Two smart writers both criticize Rep. Barney Frank over the issue of "vanilla," but from from diametrically opposing points of view. On the Bloomberg wire, Amity Shlaes says Mr. Frank is going too far to make sure consumers are offered "vanilla" mortgages: In "the 1970s, the period when a mortgage was a plain vanilla 30-year fixed contract with a local banker of the very sort Frank longs for," some buyers underconsumed housing, she writes, because "that local bank hadn't offered this buyer the right kind of mortgage at the right rate. Perhaps that market of plain 30- year products from the local bank wasn't efficient enough." At Interfluidity, Steve Randy Waldman criticizes Mr. Frank for characterizing the vanilla option as "anti-market." He writes: "he vanilla option is pro-market, because it is procompetitive. Of course, that is precisely why banks hate it: Vanilla products would turn basic financial services into a commodity business, and force providers to compete on price." He even raises and deals with the libertarian objection:
I'm sympathetic to the principled libertarian objection to having the government require that private parties offer a product they otherwise might not. No one should be forced to offer vanilla financial products. Small-enough-to-fail boutiques should be free to offer only the products they wish. However, if an institution wishes to avail itself of government-provided deposit insurance or to access Fed borrowing facilities, it is perfectly legitimate for the government to set requirements. The government can choose not to offer its safety net to institutions that don't offer vanilla products...
The writers not only seem to disagree on whether Mr. Frank is pushing vanilla, they seem to disagree on whether doing so is desirable. Some enterprising television producer should book Mr. Waldman, Ms. Shlaes, and Mr. Frank, and let them sort it out directly. At least the first half of the disagreement could be resolved, if not the second half.
