04/11/2010 05:12 am ET | Updated May 25, 2011

Where Elizabeth Warren Got It Wrong

I adore Elizabeth Warren and consider her one of the more courageous policy leaders in Washington today. Her simple, prescient toaster metaphors in 2007 -- remember the world before the financial crisis? -- were brilliant. That summer, a year before the collapse of Lehman Brothers, she wrote:

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street-and the mortgage won't even carry a disclosure of that fact to the homeowner.

However, in her most recent Wall Street Journal Op-Ed, "Wall Street's Race to the Bottom," I believe Professor Warren makes unfortunate leaps that weaken her purpose and give credence (if not, outright strength) to the destructive ongoing debate around financial regulation. This debate continues to paralyze our political system, change nothing about the underlying causes of the crisis and offend just about everyone. As American citizens we need to hold our elected officials accountable to get something done now, or history is bound to repeat itself.

So...where does this great thinker go wrong? Oddly, she doesn't get her villains right (from a productivity standpoint, at least).

Before I explain, let me be clear - I have no doubts that weak lending standards, NINJA ("No Income, No Job, no Assets") loans, option ARMs and other complex financial products sold to consumer were among the multiple contributors to our current economic climate. Even Ben Bernanke himself purchased an option ARM that "exploded" and had to be refinanced. (See the Chairman's own words on page 11 from his Time Magazine 2009 Person of the Year Extended Interview.)

However, I believe that in blanket vilifying Wall Street, policymakers fall into a familiar pattern of scapegoating that occurs irrespective of party affiliation or ideology. They find the most obvious target from outside the ranks of Capitol Hill and foment public frustration in a manner that isn't entirely productive. Blaming Wall Street for pursuing profit is like a vegetarian getting angry at tigers because they eat meat.

The simple truth is that when American corporations pursue profit -- successfully or not -- as long as they stay within the law they are functioning exactly as we designed them to. Wall Street firms are legally obligated to focus on their fiduciary responsibility to shareholders and employees. This reaches to the core of what it means to be American, and how capitalism has helped make the United States the extraordinary nation it is today.

Elected officials, by contrast, have a very explicit moral responsibility to taxpayers and should make 100% of their decisions for the benefit of citizens they represent. Sadly, a great number of them act like this doesn't matter, and they protect the wrong constituency. This is the graver issue deserving of Professor Warren's considerable attention.

At the end of the day it is important to remember, Jamie Dimon doesn't have the final say on regulation no matter how much he wishes he does. In concluding her article, Professor Warren calls on Wall Street CEOs to directly support necessary consumer protections that will cost the largest banks billions in lost revenue. I do not believe this is the most realistic course for achieving progress on financial reform.