Elizabeth Warren: Candid, Gutsy, and Making Enemies
Business + Economy

Elizabeth Warren: Candid, Gutsy, and Making Enemies

A possible candidate to run the consumer financial protection agency, but will she get Obama's nod?
Brendan Hoffman/Getty Images

Elizabeth Warren, the leading candidate to head a new consumer financial protection agency, rarely minces her words.

The former Harvard law professor has portrayed banks and brokers as little more than crooks and con artists and berated federal regulators who “played the role of lookout at a bank robbery.” As head of the congressional oversight panel on the federal bailout of the nation’s banks, Warren has publicly lectured Treasury Secretary Timothy Geithner and other senior officials for their handling of the financial crisis, and once declared that she and Geithner don’t “see the world the same way.”

In a 337-page report released in June on American International Group by her five-member Congressional Oversight Panel , Warren charged that the Treasury and Federal Reserve squandered opportunities to get a better deal for taxpayers in the bailout of AIG.

…she terrifies many in the banking
industry, annoys some in the Obama administration
and worries some Senate Democrats who want
to avoid a long battle over her nomination.

With her school-girl hair cut and her habit of saying “golly,” Warren doesn’t seem imposing at first. But a review of her public statements and interviews with supporters and critics alike suggest that Warren is fearlessly blunt, is willing to antagonize people who may hold the keys to her future, and would fiercely advocate for consumers while keeping the financial industry on a short leash.

But those same attributes have made her a lightning rod.  She is beloved by legions of liberal Democrats in Congress, as well as by consumer groups, labor activists and even a few conservatives.  But she terrifies many in the banking industry, annoys some in the Obama administration and worries some Senate Democrats who want to avoid a long battle over her nomination.

“It’s clear that Elizabeth is by far and away the strongest candidate for the position, and the creation of a consumer financial protection bureau was probably one of two or three most important aspects of the new Wall Street reform bill,” said Dan Pedrotty, an AFL-CIO official who helped marshal support for the sweeping financial reform that Obama signed into law last month.

But Warren’s critics say that her aggressive advocacy and stinging rhetoric make her the wrong choice to head a new agency that will have to mediate between conflicting industry and consumer advocacy interests as it writes and enforces a raft of new regulations.

Some critics say she lacks the experience to manage a large agency or bureaucracy, and that she has antagonized members of Congress and Treasury officials with her inquiries into the federal bank bailout program. They also contend that her crusading on behalf of consumers could inadvertently make loans harder to get and more expensive for ordinary Americans and small businesses.

“Warren adheres to behavioral economics theory where basically consumers are [considered] misinformed, irrational and can’t really make decisions in a clear-eyed way, so the only way to really protect the consumers is to make sure the government is in there rationing credit cards that are available to them,” said an industry group expert who declined to be identified in discussing her group’s views on Warren.

Warren was unavailable for comment, and her aides decline to comment on her prospects to head the new agency. But supporters note that many Democratic and Republican cabinet members were appointed without previous administrative experience. And they say her extraordinary communications skills – she has been on shows ranging from The Daily Show with Jon Stewart to Fox News – will be indispensable in raising the profile of the Cconsumer Financial Protection Bureau.

Indeed, some industry groups appear almost intimidated by her.  The U.S. Chamber of Commerce, which ran a slew of TV ads opposing the new agency’s creation, is refusing to comment on Warren at least until President Obama announces his choice for a director. The Financial Services Roundtable and the American Bankers Association are staying quiet as well.

“For the financial services industry generally,
I think the only thing scarier than Elizabeth Warren
heading up the consumer agency is an angry Elizabeth
Warren heading the consumer agency.”

“Our perspective is that at this point, we don’t think the bureau was the best mechanism to handle consumer protection, but at the same time this bureau is literally going to shape the market for credit and consumer protection regulation for decades, so we are really focused on making sure they get this agency off the ground in a way that will both protect consumers and make sure that credit is accessible for small businesses,” Ryan McKee, senior director of the Chamber’s Center for Capital Markets, told The Fiscal Times.

One industry executive said it is usually a bad idea to publicly attack nominees for regulatory posts, and a campaign against Warren would be particularly risky because it could easily enhance her image as a crusader.  But some executives are so worried about her that they are mulling the costs and benefits of a fight.

“I think they [the industry groups] will NOT fight vehemently over her – she scares the dickens out of them,” said Tony Fratto, a former spokesman for President Bush who now runs a political consulting firm and represents a number of financial industry clients. “For the financial services industry generally, I think the only thing scarier than Elizabeth Warren heading up the consumer agency is an angry Elizabeth Warren heading the consumer agency.”

There are others in the running for the new consumer agency. Michael S. Barr, an assistant Treasury secretary, and Eugene Kimmelman, a deputy assistant attorney general in the Justice Department’s Antitrust Division, have been mentioned in public speculation as well.

Both those contenders could easily be as aggressive as Warren.  Barr, a professor at the University of Michigan, has written extensively about exactly the kind of “behavioral economics’’ that industry executives say would be too intrusive. He also was an architect of the financial reform bill, including the provisions creating the consumer agency. Kimmelman spent years as a top lobbyist at the Consumer Federation of America, though he has limited background in financial products.  But neither of the two would probably match Warren’s knack for attracting attention and broadcasting a message over television.

At 61, Warren has been a consumer crusader of sorts for years. As a professor at Harvard Law, she was a prolific author of books and articles on how middle-class families were getting squeezed. And unlike many academics, Warren also wrote for a mass audience.  Her 2003 book, The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke,  bolted her to nationwide fame.

Two years ago, Warren co-authored the first proposal for a consumer financial protection agency similar to the one now being created.    In her trademark style, Warren based her argument with a simple proposition breathtaking in its simplicity: If toasters were regulated to protect consumers, she argued, why shouldn’t mortgages and other financial products be regulated as well?

The new independent consumer financial protection bureau will be housed within theFederal Reserve and will be responsible for protecting borrowers from abuses in mortgages, credit cards and other such loans. The agency has been granted wide authority to write and enforce new rules.  It will have an almost guaranteed source of funding – a slice of the Federal Reserve’s annual total operating expenses – but the director will not have to answer to the Fed chairman.

Many of the liberal and progressive groups promoting Warren’s candidacy view the choice of the director of the new bureau as a litmus test of the Obama administration’s commitment to consumer advocacy and progressive values.  Many  of those groups were disappointed in the final version of the health care reform legislation, which didn’t include a publicly- run health insurance option, and are demanding a tough advocate like Warren at the head of the new agency.

“She has tremendous experience and knowledge on these issues, a history for standing up for consumers and for understanding the big and the medium and the small picture about how much their dealings in the financial world matter,” said Lisa Donner deputy director of Americans for Financial Reform, a coalition of more than 250 consumer, labor and civil rights groups that provided a key role in lobbying for the financial reform bill. 

Sen. Tom Harkin, a liberal Democrat from Iowa, and Rep. Carolyn Maloney, D-N.Y., have circulated letters in support of Warren, as have civil rights organizations. The two Republican appointees to the Congressional Oversight Panel, Kenneth Troske and J. Mark McWatters, said they found their dealings with Warren “to be collegial and professional.”

Geithner has publicly praised Warren as “exceptionally well qualified to lead the new bureau,” seeming to try to tamp down media speculation that the Treasury was strongly opposed to Warren for the post. But Senate Banking Committee Chairman Christopher Dodd, D-Conn., has repeatedly warned that “there’s a serious question” about whether Warren is confirmable in the Senate.

There is little doubt that Warren would be a lightning rod for criticism from conservative Republicans and corporations if Obama nominates her this summer or early fall. Winning Senate confirmation would be a real challenge, and could drag on for months –  unless Obama made a recess appointment. And there is little doubt that Warren has made enemies over the past two years as chairman of the Congressional Oversight Panel that monitors the Treasury’s $700 billion bailout program.

A month later, the panel warned that the
government was not likely to get
back all the money it spent to prop
up General Motors and Chrysler.

At a now infamous hearing in June Warren berated Geithner over the Treasury’s signature program to help homeowners avoid foreclosure.  Far from helping between 3 million and 4 million homeowners, as President Obama had originally promised, the program had produced only 340,000 permanent loan modifications by April 2010 and many of those people were already behind on their payments.

“What is your metric for success?” Warren asked Geithner again and again.  Geithner, looking hapless, said the goal was to “reach as large a fraction of the eligible homeowners as we could.’’    Warren persisted, looking more and more exasperated.  “Are you telling me that preventing one foreclosure would have been enough for our $50 billion? NO?  So what’s an appropriate metric?”

In a stream of reports, often hundreds of pages long, Warren’s panel has chastised the Treasury and sometimes the Federal Reserve on scores of issues tied to the bailout.  In February 2009, after recruiting outside experts to analyze the Treasury’s 10 biggest capital injections for banks, the Congressional Oversight Panel charged that Treasury officials had gotten only $66 worth of equity for every $100 it spent. Last August, the panel complained that banks were still holding huge volumes of toxic assets and warned that they could blow up if the economy sank into more trouble.

A month later, the panel warned that the government was not likely to get back all the money it spent to prop up General Motors and Chrysler.   It also warned that the government faced potentially big conflicts of interest and complained that the Treasury had offered “little clarity’’ about its goals.

In March 2010, the panel blasted the Treasury’s decision to pump $17.5 billion into GMAC, the former financing arm of General Motors. The panel said Geithner’s team had never made a convincing case for why GMAC shouldn’t have been put into bankruptcy.   It also criticized the administration for neither sacking GMAC’s management nor demanding that it come up with a credible turn-around plan. “Treasury missed opportunities to increase accountability and better protect taxpayers’ money,’’ the panel complained. 

But perhaps the Warren panel’s most blistering criticism came in its report on the bailout of AIG.   Released in June, the sprawling report delved into AIG’s meltdown and the willingness of Treasury and Fed officials to pay off AIG’s biggest creditors with 100 cents on the dollar. In the end, the report concludes, Treasury and Fed officials simply couldn’t make a convincing case for why the bailout had been necessary in the first place.    “The government argues that AIG’s failure would have resulted in chaos, so that a wholesale rescue was the only viable choice. The Panel rejects this all-or-nothing reasoning.”

Warren’s unvarnished criticisms have almost certainly rankled Geithner and other top officials, who often worked around the clock during the crisis and believe their rescues averted a complete financial collapse. But Warren, always polite, never seems unnerved by potentially wrenching disagreements like that.

“I just don’t think we see the world the same way,” she told PBS’s Charlie Rose last March,  after he asked about her relations with Geithner and Lawrence H. Summers, director of the White House National Economic Council. 

“I think that Summers and Geithner are smart. I think they’re honorable. I think they approach the economy and the world through the largest institutions. And they see the world from a top-down perspective. I spent 25 years somewhere else.”