Improving consumer protection is a less vital factor in the reform package. It focuses on ancillary issues such as predatory lending and credit card interest. Improving protections may help to reduce the incidence of consumer bankruptcy, but has two negative consequences. The first is that the illusion of protection can encourage increased risk-taking behavior among consumers. The second is that increasing consumer protection fails to address the underlying issue, which is the atrocious level of financial literacy among the general population. These reforms, therefore, may not be effective.

The fourth set of reforms addresses the ability of government to respond to the crisis. The Federal Reserve's involvement in stabilizing the financial industry may have been needed at the time, but is inappropriate in the context of the Fed's tradition role. Furthermore, the FDIC has been forced into desperate action as its reserves have run low in the face of 100+...
[ View Full Essay]