It is increasingly evident that the appointment of Elizabeth Warren to act as special advisor to the President and Treasury for the newly-established Consumer Financial Protection Agency has everything to do with Obama trying to shore up his questionable credentials as a reformer and perilous little with helping ordinary citizens. So the only question that remains is whether her appointment in a peculiar interim role will nevertheless result in a more forceful, effective consumer watchdog.
It’s important to put this move in context. As much as this agency has received a lot of coverage, since Warren has been an effective advocate of aggrieved consumers, this is only a teeny part of financial reform. Even if I am proven wrong, an aggressive consumer agency would have only a limited impact on bank behavior and risks. And it is destined not be be very effective due to how it was set up. Recall it was originally envisaged as an independent body. The banks howled, arguing that they could be subject to conflicting directives (the only likely conflict would in fact be between better treatment of retail customers and their bottom lines).
Rather than put some modest checks into the law (like requiring that the agency coordinate on certain issues), the consumer watchdog was shunted into the most bank-friendly regulatory body, the Fed (it’s operating on an interim basis at the Treasury, and will be moved into the Fed next July). Consumer advocates pointed out that the idea had no precedent:
“We have all sorts of individual agencies that protect Americans, and none of them is subservient to the regulator that is in charge of looking out for the industry,” said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. “This agency has to be independent so that it can fix the problems the banking regulators failed to fix.”
“I was incredulous,” the Massachusetts Democrat said. “After all the Fed bashing we’ve heard? The Fed’s such a weak engine, so let’s give them consumer protection? It’s almost a bad joke. I was very disappointed.”
So the handwriting has long been on the wall.
With the Warren appointment itself, things have similarly gone from not great to clearly problematic. As we indicated when her appointment was first announced, her role as a de facto head but not in line for confirmation gave her an ambiguous status. She would be a lame duck as soon as any permanent director candidate was nominated. The fact that she was named an advisor to the President was not very encouraging. Even if she gets a decent amount of face time with him, there is no way she can trump Rahm and Geithner, both of whom have established, strong working relationships with him and by virtue of each having large roles (Geithner has made himself a central actor in all economic policy) will inevitably have much more access. And most important, she is not on board with the real agenda of Team Obama. As we noted:
But on a much more basic level, the Warren marginalization isn’t about personalities, although the powers that be love to pigeonhole thorns in their side that way. The clashes reflect fundamental differences in philosophy. Geithner, the Administration that stands behind him, and Dodd all are staunch defenders of our rapacious financial services industry, even though they make occasional moves to disguise that fact. Warren, by contrast, is clearly a skeptic, and a dangerous one to boot, because she understands the abuses well and is able to communicate effectively with the public.
Expect Warren to be pushed further to the sidelines, just as Paul Volcker has been (oh, and pulled out of mothballs when the Administration desperately needed to create the appearance it really might be tough on banks).
In other words, the die is already cast. The Obama Administration, again and again, has taken the side of the financial services industry, with the occasional sops to unhappy taxpayers and some infrequent scolding of the industry to improve the optics.
Friday brought the bizarre combination of a full bore PR push in conjunction with more evidence that Warren’s role was certain to be limited. It isn’t clear whether there was a change in plan or merely a later release of full details, but it emerged Friday that Warren had never planned to take a five year term as head of the agency (!). So the ambiguous nature of her role wasn’t simply, as reported earlier in the week, to avoid a confirmation battle the Administration might lose, but also because she did not want to serve a full term. Accordingly, the Administration announced, Warren would help select the person who would be nominated permanent head of the agency.
Now I have to tell you, this is mighty peculiar. It is now official that Warren is at best a placeholder; she cannot have much impact. She can’t make much in the way of policy or personnel choices; that would encroach on the authority of an incoming director. And even her ability to influence the choice of a nominee is questionable. Her taking the advisory role now assures that the nomination of the permanent director will come after the midterm Congressional elections. Given the virtual certainty of Democratic losses, the odds are high that Team Obama will settle on a “conservative” meaning “won’t ruffle the banking industry” choice, and argue its hands were tied.
So the Obama camp has played this extremely well. They get to avail themselves of the Warren brand, give her a Potemkin role, and use it to push the timetable for nomination of the permanent director out, which give them cover for installing a more compliant choice.
Now contrast this reality with the theater on Friday to broadcast the party line that the Warren appointment is a giant leap forward for consumers. It wasn’t just the full court press by the Administration to get the message out (including a blogger conference call with Warren that I learned of too late) but also aggressive moves with organizations that could carry the message. And “aggressive” is no overstatement; I was given a long form, first hand account of an high handed effort by people aligned with Warren to say a particular group saw her appointment as a big pro consumer step when that group had no intent of making that statement.
The politically connected people I spoke to read this situation the same way I do (and further commented that their views are widely shared). Amusingly, Ron Paul is also providing cover by harrumphing about Warren being an “enormously powerful regulator” (really?). But the noise he and other bank industry boosters make illustrate a key point: her role as advisor is not a position of strength, her perch is not secure. And note further: the consumer protection agency cannot draft legislation or regulate until it is transferred to the Fed in July of next year.
Now admittedly, Warren made a success of a not very promising role as the head of the Congressional Oversight Panel, so perhaps she can somehow defeat the long odds. But I think it is more likely that she was so keen to act as midwife to the consumer protection agency that she allowed herself to be talked into taking a hollow mandate. And with the benefit of hindsight, her skills as an interrogator and communicator were put to good advantage in COP hearings. The periodic release of COP reports and the intense media focus on financial regulation while the Dodd-Frank bill was being hashed out also gave her a very high profile in the media, which further helped her push her agenda.
It isn’t clear her skills are as well suited to this role. How good a political infighter is Warren? How successful can she be in winning over some of her critics? Can she and her team come up with enough news hooks to keep her profile with the media high? Can she move the buildout of the agency forward without unduly boxing in her successor (too many stakes in the ground by Warren will make the job less appealing and will impede the permanent director search)?
Needless to say, it would be better if I were proven wrong, but it looks like Warren has made a Faustian bargain. I can only hope if that is the case that she moves quickly to cut her losses.