South By North Strategies, Ltd.

James Surowiecki of The New Yorker explains the basic regulatory philosophy of Elizabeth Warren.

The core principle of Warren’s work is also a cornerstone of economic theory: well-informed consumers make for vigorous competition and efficient markets. That idea is embodied in the design of the new agency, which focusses on improving the information that consumers get from banks and other financial institutions, so that they can do the kind of comparison shopping that makes the markets for other consumer products work so well. As things stand, many Americans are ill informed about financial products. The typical mortgage or credit-card agreement features page after page of legalese—what bankers call “mice type”—in which the numbers that really matter are obscured by a welter of irrelevant data. There’s plenty of misinformation, too: surveys find that a sizable percentage of mortgage borrowers believe that their lenders are legally obliged to offer them the best possible rate. Since borrowers are often unaware of how much they’re actually paying and why, the market for financial products doesn’t work as well as most markets do. And the consequences of this are not trivial. The housing bubble was a collective frenzy, but it was made much worse by the fact that millions of borrowers were making poorly informed decisions about the debt they were taking on. If people had known more, they might well have borrowed less.