naked capitalism

The spectacle of a bunch of Republican Congressmen spending over two hours pillorying Elizabeth Warren, following weeks of death of a thousand unkind and generally offbase cuts coverage in the Wall Street Journal has led a lot of folks from what passes for the left, and even not so left, to ride in to her defense. A partial list includes Paul Krugman, Simon Johnson, Joe Nocera, Mike Konczal, and Adam Levitin.

The last time I can recall the Journal becoming quite so unhinged about an individual was over Eliot Spitzer. And since Warren seems pretty unlikely to be found to have similar personal failings, the specter of the right throwing what look to be ineffective punches at her makes for a peculiar spectacle. What is the real aim behind this drama?

The reactions to Warren, both on the right and left, are becoming divorced from reality. She has assumed iconic status as a lone mediagenic figure in the officialdom who reliably speaks out for the average person, a Joan of Arc for the little guy. And she drives the right crazy because she is rock solid competent and plays their game better than they do. She sticks to simple, compelling soundbites and images without the benefit of Roger Ailes and Madison Avenue packaging, and she speaks to an even broader constituency, Americans done wrong by the banks, than they target. No wonder they want to burn her at the stake.

But the shadow she is casting is much larger than her current and prospective power. And as we have indicated, the policy she has allowed to become associated with her name, namely, the mortgage fraud settlement, does not serve her or the public at large well.

I want to stress that Warren did a great job at the Congressional Oversight Panel, by taking a post that was likely to amount to a hill of beans and using it to serve as a watchdog of the public’s interest. And I have no doubt that everything she has done since then has been to try to advance causes she very much believes in. But as the old saying goes, “The road to hell is paved with good intentions.”

Let’s look at the three major sets of actors in this drama, the Republicans, the Administration, and the Warren defenders. The Republicans are the easiest to address. They have adopted a very effective posture, which in bargaining terms is to be non negotiable. No matter what the other side wants, no matter how minor or reasonable, the tactic is to not merely to say no, but to do so while screaming bloody murder and throwing all toys out of the playpen.

But why the pathological fixation on Warren? It’s a bit hard to fathom, but some guesses. First, the right loves to personalize its attacks, no doubt to discourage anyone from daring to cross them. Second, they may genuinely believe Warren is a candidate to run the Consumer Financial Protection Bureau and are therefore out to make her so controversial as to assure that this won’t happen.

But this seems like overkill, since any objective reading says that her odds of getting the nod are zip. The Democratic party was firmly in the hands of the bankers, even more in the wake of the Supreme Court Citizens United decision, which has upped the expected cost of the Presidential election to $1 billion. Obama does not have the nerve to try appointing her on a recess to avoid a confirmation fight; he’d still face the wrath of donors (and even under the best of circumstance, he’s been shown to be sorely wanting in intestinal fortitude). Moreover, Geithner has been firmly in the driver’s seat as far as bank policy is concerned and he has been a loyal defender of the industry’s interests. Nothing has changed the basic equation we set forth last September:

The body language of the Administration has been clear from the outset on the question of whether Elizabeth Warren would get its nomination to head of the new financial services consumer protection agency. Despite the occasional public remark regarding her undeniable competence, which really amounted to damning her with faint praise, Team Obama has never been on board with the idea. Michael Barr, assistant treasury secretary, was noised up early on as a possible candidate, but the PR push halted abruptly when her many supporters pointed out the obvious, that she was clearly the better choice. Then we had the no doubt authorized Chris Dodd kiss of death, that he thought she was qualified but doubted she could be confirmed by the Senate.

The reality is that the Administration was never going to appoint her; the only question is whether she can be kept in their orbit and not be a net negative as far as their dubious priorities are concerned. Timothy Geithner has become a central actor on all Adminstration economic policy matters, giving him more reach, and thus more face time with the White House than is normal for a Treasury secretary. Given how Warren has successfully, and correctly, roughed Geithner up before Congress in her role as head of the Congressional Oversight Panel for various TARP administrative shortcomings, he was guaranteed to be at best a non-supporter.

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)

And this is precisely what has come to pass. Have we heard zip from Warren, save when she’s been trotted out to serve as a punching bag for dyspeptic Congresscritters? She’s been effectively leashed and collared by being made an advisor and Treasury employee. In theory, taking that post still could have advanced her aims if she was prepared to be bloody minded about it. Her real power lies in her access to media; she’d have more even in an ambiguous role in the Administration than back as a Harvard law professor. And if she was deemed to be too out of line, what could they do? Fire her? That would further enhance her stature and embarrass the Administration.

But it appears the powers that be judged her character correctly, in that Warren is apparently unwilling to take on a powerful bureaucracy. it instead appears she’s acceded to what appears to be a minor-sounding but effective Team Obama threat, that if you are not a “team player”, you get excluded from meetings and decisions. But the part she evidently misses is she’d be able to do more to influence those decisions as a semi or actual outsider using a bully pulpit than from the inside.

And what does this say for her defenders? Talent and being on the side of right count for very little when the cards are badly stacked against you. Unfortunately, her supporters, in wanting to buck her up in a quixotic battle, are also either backing or giving a free pass to the absurd mortgage “settlement” that is now being bandied about (see a long-form critique here). Whatever evil genius fobbed Tom Miller, the head of the 50 state attorneys general effort, off on Warren knew exactly what he was doing.

The media reports are conflicting; the latest, from Shahien Nasiripour of Huffington Post, seem very much influenced by sources friendly to Warren, since it depicts Team CFPB as in the driver’s seat. But whatever version you believe, some facts are clear: the settlement discussions are proceeding in fire-aim-ready fashion. MIller circulated an incomplete term sheet. It stunningly failed to describe what sort of release (as in waiver of liability) the banks would receive if they signed up. No one in a normal negotiation setting ever circulates a partial list of demands. Miller has to know better; this looks like incompetence by design, covertly working to advance the banks’ aims by botching up process in a very basic way.

Another “fire-aim-ready” element is the Administration’s efforts to come to what appears to be an uber-settlement, by joining the state and Federal efforts. Now it is routine, when state securities law examinations and prosecutions find pay dirt for the SEC to ride in and join the effort (can’t have those states encroaching on SEC turf, after all). But state and Federal securities laws are broadly similar. By contrast, the Supreme court has repeatedly rule that “dirt law” is a state matter, and the Federal government has over time severely curtailed the ability of states to regulate banking. So the state and Federal issues don’t overlap much; the idea of a joint settlement thus looks very misguided.

The last “fire-aim-ready” aspect is the lack of investigations. We’ve discussed at length in past posts that the Federal examination was far too superficial, an even more flagrant bit of bank PR than the 2009 stress tests; Shahien’s story confirmed our suspicion that the states have conducted no investigations at all.

Earth to base: you can’t negotiate a good settlement if you don’t know what abuses you are settling for and don’t have a smoking gun or two to force the other side to play ball.

So in this respect, the Republican critics do have a narrowly valid point. When Richard Shelby calls the negotiations a shakedown, he isn’t wrong. If you all you have are vague threats of future action, you are bluffing. Of course, the reality is more complicated: anyone who knows this space is well aware that even a little bit of serious examination would turn up a whole lotta dirt. And the Administration is absolutely not willing to go there because validating some of the charges against the banks, such as the chain of title issues, would blow up the mortgage industrial complex and could well kick off another financial crisis. Shelby is too smart an old fox not to recognize that. So he engages in what amounts to projection: charging the earnest but woefully underpowered clean-up crew with extortion, when that has been the banks’ main line of business since 2007.

So the odds are that all the sturm und drang over Warren will amount to naught. The Administration was keen to get her inside the tent to neutralize her. The fact that the Wall Street Journal and some quick-trigger Republicans are doing their thuggish best to intimidate her should not be mistaken an indicator that she has become effective despite the odds. It has far more to do with their pettiness and paranoia than with her ability to escape the shackles this Administration has put on her.