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Efforts to undermine new consumer agency amateurish, dangerous

Elizabeth Warren testifies before the US House Committee on Oversight this week.
Elizabeth Warren testifies before the US House Committee on Oversight this week.SAUL LOEB / AFP/Getty Images

Just how many cities will burn to the ground before we decide it's OK to enforce some building codes?

In case anyone hasn't noticed, the U.S. is stuck in the worst economic downturn in 80 years.  Why this happened is important: It wasn't caused by a debilitating depletion of raw materials, a devastating natural disaster or even a slow, steady decline in competitiveness. No, the recession’s cause is entirely artificial -- runaway bank greed, irresponsible decisions by plenty of people who should have known better and, most important, by the deflation of a financial bubble and its massive fallout.

It seems incredible to argue that, after all this, nothing should change.  And yet, that's the feeling you get from opponents of Elizabeth Warren, who have made it their cause celebre to dismantle the most tangible effort since 2008 to stop the financial madness.  A handful of bills have been proposed that would defang the new Consumer Financial Protection Bureau, or turn it into a commission so temporary director Warren can't be in charge. We'll get to these in a moment, but suffice to say the legislative efforts are very thinly veiled attempts to close the agency before it opens.

This week's very public childish exchange between Republican Rep. Patrick McHenry, R-N.C., and Warren over a scheduling disagreement was a rare, unscripted moment in congressional hearings.  If you haven't watched it, you should. McHenry wanted the hearing to continue; Warren said she has other commitments that were scheduled around the agreed-upon time, and instead offered to submit other answers later in writing.  McHenry said there was no agreed upon time, telling Warren she is "making this up." The meeting devolved from there.

The spat provides a window into how Washington, D.C., really works and Congress’ lack of urgency in working to rescue our nation's economy and prevent another meltdown. McHenry was engaging in one of the oldest tricks in the book -- the equivalent of arguing about the size of the negotiating table during peace talks. He might as well be yelling about the best way to rearrange the deck chairs on the Titanic.

The spat didn’t end there. McHenry’s staff issued a press release after the hearing saying Warren showed a "blatant sense of entitlement," and the incident proved she has "disregard for congressional oversight."

If you've never been to a hearing in the halls of Congress, it's important to note that most verbal testimony is delivered in nearly empty rooms, to nearly empty member seats –  that can be hard to see on TV, given the magic of television. Submitted written comments, placed into the record, occur at every hearing. In other words, the hearings themselves are a charade.

The charade within the charade that McHenry orchestrated was simply an attempt to make Warren look bad, to appeal to those who robotically hate every new government initiative, no matter what. A quick glance at McHenry's Facebook page might suggest his effort to make Warren look bad backfired on him.

The incident does provide yet another occasion to re-examine the idea that a new regulator is needed to keep banks from misbehaving and to protect consumers. It's very hard to argue against the notion that whatever we had in place before 2008 didn't work very well. Was the problem the rules, or the rules enforcers?  There's plenty of debate about that, but I can tell you that those who designed the Consumer Financial Protection Board believed chiefly that bank regulators we had were too cozy with banks, and a fresh start with a new agency was needed.  The Dodd-Frank financial reform law passed by Congress contains few new rules for credit card issuers and mortgage originators; mainly it just tells them there's a new sheriff in town.

Beneath all the rhetoric, the real argument is about the sheriff.  Warren has been one of the very few voices in Washington, of either party, who speaks openly about bank abuses.  A career lawyer and Harvard academic who has never held elected office, she has no history of political donors to please, no favors to pay back, no sweetheart mortgage deals we know about and, apparently, no skeletons in her closet other than an apparent fastidiousness about sticking to schedules.  She's just the kind of person banks fear.

I've known Elizabeth Warren professionally for a long time. We first met after she published her breakthrough book, “The Two-Income Trap,” long before the financial meltdown that thrust her into the role as the nation's top consumer protector. Anyone with curiosity about what's really happening now should at least read some excerpts of the book.  In it, Warren lays out a compelling argument that most families now need two incomes – usually husband and wife -- to afford a house in a safe neighborhood with good schools. A generation ago, one income was sufficient. The stress this change has placed on American families is immense, and no political party should call itself family-friendly without taking on this immense, fundamental social upheaval. 

Not long after, I attended a more typical, boring congressional hearing about bankruptcy. Warren testified, and I watched. During a break, a gang of former Harvard law school students surprised her with a visit.  She hugged them like a grandmother would. 

In 2008, she was kind enough to take the time do a peer review of my book, “Gotcha Capitalism,” even as she exploded on the national scene as the public face of financial reform aimed at helping consumers.

Of course, being nice and writing a book say nothing about your ability to run a large government bureaucracy. We don't yet know if a Warren-led Consumer Financial Protection Bureau would be effective.  But we know exactly how things worked in the past. Anyone who wants to try that again is insane. If there is a better person to head the agency, no one has said his or her name out loud yet.

Republicans have introduced several pieces of legislation designed to “reform” the Consumer Financial Protection Bureau before it officially opens for business on July 21; one might hope they would be as active in attempts to reform Wall Street and the banking industry, but let's examine the specifics of these efforts.

Rep. Spencer Bachus, R-Ala., has introduced a bill that calls for the biggest change: The bureau would be run not by a director, but by a five-person commission. Anyone who's worked in corporate America knows full well that the best way to kill an idea is to appoint a committee to study it; that's the strategy here.  Anyone who thinks D.C. commissions work well should look at the long line of successes that have emerged from the FCC or other federal commissions.

Bachus is fond of saying that the new bureau might be "the most powerful agency ever created," which shows a gift of hyperbole that even the National Enquirer could love.  The financial reform bill holds that any decision the bureau makes can be overturned by the new 10-member Financial Oversight Stability Council, which is made up of top banking regulators such as the Federal Reserve and the Office of the Comptroller of the Currency.

Rep. Sean Duffy, R-Wis., introduced a bill that would make it easier for the Financial Oversight Stability Council to reverse decisions made by the new consumer agency.  At the moment, stopping a new bureau rule requires two-thirds of the 10-member council to vote that a new rule threatens the safety and soundness of the banking system. Duffy's law changes that to a simple majority. Here's the problem: Such a law tips the balance of power bank into the hands of the same regulators who had it before 2008. They didn't do a bang-up job of determining safety and soundness then.

Finally, Rep. Shelley Moore Capito, R-W.V., introduced a bill that would open the door to delaying the formal opening of the agency indefinitely.  As we all know, nothing happens -- particularly in D.C. -- without a deadline.  When Congress passed financial reform, it set July 21, 2011, as the date when a director should be in place and the transfer of regulatory power would take effect.  Capito's bill would stop the power transfer if a permanent director has not been confirmed in the Senate.  Republicans have already said they'd block Warren's confirmation if she were appointed.  That kabuki dance would lead to an indefinite delay in the opening of the new consumer agency.

All three bills were passed by the House Financial Services Committee earlier this month. The full House may pass them, but the bills stand little or no chance in the Democrat-controlled Senate, would face a certain presidential veto and would never win a veto-proof majority. In short, they are legislative non-starters.  They are great conversation starters, however, for legislators hoping to woo donations from financial companies. The Center for Responsive Politics reports that banks and their political action committees gave $19 million in political donations to federal candidates, committees, and parties in 2010.

I can't predict the future; I can't say the new consumer agency will prevent the next financial meltdown, or if it will even prevent a single consumer from being deceived by a bank.  I can say it’s time to stop blocking progress. No doubt, the agency will require some adjustments after it begins its work, and Congress would do well to actively oversee it. It can pass laws to fine-tune it -- or dismantle it -- at any time.  It seems foolish to "reform" the agency before it’s even open for business.  Legislators should let Elizabeth Warren begin her job, and fire her if they don’t like results. The agency’s chief role should be to clarify mortgage application forms, step in when outrageous new bank fees appear and to act on consumer complaints when they arise. It’s amazing how threatening that work sounds to some people.

After a string of bad fires, you force builders to use safer materials and install sprinklers, and you hire inspectors to make sure the work gets done. That's just how the world evolves.  Getting in the way of that process will just send us spinning in circles, and I don't think anyone wants 2008 again.

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