Alan Greenspan, former chairman of the Federal Reserve, has been vilified for all but singlehandedly causing the country's current economic problems.
Media coverage on the tech bubble, housing bubble, risk of unregulated credit default swaps (CDS) and relaxed mortgage standards cite Greenspan's policies as primary contributors. The fact that the U.S. government has had to step in to fix the credit card industry is further evidence of another Greenspan failure.
The Federal Reserve was in a position to regulate the excesses of the credit card industry for years. However, it wasn't until December, after disaster had struck American households, that the Fed came up with a new set of rules, which will take effect in July 2010. Those regulations were too little, too late, as Congress and the president had already set their eyes on the need for comprehensive credit card reform.
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For 15 years, credit card regulators have had the power to prohibit the excesses of the credit card industry, dominated by
American Express, Bank of America, Capital One and JPMorgan Chase. At any time, they could have put rules in place that would have prevented arbitrary interest hikes or the creation of additional fees without rhyme or reason. Now, laws will force credit card companies to change their practices, but the government wouldn't have had to take this kind of action if regulators had been doing their job. Congress was forced to pass laws to regulate the credit card industry because our regulators failed to do so.
Relying on legislators to step in for regulators is bad for a number of reasons. First, by the time legislation is called for, it's already too late to avert disaster; we are already suffering the effects of lax regulation. The best we can hope for now is damage control. Unfortunately, this means consumers and the credit card industry will be forced to learn and deal with changed rules in the middle of a crisis.
