More Data Collection Won't Stop Future Financial Crises

Instead of cracking down on risky lending through measures like qualified mortgage rules, maybe cracking down on the Basel-type capital requirements – whose risk buckets favored holding many of the securitized products that have gone bust – is the way to end the type of structured product crashes and financial crises we have observed over the last 20 years. Simpler, higher capital requirements can do that.

National Security Agency data collection has received considerable attention of late, and some have likened the Consumer Financial Protection Bureau’s data collection efforts – like collecting information on 991 million credit card accounts – to those of the NSA. While its director, Richard Cordray, has denied the comparison, this data collection seems excessive and won’t stop future crises.

Having people in government collect information about your credit records and income seems as valid a cause for concern as having people collect information about your telephone calls. (If that doesn’t trouble you, consider the rise in federal government cybersecurity breaches documented by my colleagues, Andrea Castillo and Eli Dourado.)

Maybe the staff at the Consumer Financial Protection Bureau don’t have to collect so much consumer finance data. My colleague, Thomas Stratmann, a professor of economics at George Mason University, observed that the bureau could conduct thorough analysis with much smaller samples. He found that instead of collecting information on nearly one billion credit card accounts, a sample of about 1 percent of all U.S. credit card accounts would work just as well.

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