President Obama Mentions the "Toaster" Analogy on Leno
President Obama mentions the “Toaster Analogy” (with about 14 minutes remaining) in this interview with NBC’s Jay Leno. At AFFIL we’ve been using this analogy for a long time to point out the differences between how tangible products and financial products are conceived and regulated. I blogged about the analogy previously here, and here’s an explanation in Professor Elizabeth Warren’s words:
It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street – and the mortgage won’t even carry a disclosure of that fact to the homeowner.
(This quote is from a May 2007 article in Democracy: A Journal of Ideas.)
President Obama’s use of the analogy on Leno is slightly different. He points out that a consumer who buys an exploding toaster can be compensated for the trouble caused by the item, whereas people who buy explosive credit cards or mortgages have no legal recourse even when the products ruin their financial lives. This is because, of course, abusive credit cards and mortgages are perfectly legal – for the moment.