FDIC Chairman Sheila C. Bair: Financial Literacy Is Key In Preventing Another Financial Crisis

In a speech to the Operation Hope Financial Forum, FDIC Chairman Bair said that educating consumers about finances is a key ingredient to preventing another financial crisis. You can read her full speech here.

While she does also say that regulation is needed to protect people from bad loans, the bulk of her remarks seem to be aimed at the necessity of financial education.  Certainly, no one will disagree that arming people with financial knowledge is a good thing.  However, education is not enough.

 

The main reason for the financial collapse was the massive deregulation of the financial services industry. This deregulation, combined with historic low interest rates made this business very profitable, and in the absence of rules, the industry did whatever it could to increase profits.

It isn’t really a good or evil thing, it just is. Corporations, whether they are a bank or an auto manufacturer, exist to return profits to their shareholders.  Accordingly, a corporation will do whatever is necessary, to the extent it is allowed by law, to increase those profits.

In the years leading to the financial collapse Wall Street and the banks became fully wedded to each other and in the process, created loan products that were doomed to failure because doing so was both legal and highly profitable.

Ultimately, the only way to prevent another financial disaster such as the one we are currently still struggling through is to re-regulate the entire financial services industry in such a way that making bad loans is neither legal nor profitable.

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