September 17, 2010
On this warm late-summer afternoon, with Congress out of session, Obama has convened the press to announce the launch of a new agency, the Consumer Financial Protection Bureau. It has been designed to protect American consumers from the predations of the financial services and banking industry, which over the past couple of decades has grown vast and insatiable by inventing, for the most part, new ways to market, sell, and invest in debt.
The woman standing awkwardly at Obama’s left hip, Harvard Law School professor Elizabeth Warren, has become the nation’s town crier on the subject of bankruptcy and debt. In the two years since the economic crisis, she has emerged from nowhere to trumpet the story of how debt was turned into a velvety weapon, how engorged financial firms deceptively packaged it, sold it as securities, and extracted usurious profits from American consumers, especially those in America’s once-vaunted middle class. The notion of a consumer financial product agency, a freestanding, independently funded entity like the Federal Communications Commission, was originally hers, unveiled in an article she published in the spring of 2007. The truth is that no one much cared for the idea, until her unheeded concerns turned up at the center of the worst financial meltdown since the Great Depression.
So today is a long-delayed victory for Warren—almost. Somehow nothing in the Rose Garden is quite as it seems. The president praises Warren, whom he says he met at Harvard Law School, as though they are old friends. They’re not, and Warren only became a professor at Harvard Law the year after Obama graduated from it. In fact, over the past two years, while Warren has seen herself lionized on magazine covers and in prime-time interviews as a leading voice for tough, restorative reforms, the president seems to have been studiously avoiding her. Part of the problem, clearly, is that she has been acting the way people expected and hoped that man from Grant Park would.
This has caused discomfort not only for the president, but also for his top lieutenants, including the boyish man in the too-long jacket at Obama’s right hip, bunched cuffs around his shoes, looking more than anything like a teenager who just grabbed a suit out of his dad’s closet. That’s Treasury secretary Tim Geithner, looking sheepish. Only those in his inner circle at Treasury, though, can precisely read what’s behind that expression: a string of private efforts across the past year to neutralize Warren. The previous fall, Geithner huddle with top aides to develop what one called an “Elizabeth Warren strategy,” a plan to engage with the firebrand reformer that would render her politically inert. He never worked out a viable strategy—a way to meet with Warren without drawing undesirable comparisons—and so, like the president, he didn’t.
What the Treasury Department did do, unbeknownst to Warren, was embrace demands from the banking industry to create a bureau under the condition that Warren would not be allowed to lead it. But as the financial-reform bill moved to a vote in early summer, industry lobbyists were so aggrieved at the idea of an agency—they felt it unsupportable under any conditions—that they didn’t bother to call in their chits on Warren.
In fact, they played it just so. The industry managed to get the proposed agency shrunk into a bureau that would live under the auspices of the Federal Reserve, the government’s greatest mixed metaphor of public purpose and private self-regard, representing as it does the dual interests of a sound monetary policy and the health of the banking industry. Beyond that, the bureau’s rules can be vetoed by a two-thirds majority of a panel of other financial regulators—an indignity of institutionalized second-guessing known to few other agencies.
But after financial regulatory reform legislation passed in July, the prospect of Warren at the bureau’s helm quickly grew into a movement: complete with Internet write-in campaigns, online petitions, flurries of editorials, and even a viral rap video—certainly a first in the history of appointing government regulators.
Warren would seem the easiest of choices. Since his earliest days on the campaign trail, Obama had spoken passionately about restoring competent government, and with it competent regulators. With the midterm elections less than two months away, he could have used a confirmation battle over Warren to draw a much-needed distinction between his administration and those, mostly Republicans, who dared to side publicly with America’s big banks and financial firms. Warren’s celebrated ferocity looked tailor-made to revive Obama’s vast grassroots campaign network. Like an encamped army with nothing to do, the foot soldiers of the campaign had fought among themselves a bit, eaten the leftover rations, and then drifted back to private life. Field commanders still in touch with the White House signaled by midsummer that a Warren confirmation battle would rally the troops and, according to one, “at least show what we stand for.” On the other side was the financial services industry, which hurled nonspecific attacks at Warren, claiming she was arrogant, disrespectful, and power-hungry. It had begun castigating Obama as “antibusiness,” a charge the industry asserts would be definitively confirmed by the appointment of Warren.
In mid-August, Warren was finally called in to meet with the president. Obama began their sit-down saying, “This isn’t a job interview.” It wasn’t. The president had already decided what he was going to do, in a managerial style that had become his trademark: integrating policy options and political prognostication into a prepackaged solution— announced before the game even started.
Combatants over a Warren nomination will never take the field. Shuffling papers on the lectern in the Rose Garden, Obama says, with a few passive locutions, that Warren will be on the search committee to find someone to run the bureau:
“She was the architect behind the idea for a consumer watchdog, so it only makes sense that she’d be the, um . . .” He stumbles briefly, as though the text is pulling him off balance. “. . . She should be the architect working with Secretary of Treasury Geithner in standing up the agency.” He adds that she’ll be an adviser to both him and Geithner and “will also play a pivotal role in helping me determine who the best choice is for director of the bureau.”
That’s basically it. None of the troops are energized, and anyone who feared the financial debacle might produce a true innovation, a rock star regulator, is left unruffled. The press conference ends with reporters shouting as the president turns to leave. One yells above the rest, “Why didn’t you put her up for confirmation?”
All the attention about Suskind’s book so far has gone to allegations of sexism in the White House. While that is an important issue, this passage reveals something much worse – regulatory capture.
But as you can see, the foxes are guarding the henhouse.
BTW – Don’t be surprised to see Warren’s senate campaign get undermined and sabotaged.