Wall Street and Elizabeth Warren: Truce or Dare
Business + Economy

Wall Street and Elizabeth Warren: Truce or Dare

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“David beat Goliath, but make no mistake: Goliath is not down for the count,” Elizabeth Warren, President Obama’s choice to get the federal government’s newly created Consumer Financial Protection Bureau, declared in a speech last month to the Consumers Union. “Many of those who have opposed the [bureau] are still trying to chip away at its independence…”

On Wednesday, Warren will make her first appearance before Congress.  While well known for sternly lecturing bankers, federal regulators and even senior administration officials, Warren will almost certainly be far more conciliatory in arguing that the financial products market  would function more effectively and fairly with better disclosure and transparency rules. “This ought to be something that liberals and conservatives, Democrats and Republicans can agree upon,” she told The Fiscal Times this week.

Since her appointment last September, which was met with strong criticism from the corporate executives and others, Warren has conducted a massive outreach to the business community. Her published calendars for December and January show about two dozen meetings or calls with top officials of large banks and other major financial firms as well as credit union and community banking groups.

She has crisscrossed the country to meet with small-town bankers, some of whom are receptive to her message, as well as with leaders of big banks, who remain suspicious, the Wall Street Journal reported Tuesday.  A wall map of the U.S. in the new bureau’s offices tracks Warren’s charm offensive with colored push-pins marking every appearance.

Nonetheless, she is likely to face sharp questioning today from some Republicans on the House Financial Institutions Subcommittee, who are suggesting that the real Goliath in this battle is the new entity that Warren is working to have up and running by the designated date of July 21 – a little more than four months from now. The new agency will write rules for banks and firms, including mortgage brokers, payday lenders and credit unions; examine banks and credit unions with assets of more than $10 billion; and oversee certain other nonbank financial firms. The bureau could impose fines or ask courts to order relief. 

At Consumer’s Union, Warren elaborated on her new role: “We believe in comparison shopping. We want the price and the risks to be clearer, so that consumers can see what is being offered and decide the products that are best for them. Our goal is simple: We want the credit market to work better for consumers, for responsible providers, and for the whole economy.”

Some of the Republican complaints likely to be voiced Wednesday center around the size and structure of the new bureau created by last year’s financial regulatory overhaul law, commonly known as Dodd-Frank.

The bureau is projected to employ the equivalent of more than 1,200 full-time employees in 2012, and its budget is provided from Federal Reserve funds without a need for approval by Congress. 

“The Dodd-Frank Act confers virtually unfettered discretion on the director of the bureau to identify financial products and services that the director finds to be ‘unfair, deceptive, or abusive’ and ban them under a highly subjective standard that has no legally defined content,”   House Financial Services Committee Chairman Spencer Bachus, R-Ala., declared in advance of  the hearing. “This broad and undefined authority makes the bureau perhaps the single most powerful agency ever created by an act of Congress.” 

Warren argued that the other agencies responsible for banking oversight – such as the Office of the Comptroller of the --also have single directors and dedicated funding streams. In addition, the Dodd-Frank law created an oversight council that put restraints on the actions of the consumer bureau and that can veto anything it thinks will harm banks’ soundness.

Much of the controversy has centered on Warren herself -- a long-time Harvard Law School professor, bankruptcy expert and former chairman of the Congressional Oversight Panel which held extensive hearings into the government’s handling of the TARP bailout. A darling of consumer and liberal advocacy groups, Warren was named a presidential adviser last fall with responsibility for overseeing the new consumer protection agency after questions were raised about whether she could win Senate confirmation as the first director of the bureau.

“Professor Warren has not been nominated by the president to serve as the bureau’s director, yet she is working as its de facto director and hiring staff,” Bachus said. “As she has gone about her work, it has become even clearer to me that the Dodd-Frank Act put too much power in the hands of one person.” The Dodd-Frank law takes powers now dispersed among a half-dozen federal agencies, and concentrates them in the new bureau as of July.

Warren is working with two titles – special assistant to the President and special adviser to the Treasury secretary. Yet the White House has yet to nominate anyone to become director of the consumer bureau. It’s currently unclear what if any timetable exists for sending a nominee to Capitol Hill. And, unless the Senate confirms a director by July 21, the bureau will not be able to exercise a number of the powers granted under the financial overhaul law.

Warren first proposed the idea of the consumer finance bureau nearly four years ago and was widely seen as the White House’s choice to be nominated as director of the bureau last summer. But then-Senate Banking Committee Chairman Christopher Dodd, D-Conn., warned that it would be difficult to round up the votes to confirm Warren.

Although many business groups that opposed the creation of the consumer bureau appear more muted today, Warren appears no more likely than six months ago to be confirmed if she were to be nominated as director -- particularly with the Senate gaining six Republican votes in January. A spokesman for Shelby, who has not hesitated to use Senate procedures to hold up other Obama nominees, said the senator would “firmly oppose” Warren if she were nominated as director.

Jess Sharp, a U.S. Chamber of Commerce said, “We’d certainly like to see a nomination go up [to Capitol Hill] so we can start this conversation.” The Chamber, which heads up a coalition that includes several groups representing firms in the non-bank category, recently sent Treasury Secretary Timothy Geithner a letter asking for a delay of any regulatory action seeking to define the authority of the bureau -- until a director is confirmed.
Warren has avoided public comment in recent months about whether she wants or expects to be nominated to the director’s post.  “I am hopeful that we will have both a director and transfer [of power] date that are within spitting distance of each other, and, so obviously if that’s the case, it’s not an issue,” she said.

Related Links:
Senator Shelby Takes on Elizabeth Warren (The Wall Street Journal)
Overnight Money: the Warren Report (The Hill)