Consumer 11.0: A summer of discontent

Maybe it's the weather. Maybe it's the position of the moon and the stars. Whatever the reason, it's tough to recall a summer of such anxiety and discontent.

I don't know whether it was on the car of a tea partyer or, say, a coffee carouser, but I quickly agreed with the bumper sticker that said, "If you're not appalled, you're not paying attention." And I muttered "me, too" when a TV talking head said politics had never gotten him so down.

As a consumer writer and a citizen, I always find plenty of things to gripe about - and if I fall short, readers come through to fill the gap. But as the nation stumbles closer to debt-pocalypse, the cupboard is sadly overflowing. Here are a few near the top of my list:

Playing with fire. The reality-based community, which apparently excludes about 90 U.S. House members and Pennsylvania's junior senator, Pat Toomey, recognizes that approaching Aug. 2 without lifting the U.S. debt ceiling isn't just gambling with our good name. It's flirting with actual disaster.

U.S. Treasury bonds are an essential piece of the global financial system precisely because they're considered as close to risk-free as any security anywhere. To try to force deep spending cuts without a hint of higher taxes, tea party Republicans and GOP leaders who fear breaking Grover Norquist's antitax pledge are playing an insane game of chicken with President Obama and the Democrats.

"A government default would destroy the credit system as we know it," MIT economist Simon Johnson wrote recently. "There is no company in the United States that would be unaffected by a government default - and no bank or other financial institution that could provide a secure haven for savings. There would be a massive run into cash, on an order not seen since the Great Depression, with long lines of people at ATMs and teller windows withdrawing as much as possible."

Oh, yeah, Johnson also predicts that joblessness would climb above 20 percent. And we're doing this why?

Losing focus on jobs. Even if Obama and the GOP pull us back from the brink, we'll be right where we started before this manufactured crisis began: with a sluggish economy, a 9.2 percent jobless rate, and government responses that seem more hope than plan.

Obama and the Republicans like to use household metaphors, arguing that we all need to tighten our belts. But the evidence points more toward what economists call the "paradox of thrift": that what's good for overleveraged households and businesses - cutting back and repairing our balance sheets - is harmful to the overall economy. That's why John Maynard Keynes argued in the 1930s that government has to spend when households can't.

You say we tried that and it failed? Hardly. Mainstream economists say the $787 billion stimulus passed in early 2009, as the economy was hitting bottom, was enough to save us from a repeat of the Great Depression. But it was too small for such a huge crisis and was countered by what Washington Post blogger Ezra Klein calls "the anti-stimulus": an utterly predictable drop of more than $500 billion in state and local revenues that forced deep and ongoing cuts in nonfederal government jobs and spending.

In the long run, we have to get our fiscal house in order. In the short run, we need to make sure the house keeps standing.

Bypassing Elizabeth Warren for the CFPB. Last week, the Consumer Financial Protection Bureau went live after nearly a year of prep work by Elizabeth Warren, the Harvard law professor who proposed it and won Obama's wise support. But the president punted on naming Warren as its director, and aides have signaled that Obama wasn't willing to fight Senate Republicans who have vilified an outspoken champion of the embattled middle class.

Consumer advocates who wanted Warren also praise Richard Cordray, the former Ohio attorney general whom Obama named instead. Perhaps his choice will be vindicated if it frees Warren to be an independent voice for ordinary people, possibly in a run for the Senate.

But it remains to be seen whether punting worked. U.S. Sen. Richard Shelby (R., Ala.) has pronounced Cordray's nomination "dead on arrival" in the Senate, where the GOP has vowed to filibuster any director for the agency unless the Democrats agree to restructure it. Which brings me to . . .

Spinning consumer protection into controversy. I find this one especially tough to swallow after more than a decade of covering consumer news during which deregulation was a bipartisan mantra.

Sometimes deregulation worked well and sometimes it didn't - or worked disastrously, as we discovered after the housing and financial collapse. Only in Ayn Rand fantasyland do markets always function perfectly without oversight or policing.

Shelby insists his aim isn't to weaken the agency but to make it more accountable by replacing its director with a commission and giving bank regulators more power to block its consumer-protection efforts. I'm sure it's coincidental that blocking a director also blocks some of the agency's authority.

More to the point, the CFPB starts out with less independence than any other financial regulator: Any of its rules can be overturned by two-thirds of the new Financial Stability Oversight Council, created by the same law that established the CFPB.

If leading financial regulators say they think the CFPB has gone too far, they'll stop it. Frankly, we should worry more that they'll block valuable initiatives by the agency, just as they were persuaded to overlook the consumer abuses, bad incentives, and mindless risk-taking that led to the financial collapse.

But somehow, that concern doesn't break through in Washington. Maybe it's the heat.