White House Taps Warren To Set Up Consumer Financial Protection Bureau
The White House has tapped Elizabeth Warren as a special adviser to help set up the Consumer Financial Protection Bureau, affirming its support for a tough new agency charged with protecting consumers from abusive lenders.
The move allows her to act as an interim head of the CFPB and will enable her to begin setting up the agency immediately and prevent the GOP from filibustering her nomination. Warren could serve until President Barack Obama nominates a permanent director to serve the five-year term -- a nomination he's not required to make for some time. Obama also could nominate her as the permanent director in the near future, a prospect that has been discussed among top aides, according to a person familiar with White House deliberations. Warren formally will be named as a special adviser reporting directly to Obama, and serving in a similar capacity to Treasury Secretary Timothy Geithner, later this week.
The CFPB was a cornerstone of Obama's financial reform package and Warren is credited as the intellectual founder of the agency -- a proposal she advocated three years ago. The ability of the administration to nominate an acting director to serve while the agency is launched within the Treasury Department was first reported by HuffPost in July.
The appointment, though, was first reported Wednesday by ABC News. A senior Democratic congressional aide with knowledge of the decision confirmed the report to HuffPost.
On Tuesday, Sen. Christopher Dodd (D-Conn.), chairman of the Banking Committee, said that such an appointment could create a backlash and lead the next Congress to defund the bureau. On Friday, a former chief economist for the International Monetary Fund, Simon Johnson, laid out the case for an interim appointment.
As a White House adviser, Warren will have a direct line into the Oval Office. A Bloomberg report on Wednesday speculated that Warren would be named as a counselor to Geithner -- an irony noted by some commentators given their contentious relationship.
The Huffington Post reported July 15 that Geithner had expressed opposition to Warren getting the nod. Geithner, his key lieutenants and top White House officials, while not denying the report, stressed repeatedly that they all felt she was "extremely well qualified." To date, no one has publicly denied the HuffPost report.
"Anyone who knows her knows that she would only take a position that had real meat to it," said one source who had worked closely with Warren in the past. "I mean, seriously, you've seen her in action. Do you really think she's going to be anyone's lapdog? She bites hard."
The nascent consumer unit being formed inside Treasury already has more than 35 employees, said Steven Adamske, Treasury's deputy assistant secretary for public affairs. The number will swell in the coming months as the agency is developed. It will soon move out of the Treasury building near the White House and into a building leased by Treasury for its Office of Financial Stability just a few short blocks away, Adamske said.
Yet while speculation centered on whether Obama would nominate the outspoken and respected academic and advocate, HuffPost reported July 19 that Warren could head the agency without Senate confirmation. Lenders -- but notably their friends in the Senate -- began to publicly question whether Warren possessed the aptitude or management skill to run a large bureaucracy. The new consumer regulator will eventually house hundreds of employees and have a budget approaching $500 million.
Yet those questions took a backseat to her confirmability. Dodd began telling reporters that he had serious reservations over whether Warren, viewed as a polarizing figure given her aggressive advocacy on behalf of the middle class, would survive a Senate confirmation battle.
Dodd, whose name forms one half of the financial re-regulation bill that Obama recently signed into law, may have been concerned about a deliberate attempt to delay the agency's formation, which could have occurred had Obama named Warren and Senators began to delay her confirmation, or vote her down.
As part of a gentleman's agreement between the White House and the Senate, presidential nominees typically do not work in their nominated roles until they are confirmed. Had Obama formally nominated Warren, she wouldn't have begun forming the agency until that time.
However, a HuffPost review found that Dodd had never before questioned a presidential nominee's management experience -- even when those nominees lacked it. Over the past several years, Dodd, a longtime member of the banking committee, declined to critically question nominees to financial regulatory agencies. He even skipped a few confirmation hearings altogether.
Warren, though, slowly began to pick up endorsements. Democrats in the House and Senate sent letters to Obama urging her nomination. House Financial Services Committee Chairman Barney Frank, a Democrat from Warren's adopted home state of Massachusetts and the other half of the
financial bill, said that Obama should simply give her a recess appointment, bypassing the Senate completely.
Republicans, too, began to endorse her. A former top official in the Reagan administration said a vote for Warren was akin to a vote for capitalism and free markets.
Yet still the administration declined to name her to the post. Speculation centered on a divide within the White House -- longtime Obama advisers David Axelrod and Valerie Jarrett were for her, while Chief of Staff Rahm Emanuel and top economic adviser Larry Summers were against her. Geithner favored one of his top aides, Michael Barr, an assistant secretary at Treasury who helped shepherd the financial reform bill through Congress.
Axelrod, though, hinted today's Warren news back in July, noting that "one thing I know for certain is however we move forward she's going to be a strong voice in helping shape this and make it the most effective voice for consumers that it possibly can be."
Lenders, already wary of the reforms to be implemented by Dodd-Frank, may react to a Warren appointment by being overly cautious in the credit products they offer consumers -- like mortgages, credit cards and personal loans -- and thus freeze up lending. Despite the fact that the nation is in the midst of a collective process of cleaning up its balance sheet -- paying off
debt, building up nest eggs for future expansion and purchases -- the additional drying up of credit would significantly hurt the economy.
Those concerns may still exist. But for the time being, Warren's backers won the fight within the administration. And giving her a seat at the table when it comes to economic matters is particularly significant, given that the key economic policy positions within the administration are mostly occupied by alums of the Hamilton Project -- an initiative partly founded by former Goldman Sachs head and Citigroup chairman Robert Rubin. The former Treasury Secretary under Clinton, Rubin has mentored Summers and Geithner, and his disciples populate the White House and Treasury. The Project -- and its alums -- aren't noted for their progressive economic policy positions, or their advocacy on behalf of everyday families.
Warren, however, is associated with the Roosevelt Institute, a progressive organization dedicated to advancing New Deal-like reforms that's part of the Franklin D. Roosevelt Presidential Library and Museum in New York. Her inclusion in internal White House debates could help shape eventual policy proposals.
White House economic policy proposals to jumpstart the stalling recovery -- and bring down the 9.6 percent unemployment rate -- have thus far received tepid support from leading economists and market commentators.
Warren's path to the helm of the agency began on March 10, 2009, as she joined Sens. Dick Durbin (D-Ill.), Chuck Schumer (D-N.Y.) and Reps. Bill Delahunt (D-Mass.) and Brad Miller (D-N.C.) in the Capitol Visitors Center to announce a bill to create what was then being called the Financial Product Safety Commission. Warren, at the microphone, laid out how the financial crisis could have been prevented had an effective FPSC been in place.
She offered the example of a loan with a low "teaser rate" and an obscured prepayment penalty. "Prepayment penalties are a way to try to fool [borrowers] into thinking the price is $1,100 dollars a month -- that's the teaser rate -- when in fact the real price of this product is the equivalent of $1,900 dollars a month. And if you try to refinance out of the product, you'll pay a prepayment penalty. That's how the company will make its money. You'll either pay higher interest later on, or you'll pay a prepayment penalty to get out of it."
When the price rises to $1,900 a month or higher, the borrower can't refinance, can't make the payment, and subsequently goes into foreclosure, she explained.
"If there had been an agency, like the Financial Product Safety Commission, that had said, 'You just don't get to fool people on pricing,'" she noted, "then what would have happened is there would have been millions of families who got tangled in predatory mortgages who never would have gotten them."
Preventing the proliferation of those loans could have stopped the housing bubble from forming -- and then popping.
"It never would have been as profitable for mortgage brokers and others in the financial services industry to market these products, because they would not have been such high-profit products. If we never would have started at the front end, we never would have fed them into the financial system. So there never would have been this expansion in the housing market, this housing bubble. And more importantly, never the fodder that went in, ultimately, to the mortgage-backed securities that created the credit default swaps and so on through the system," Warren said that day.
Without all these toxic assets on bank balance sheets, the institutions wouldn't be on the brink of collapse and the recession would have been more manageable. "Consumer financial products were the front end of the destabilization of the American economic system," Warren said at the time.
In the fall of 2008, shortly after Congress bailed out Wall Street with a $700 billion commitment with trillions more from the Federal Reserve, Elizabeth Warren was surprised to get a phone call at home from Senate Majority Leader Harry Reid asking her to chair the congressionally-chartered panel that would oversee the bailout. "I asked Harry Reid if he was really sure he wanted me to do this," Warren told The Nation's Chris Hayes in a March 2009 profile. "And he said, 'Yes, I expect you'll bring your consumer perspective.' I didn't come into this beholden to anybody, and I'm not looking for a job coming out on the other side. That means I say what I think is right."
Warren proceeded to hold a series of hearings, accusing Bush Treasury Secretary Hank Paulson of misleading her panel, charging that banks are not tracking bailout money, and finding that the government overpaid by some $78 billion for bank stocks and assets, among other revelations. Warren clearly intended for the committee to perform its oversight functions vigorously, creating a tense relationship with Wall Street and the Treasury.
Warren recused herself from the Congressional Oversight Panel, the bailout watchdog, on Sept. 10, said Damon Silvers, a member of the panel and director of policy and special counsel for the AFL-CIO. She's expected to step down permanently, several months before the commission ends its work in April.
Nine days after the introduction of the bill to create the FPSC, President Obama told Jay Leno he supported the idea.
Later that month, in what would become a theme of Warren's tenure on the oversight panel and her advocacy for the consumer bureau, she took one of her first shots at the Treasury Department. "We do not seem to be a priority for the Treasury Department," she said at a Senate Finance Committee hearing of her oversight panel. "This problem starts with Treasury."
Later that year, her opposition widened to include much of the House GOP. Republicans on the House Financial Services Committee introduced an amendment to the pending financial reform legislation intended to prevent Warren from ever heading the agency. It was defeated.
Though Warren has not yet been formally nominated to head the agency she fought most dearly for -- she once told HuffPost that if a strong agency wasn't created it would be after there were "plenty of blood and teeth left on the floor" -- she remains a leading candidate. But for now, given the tight legislative calendar from now until November, Warren's appointment and direct line into the Oval Office is welcome news to her boosters.
"This news shows that consumers have momentum and are on the verge of winning," said Stephanie Taylor, a co-founder of the Progressive Change Campaign Committee, an advocacy group that mounted an aggressive campaign on Warren's behalf. "If Elizabeth Warren is given full power to run the new consumer protection bureau and hold Wall Street accountable, it will mean real change -- and voters will know that going into November's election.
"If this appointment is window dressing and Tim Geithner controls the show," she cautioned, "it would be a big disappointment and a victory for Wall Street. President Obama should make clear that this appointment gives Elizabeth Warren real power to fight for consumers."
Sam Stein contributed reporting.
*An earlier version of this story reported that the CFPB will house thousands of employees. Treasury's estimates number in the hundreds.