The Office of Financial Research, like many government agencies, was created with a boring name and good intentions. Basically, the agency is supposed to act like a weather forecaster for the financial markets, sensing patterns in the system and getting that information to policymakers in time for them to take action to avert the next crisis. That’s nice in theory, but in reality, once again Washington has created yet another agency that lacks accountability while presenting real costs for consumers and businesses. For that reason, we’ve introduced a bill to repeal the office.
The first, and biggest problem, is the breadth of data that the agency can collect. Financial transactions and spending habits are all fair game, down to the details and terms of individual loans. The agency can force banks to turn this information over for any reason, without going to court. All it takes is the signature of the director on a subpoena. This may be defensible if there was any possibility that this massive invasion of privacy would prevent future financial crises, but there is little evidence that this kind of data collection works at all.
For example, the Federal Reserve and the Federal Deposit Insurance Corporation are just a few of about twenty government agencies which have armies of economists with data gathering powers. All failed to predict the housing crisis of 2008. And since the answer to failed government in Washington is almost always more government, the Office of Financial Research adds another battalion to the army of economists and unelected bureaucrats already running around Washington–who will of course be no better than the others at predicting the future.
In fact, we would argue that eliminating the OFR might even improve risk management in our financial system. We need more diverse perceptions of risk out there and more diverse theories about risk management, not another outpost for Washington groupthink. Professor of Risk Engineering at NYU and author of The Black Swan, Nassim N. Taleb, said it best, when he wrote:
“Had the last crisis been predictable, or the risks been measurable, then central banks with access to all manner of information, and thousands of PhDs on their staff, would have been able to see it. Their models failed in 2007-2008 (as well as in previous crises). The same applies to the thousands of regulators we have worldwide.”
We second his notion.
Finally, one cannot overlook the data security aspect of our OFR repeal bill. The United States government is lagging in this regard and we have yet to see a government agency with limited Congressional oversight like OFR have the ability to collect so much consumer financial data. If one serious breach occurs at OFR, in the same vein as other high profile breaches we’ve seen this past year, consumer’s financial data and transaction history will undoubtedly be sold on the dark web. With this agency, the federal government has once again facilitated the creation of a single point of failure, making consumers more vulnerable, not less.
House Financial Services Republicans have made protection of your financial data a priority, and the language of our bill has already passed the House under the Financial CHOICE Act (H.R. 10). Unfortunately, the language did not make it in the Senate version of Dodd-Frank reform (S. 2155). However, we hope to work with our colleagues on both sides of the aisle and in the Senate to get this important bill signed into law.
Ted Budd is a Member of Congress from North Carolina’s 13th District and Alex Mooney is a Member of Congress from West Virginia’s 2nd District. They both serve on the House Financial Services Committee.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.