Killing the economy … to save consumers?

Sometimes, proposed solutions to problems come along too little, too late.

Not so with the Obama administration. On the contrary, when it comes to tackling the nation's financial woes, in every context its inclination is to offer too much, too late, massively increasing the federal government's role in our lives, at an unprecedented cost and unprecedented rates of speed.

It's not a case of shutting the stable door after the horse has bolted. It is more like burying the stable under several tons of expensive bio-friendly manure so that nobody can keep horses there anymore.

Why? I presume it is because the surest way to make sure nobody would ever have to suffer the pain of financial default is to ensure that nobody gets to borrow money in the first place. You certainly can't lose what you no longer have.

People sometimes say the military is trained to fight the last war, not the next one. Secretary Tim Geithner's Treasury Department is no different. Stung by the previous administration's failure to prevent the mortgage and financial crises, and this administration's failure to understand how to curtail it, Treasury wants to regulate anything and everything, regardless of whether it was regulated already and regardless of whether it may have contributed to the financial crisis.

If it moves, create a czar for it! Or, as President Obama's chief of staff, Rahm Emanuel, has put it, the financial crisis provides a historic "opportunity" to accomplish things administration officials have been dreaming of over their mochas and lattes during their years in exile, no matter how tenuous the connection might be to the crisis itself.

The past few months have seen a terrible collapse of small business and consumer credit in this country, which has throttled economic activity. Without a market for financial instruments that pool risks, much indirect lending through dealers and manufacturers has simply evaporated.

Without auto loans, nobody could sell cars, and GM and Chrysler crashed into bankruptcy. Congress then made matters worse by enacting credit card legislation that has sharply reduced the availability of credit and increased the cost of using the cards. Three weeks ago, I heard a 30-year investment banker say that in 2008 there was $5 trillion available in the credit market, but because of the new credit card law, there will be only $1 trillion available in 2010.

Now the Obama administration is targeting whatever options borrowers have left by proposing to create a Consumer Finance Protection Agency with broad powers to oversee financial products such as mortgages and credit cards.

The intent may have been harmless enough, but the effect, as with the credit card provisions, can easily be predicted.

The range of products will be reduced, the number of people who have access to much-needed credit will dwindle and Washington will be able to take the credit (irony intended) for saving us from ourselves.

Products that today are well-regulated by accountable and elected state legislatures will be at the mercy of unelected federal bureaucrats whose most important qualification, according to the draft issued by the administration, is that they will have never worked in the industry they are to regulate. Imagine if we were to say that the only people fit to decide the future of health care are people who have never seen a patient but have a fine record in the related field of Republican or Democrat Party politics.

Oops, we've done that, too.

The companies still making loans to consumers are pretty much not those who issued bad loans previously. Those companies all went under or were bought up by big banks with our money. The Consumer Finance Protection Agency would be set up to punish the innocent because the guilty have all rather inconveniently slunk away to die. Even so, few would care too much about punishing any business (however innocent) if it weren't for the fact we might actually need the products they provide at their own risk to those in need of credit.

That, of course, is where this administration and this Congress belatedly have realized the rubber meets the road.

Consumers are tired of having their options dwindle as Congress fiddles. Even fiddling wouldn't be so bad compared with a proposal like this, which would deliberately and intentionally reduce those options -- making a bad situation worse.

J.C. Watts (JCWatts01@jcwatts.com) is chairman of J.C. Watts Companies, a business consulting group. He is former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. He writes twice monthly for the Review-Journal.