It is obvious that Elizabeth Warren should head the Consumer Financial Protection Bureau. No less than our favorite NC nemesis, the staunch Administration defender Economics of Contempt, has said she is “tailor made” for the job. In the face of increasingly vocal bank opposition to the notion of an effective bank watchdog for consumers, she’s done better than anyone anticipated. And despite the Republican bluster about using a pro forma session to keep the Senate in business to block a recess appointment, the Democrats could break that maneuver if they wanted to.
So why does Team Obama try to hide its choice not to appoint her behind silly “compromises” like its trial balloon of serving up the CFPB’s number two, Raj Date, as a candidate to lead the agency? The Republicans have already said they will approve no one unless they can cut off CFPB’s air supply by controlling its budget. You can’t negotiate with someone who won’t negotiate. Your options are to defy them or capitulate.
So this “compromise” is an inept sleigh of hand to shift responsibility for the Adminsitration’s refusal to appoint Warren on the Republicans.
The failure of the Team Obama to move beyond this impasse is revealing. It isn’t merely, as we have repeatedly mentioned, a sign that the Administration is in bed with the banksters. That’s a given. We predicted that Warren would not get the job.
But what is astonishing is how she has managed to out maneuver them and how Team Obama has failed for months to come up with responses. It isn’t as if this crowd feels any compunction to hide the contempt it has for the idea of keeping prior promises; just look for some of many examples, at this video Lifting the Veil, from 7:00 to 13:00, or at Glenn Greenwald’s discussion of how in mere weeks what was promised to be a mere fly over exercise in Libya is now turning into another nation-building exercise.
The Warren fiasco reveals deeper layers of the Administration’s character defects: its indifference to the plight of the middle class and its tactical incompetence. These flaws appear to be so seriously at odds with the carefully cultivated Obama brand is that its operatives are desperate to hide them. Lying about what we do to whom in parts of the world that most Americans can’t find on a map is standard operating procedure for Presidents for at least the last 50 years. The Obama Administration feels it can do what it pleases on the defense and anything it can conceivably call the national security front.
Warren happens to be applying pressure on what is turning out to be a central fault line for this Administration. It bought the bankster line that giving them first priority on the “fix the economy” money would not only appease this key donor group, but it would also work out just fine on the economic front. Enough peasants would be lifted up along with the financiers’ yachts that the economy would be, if not in rude health, at least enough on the mend to assure an Obama re-election.
But that is not how things are working out, as we know all too well. The President is waking up to the fact that if the jobless situation is as bad as it is now next year (and it is possible it will be worse), his reelection bid is going to become quite complicated. Ditching Warren overtly, as he clearly would like to, will cost him valuable campaign support among the activists who are still somewhat warm to the administration and will provide what remains of his grassroots army for 2012.
And the gap between the banks’ demands and what the great unwashed populace wants is widening. Team Obama relied on several devices to paper over the differences. First was the time honored political practice of kicking the can down the road. Economists came up with fancy rationalizations that more or less amounted to “Time heals all wounds.”
Second was cheerleading. If the economy was looking less awful and the stock market rallied, it could at best restore confidence and help spur a recovery and at a minimum improve the optics of what was actually happening. The public, however, is no longer interested in seeing the officialdom demonstrate its skills in the application of porcine maquillage.
Third was stunt fights with the banks, or as Adam Levitin described it in the context of bank cease and desist orders, phony penalties:
The bank regulators are going to provide cover for the banks by pretending to discipline them very hard, but not really doing anything. The public will see a stern C&D order, but there won’t be any action beyond that. It’s as if the regulators are saying so all the neighbors can hear, “Banky, you’ve been a bad boy! Come inside the house right now because I’m going to give you a spanking!” And then once the door to the house closes, the instead of a spanking, there’s a snuggle. But the neighbors are none the wiser.
The 2009 stress tests seemed to prove this approach to be a winner. Almost daily headlines over two months seemed almost designed to convince the public that this assessment was a serious exercise, when as we discussed at length, it was anything but. Yet dissenting voices were frozen out of the mainstream media. For instance, a William Black said at the outset “there are no real stress tests going on” Even after giving his critical views on the widely watched Bill Moyers show part way through this charade, no journalist called Black.
But none of these approaches are working any more. Kicking the can down the road and cheerleading, which in finance circles is called extend and pretend, have hit their limits. The sale of the assets in Maiden Lane II, one of the AIG vehicles, has precipitated a broad selloff in credit instruments, with the subprime ABX doing a cliff dive. The fragile bank system cannot bear too much in the way of reality, but between periphery county stress in the Eurozone and the fundamental and legal tsuris afflicting the RMBS markets, it is going to be hard to keep fantasy valuations going much longer.
The banks, rather than playing nicely along with the Administration’s regulatory theater and having the decency to be appreciative of the useful cover it provides, have instead escalated their demands. All that coddling has gone to their heads. It isn’t enough that they get to pay themselves record bonuses; they are now taking a page from the Republican playbook and going for total victory. They recognize what we pointed out early last year, that Obama’s March 2009 decision to reconstitute the banking industry rather than bring it to heel ended his freedom of action :
Obama’s repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.
Thus Obama’s incentives are to come up with “solutions” that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry’s goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.
And here is where Warren and the CFPB come in. In the face of mounting evidence that the banks are in the driver’s seat (the infrastructure land grab here and abroad and the spectacle of Jamie Dimon making demands of Bernanke are two of many examples), the Administration needs to mount a credible pretense that it is doing something for the average person. Since its HAMP mortgage mod program looks about as successful as exploding Pintos, it needs more than ever for the CFPB to look credible.
This is where the second failing of the Obama brand comes in: its tactical ineptness. Let me stress that: the Warren mess reveals that the Administration is tactically incompetent. People who’ve attributed “11th dimensional chess” type skills to the Obama camp are smoking its brand fumes. We are now seeing that once the Obama Administration has to go outside its comfort zone of PR (which includes its thuggish methods for maintaining message discipline among its putative allies), it is at a loss as to what to do.
And a President who is recognized as poor at running his own plays is a de facto lame duck.
How did the Administration screw up so badly with Warren? The idea appeared to be (correctly, given the Obama propaganda objectives) to take advantage of the Warren name while neutralizing her. I thought bringing her in as an “advisor” meant she’d be busied with needlepoint like writing policy papers, sitting in on meetings, being humored, and getting occasional face time with the President to make her feel slightly less irrelevant. Oh, and kept out of the media save safe outings on venues like Jon Stewart.
So whoever allowed her to start building the agency made a colossal mistake. Whether this was the Administration’s offer or her counteroffer is moot. Perhaps they underestimated her, but that reflects a failure to pay attention. She did more to make the banks miserable from her post at Congressional Oversight Panel than the prosecutor, SIGTARP’s Neil Barofsky, who seemed notably uninquisitive save for controversies that landed in his lap, like Fed’s 100% payout on AIG’s credit default swaps. Indeed, at the nascent CFPB, she has managed to take a tremendous amount of ground, as the New York Times’ Joe Nocera noted:
When she was first appointed to set up the agency, I heard rumbling that she had no management chops and would make a hash of things. This prediction has turned out to be spectacularly wrong. She has attracted first-rate talent for virtually all the top jobs. The new bureau’s first move was to persuade two government agencies to combine mortgage forms into one easy-to-read document — no easy task given how government works. She has consistently talked about making bank disclosures easier for consumers to understand.
Now that she has taken her seat, she is refusing to get up despite lots of pained hints. And the Administration looked even more foolish as candidates refused to show interest in the post, with several pointed saying Warren should get the nod. This is where the Republican scorched-earth campaign is not serving them well. Who’d be nuts enough to want a job where you’d regularly be raked over the coals by rabid Congresscriters?
And that’s why the Date move on a superficial level looks clever. Here is one person who cannot turn down the offer! And since Warren hired him to be her number two, he has to be pretty good, right?
So the Date trial balloon is meant to paint a PR happy face over what is turning out to be an embarrassing episode for the Administration.
For the banks, the noising up of Date is meant to reassure them that the Administration is not going to install that inconvenient woman, and will find some sort of industry-conditioned member of the elites to take the post.
For the yet-again-about-to-be-sold-down-the-river traditional Democratic base of ordinary citizens, the orthodox Democratic messagers are trying to paint Date as just as good as Warren and keep the drumbeat up that she really should just get out of everyone’s way and take up knitting in the Scott Brown senate seat. Knitting is pretty much all she’d get to do, given the combination of the Democratic pay to play system and the certainty that she’d not be able to raise money from major corporate donors. Per Bob Kuttner at the American Prospect:
It’s hard to imagine Date letting his name go forward without Warren’s consent.
I took issue with this via e-mail with Kuttner; the idea that the Administration was looking at people in the CFPB proper is weeks old. I have it via two separate channels that Warren was shocked, which is at odds with the idea that she blessed this move. In addition, she has maintained a studious silence on this topic, which is even more revealing than a tepid or formulaic endorsement. When pressed, her office issues tortured formulations along the lines of “whatever is best for the CFPB is fine with her.”
The implications are obvious. No matter how strong Date’s other qualities are (he looks to be very competent technically and appears to have undergone a real change of heart after his levering-up-consumers days at Capital One), it has become clear that whoever gets the job will have to fight a persistent and shrewd battle to keep the agency from being reduced to a mere fig leaf. That is what pretty much everyone but Warren, her beleaguered troops, and the public at large wants.
Remember, the Democratic party has not been on the side of the consumer since at least the Clinton Administration. The clearest evidence comes via Arthur Levitt, the head of the SEC under Clinton, in his memoir Take on the Street. The destruction of the SEC as an effective regulator took place under Levitt despite his efforts to stem the tide. The very choice of Levitt, a former Wall Street executive, when the previous SEC chiefs had been attorneys with real regulatory experience, was no doubt intended to put an industry sympathizer in place. Indeed, Levitt was pro deregulation as far as professional investors were concerned. He was on the wrong side of history in his lack of interest in ferreting out derivatives abuses in the wake of a 1994 meltdown and in standing against Brooksley Born’s efforts to regulate credit default swaps.
But Levitt was a strong proponent of consumer protection and education. And in this modest stance, he ran into full bore opposition from Congressional Democrats, led by the Senator from Hedgistan, Joe Lieberman. They regularly threatened to cut the SEC’s appropriations and punished Levitt for his intransigence by making sure the agency’s budget increases were meager at best (this when growth of financial activity, the proliferation of new instruments, and swelling tax receipts would have argued for bigger increases).
So anyone daring to stand up for consumers has long been subject to concerted Congressional opposition. This means Warren possesses at least one, and probably two critical assets that Date lacks: a great rapport with the media and the public, which her opponents have been unable to undermine, and a remarkably willingness to take pain to advance her cause.
This struggle reminds me more and more of the famous heavyweight championship fight between George Foreman and Muhammad Ali (if you have managed never to hear of it, you must watch the documentary When We Were Kings). At 32, Ali was virtually ancient, while Foreman wasn’t simply the reigning world champion. but also a fearsome physical specimen, both extremely powerful and fast on his feet. Ali looked to be so badly overmatched that some members of his team expected him to be killed in the fight.
Unlike Ali, I don’t think Warren has chosen to use a rope-a-dope strategy, but that’s what it looks like from the peanut gallery, and it looks to be just as effective for her as it was for Ali. Her opponents, like sour faced aspiring prosecutors on the House Oversight subcommittee that grilled Warren last month, got angrier and angrier and threw wilder and wilder punches as their blows failed to land. Similarly, the Obama device of putting Date forward is a jab that looks unlikely to connect with its target. The AFL-CIO and the Campaign for America’s Future rejected the idea and urged Obama to make Warren a recess appointment. Other consumer groups are reported to be up in arms.
We’ve said that even if Warren loses, she will have won by enhancing her stature and keeping the media spotlight on the officialdom’s efforts to neuter the CFPB and more broadly, to cast a blind eye to banks’ continued predation. But she’s managed, despite all odds, to fight her opponents to a draw. If she is still in contention and comes through the ordeal planned for her on July 14 (a full day House Oversight Committee Republicans intent on burning her at the stake) with her attackers again looking like ineffective bullies, what once seemed like a quixotic struggle will start to exact a real toll on her foes, who will be revealed to be implacable enemies of the common good.
This post originally appeared at naked capitalism and is reproduced here with permission.