By Raj Date

Given the urgency and severity of the financial crisis, it is not surprising that most policymakers have to date been focused on here-and-now tactical initiatives to stabilize the financial system, rather than laying the foundation for a more sound and better regulated system in the future.

There are exceptions; Senator Durbin’s proposal for a Financial Product Safety Commission is one of them. The proposed Commission would establish minimum standards for the safety of financial products, and would focus especially on identifying deceptive and fraudulent practices. The institution’s mandate would be analogous to the Consumer Product Safety Commission. As the proposal’s sponsors argued to the Treasury Secretary in a recent letter, “there is no reason for us to have regulations that prevent toasters from exploding into flames, but no protections to prevent mortgages and credit cards from doing the same.”

Opponents, thus far, have mustered what seems a half-hearted and formulaic argument against the proposal: introducing a new bureaucracy as the ultimate arbiter of product safety would effectively iron out differences in product structures and pricing, and dampen innovation.