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Ralph Nader > In the Public Interest > ‘Financial Modernization’ is a Consumer Rip-Off

The financial services industry spent millions on public relations, opinion polls and advertising to promote legislation in the current Congress which would allow the merger of banks, securities firms and insurance companies under common ownership in financial conglomerates. All this in addition to the more than $30 million in campaign contributions that can be traced to the various industry Political Action Committees plus soft money donations to the Republican and Democratic parties.

The slogans used in the campaign were varied, but no word was used more often than “modernization.” It appeared frequently in Congressional testimony and in the lobbying handouts that landed on the desks of Members of Congress and the news media.

But, it’s hard to find “modernization” in a piece of legislation which hands vast new powers to financial institutions without strengthening (or modernizing) the regulatory machinery needed to protect the public interest—and, incidentally, the deposit insurance funds which are backed by the taxpayers.

That’s hardly modernization. We’ve tried that before—in the savings and loan debacle. Cost of that bit of deregulation (or modernization in the words of the financial services flacks) was about $500 billion including interest and a lot of disruption in financial services in communities.

It is equally difficult to spot the “modernization” in legislation which rolls back the Community Reinvestment Act (CRA) which has brought badly needed credit to underserved areas and housing, small business and other development without using a dime of taxpayer funds. Where’s the “modernization” in adopting legislation which ends up creating more urban problems and ultimately forcing communities to turn to tax sources to fund development efforts that could have been financed by CRA lending if the so-called modernization legislation wasn’t enacted.

Where’s the “modernization” in a bill that promotes the interests of the telemarketers? We’ve been hearing those salesmen on the telephones for quite few years, and there aren’t many citizens who look at these intrusions as anything close to the definition of “modernization.” Yet the proponents of “modernization” legislation worked to keep the privacy invaders in business and up to date on your personal life. The affiliates of the conglomerates created under the legislation will now be free to share with other corporate affiliates every intimate detail of your life—buying habits, investing patterns, health records, entertainment choices, employment data, just about any detail of an individual’s existence.

If that’s modernization, there may be a whole lot of people who want less of it.

Ripoffs of consumers’ rights and property seems like a practice that has been around for an awfully long time. But, the proponents of the deregulation bill apparently see this as all part of “financial modernization.”

That is apparently why the Members of Congress were so anxious to include a provision called “redomestication.” That sounds something more akin to taming a wild animal than to a financial issue. But what it means is that mutual insurance companies—which are owned by their policyholders—will be allowed to sign a piece of paper declaring that their headquarters are now in another state. And, of course, that other state will just happen to have some lax laws that will allow the management of the mutual insurance company to convert to a stock company—and in the process take the equity that the policy holders had in the company.

To a great many people this might sound a lot like old-fashioned highway robbery. But, the proponents of the legislation tell us that is just part of that wonderful idea of “financial modernization.” The mutual policy holders may want their rights and their equity a little more than they do the “modernization” that the Congress is forcing on them.

“Modernization” is also intended to encompass something that the advertising writers have labeled as “one-stop shopping centers.” The idea is that the customer once inside the premises of the bank (and perhaps just seeking to cash a check) can be lured and, maybe coerced, into buying some annuities, a little more life insurance, and perhaps convinced to take a flyer on some “sure thing” stock in an international conglomerate. Before Congress decided that this was part of “modernization,” there were a number of consumers and not a small group of economists who believed that consumers got the best deal and the best price when they shopped around for products among a variety of financial services providers.

But, the Congressional sponsors of the financial services legislation have their own definitions. To Congress one-stop shopping centers are “modernization.” Never mind if that means fewer choices and higher prices.

Financial Modernization, crafted by the corporate lobbyists and sold by their public relations flacks, is the new world that Congress and the Clinton Administration is delivering to the American people. Can consumers survive this heavy dose of “modernization?