But that is only the tip of the iceberg—for even then, this does not include the thousands of rule-makings, studies, and enforcement actions that will be triggered by Dodd-Frank, nor does it consider all of the international implications of the legislation. Those looking for a roadmap that lays out the basic ideas that animate Dodd-Frank and its key provisions should turn to David Skeel’s book,…

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