MEMO TO DODD: ELIZABETH WARREN IS WORTH THE FIGHT


By L. Randall Wray

Outgoing Senator Dodd just weighed in on the possibility that Elizabeth Warren might get the top spot heading the new Bureau of Consumer Financial Protection at the Federal Reserve:

“What you don’t need to have is an eight-month battle for who the director or the head or chairperson of this new consumer financial protection bureau will be,” Dodd, a Connecticut Democrat and chairman of the Senate Banking Committee, said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff,” to be broadcast today.
Let us get this straight. Dodd has been a shill for Wall Street for years. He has never seen a fight against Wall Street worth fighting. He is retiring. Why would anyone care what he thinks about Warren?

Let us get this straight. Warren created the proposal to create a consumer financial protection act and agency to enforce it. She has been the driving force behind it. No one is better qualified to lead it. Any other appointment would confirm that the Obama administration is not serious about reform.

Dodd is pushing Sheila Bair, head of the FDIC. She is a fine person. She says she does not want the job. I haven’t met her, but she is no Elizabeth Warren.

We know that Dodd does not take consumer protection seriously. He has been in the back pocket of rapacious lenders so long that his views have no credibility. He is the problem, not the solution. That is why he is leaving “public service”. He knows he has no chance to win an election in the aftermath of a crisis he helped to create.
Warren, by contrast, has been a tireless defender of consumers. She knows all the “tricks and traps” that credit card issuers put into the complex contracts that—literally—no law school grad could wade through. She forcefully argues that it makes no sense that we protect consumers from faulty toasters but let Wall Street steal their home and their life savings. She knows that Wall Street bought and paid for the 2005 Bankruptcy “Reform” Act written by the credit industry to screw the last dime out of overburdened homeowners—exactly on the cusp of the collapse. She knows that states (with the help of the Supreme Court) have raised the maximum permitted interest rate from a “measly” 36% in 1965 to a median of 398% in 2007. Yes, read that again—it is not a mistake, it is a disgrace.
Warren knows that financial products are only subject to contract law—based on the notion that both parties are fully informed. And are “equals” in the contract. Yep, right—you, dear reader, are equal to the team of vampire blood sucking squids at Goldman Sachs dead set on taking away your home. What, you do not have a good corporate lawyer looking over your mortgage contract? Sucker!
Other consumer products are subject to tort law—you can sue manufacturers for injury. Imagine if you bought a lawn tractor, with 37 pages of disclaimers, and buried deep inside in incomprehensible language the contract said that due to shoddy manufacturing practices, the blade is liable to occasionally fly off and take off your leg, but if it does that, we are not liable. That is exactly what your credit card contract says.
It ain’t right. Warren knows that. She wants to protect consumers of financial products—which, arguably are far more important today than are toasters that occasionally short and burn your toast.
If you are not convinced that she is the right person for the job, please read her excellent essay: “Redesigning regulation: a case study from the consumer market”, in Government and Markets, toward a new theory of regulation, edited by Edward Balleisen and David Moss, Cambridge University Press, 2010, based on a paper she gave back in 2008.

10 responses to “MEMO TO DODD: ELIZABETH WARREN IS WORTH THE FIGHT

  1. Dodd is just putting the last touch on the cake he has given Wall Street for years, and Wall Street will reward him handsomely for his "fine service to his country" after he leaves office.

  2. Sen. Dodd knows what side is his bread is buttered. Killing Prof. Warren's nomination is his last big gift to Wall Street and probably will assure him a nice cushy lobbyists job. How easily we forget that Sen. Dodd was same guy who scored VIP loans from crooked Countrywide and Angelo Mozilo. Sen. Dodd will deliver for Wall St. like he delivered for Countrywide and Fannie Mae.

  3. Obama and Geithner would sooner cut off their arms than allow Warren to have that position. That's why, even if she's named, Geither will have already filled the agency slots with his own minions to actively undermine everything she does.You can count on it.

  4. Oh, you dreamer you. That hardworking stiffs have access to the courts, under contract law, let alone torts, against the kleptocracy is so second millennium. The 5-4 Supremes have deemed it not so, that mandatory arbitration by the kleptocrats' flunkies is a higher justice than mere law. See e.g. http://balkin.blogspot.com/2010/06/why-supreme-courts-decision-in-rent.html They will get their solid gold sphere, or we will all die trying.Warren has her work cut out for her. More power to her.

  5. Are we still fooling ourselves that Obama has any interest in solving the problem?

  6. Thanks for the comments; it is not often that I get to be the optimist. There is that audacity of hope, you know.Yes, Dodd played a lead role on the bill in order to guide it through congress, ensuring there would be nothing too painful in it for Wall Street. And, yes, he got the consumer protection put under the Fed (that is pretty laughable–not only has the Fed shown no interest in protecting consumers, since its mandate is to ensure bank profitability it really does have a conflict with consumer protection.) As Warren showed in the chapter I cited, Greenspan displayed absolutely no interest in mortgages until interest rates hit rock bottom in 2004, then encouraged households to take the sucker bets with hybrid ARMS, knowing he would soon blow them away with rising interest rates. He would do a Volcker without going to double digit rates.All that said, if Warren got the job, she would provide some protection. On tort law, there is another good chapter in the book I cited exactly on that subject. Class actions have had an impact. LRWray

  7. Dodd gets a golden handshake, we get a golden shower.

  8. I love the smell of cynicism in the morning.Keep in mind that throughout all of these efforts to derail Warren and her efforts, her detractors have given her the one thing she could not give herself: Fame. Not appointing her will not go unnoticed. And it is right before an election where the base is threatening to walk. "Houston, we have a problem."

  9. The Warren question continues to entertain. The ones most apoplectic about her potential rejection are the identifying academic, non-profit, brie and Chardonnay sets. Warren herself is cut from this same "limosine liberal" cloth, of course, so to turn her aside becomes in a way a personal rejection to these folks. But its all much ado about nothing, I'm afraid. Warren is just another showboat out to make a public career for herself. She's great on PBS and while speech-making at the non-profits but she stunk at the hearings. Most important she caved on the compromise that placed the CFPB under the aegis of the Fed. But if she hadn't caved and compromised there'd been no post to which to appoint her, now would there? That's cynicism of the very first rank, I'd say. I think we can do much better than Elizabeth Warren. Maybe someone principled enough to go down with the ship.Lavrenti Beria

  10. The objection to putting CFPB under the Federal Reserve Board (an independent government agency) is that whoever is hired as director is basically unfireable and will not be responsive to the wishes of the President and Congress. Considering how sold-out to Wall Street this president and Congress are, appointing Warren as director turns that bug into a feature.