Updated | September 17 President Obama on Friday appointed Elizabeth Warren, a Harvard professor and vocal critic of Wall Street, to help set up the government’s new Consumer Financial Protection Bureau, a centerpiece of the financial overhaul passed by Congress earlier this year. Warren first proposed the creation of the new consumer agency, which will consolidate a vast array of regulatory powers across the federal government, and was widely expected to chair the bureau.
Instead, Obama deputized Warren as an assistant to the president and special adviser to the Treasury secretary, Timothy Geithner, allowing her to effectively run the new agency without enduring a bruising confirmation battle in the Senate. Warren, who has been championed by consumer advocates but derided by business groups as a partisan and political neophyte, would almost certainly have faced a filibuster from Senate Republicans.
“The Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history,” Obama said, adding that Warren “will help oversee all aspects of the bureau’s creation, from staff recruitment to designing policy initiatives to future decisions about the agency.”
In a wide-ranging interview in July, Warren told Need to Know that the mission of the consumer agency would not be to manufacture additional rules for the financial sector, but to sort out the tangled web of oversight powers that already exist across as many as seven different federal agencies. She also offered a glimpse into what her first steps would be if she was tapped to help run the new bureau.
“The consumer agency is not more regulation,” Warren said. “This agency’s very first step is to go through and scissor out the bureaucracy from all the other agencies, and say, We’re going to consolidate in one place the responsibility for regulating what goes on with consumer credit.”
Warren added that one of the first things the new consumer agency could do to inspire confidence on the part of beleaguered consumers is to confront lenders and credit card companies about the lengthy and complex agreements they often force customers to sign. Warren said she would work to slim down and clarify those contracts, and clamp down on the most manipulative practices.
“The best that this agency can do is to say to credit card companies, to mortgage companies, to banks, You can’t build a business model around tricking and trapping customers,” Warren said. “That’s just not going to work anymore.”
As the head of the congressional oversight panel charged with supervising the distribution and repayment of more than $700 billion in federal bailout dollars through the Troubled Asset Relief Program, Warren has also been outspoken in warning of a possible “double dip” recession in the housing market, which she believes could be sparked by wide-ranging defaults in the commercial real estate industry.
As Warren told Need to Know, by the end of this year, the value of commercial real estate will have dropped by as much as 50 percent from the highs of several years ago. As her oversight panel found, about $1.4 trillion in commercial real estate loans will reach the ends of their terms between 2010 and 2014 — and about half are “under water,” meaning the borrower owes more than the property is worth. That tidal wave of defaults could spell doom for the thousands of banks that specialize in commercial real estate.
Geithner and administration officials have argued that they will be able to shore up faltering banks through TARP, thus preventing another freeze in the credit markets. But as Warren told Need to Know, she believes more action is necessary, and her position on the issue could prove a point of contention with Geithner once she arrives at the Treasury Department.
“We have not seen a strong response from Treasury,” Warren said. “I would feel better if we saw more action, we saw some plans in place to deal with the 2,988 banks that are concentrated in commercial real estate.”
As for her appointment this week, the Obama administration’s attempt to circumvent the confirmation process has already drawn criticism from banks and their representatives in Washington, including the U.S. Chamber of Commerce. Lobbyists for the financial industry have worked for months to derail Warren’s nomination, though that in itself, Warren said, should serve as a warning to policymakers.
“I truly believe that if the insiders get together and rewrite all the rules, those will be rules that benefit the insiders, and the rest of America will just be left out,” Warren said, adding that the mission of the agency should be to police the excesses of the banking industry. “If this consumer agency works the way it should, we dial back on that, and we put some trust into the economic system overall.”