Why Obama Needs Elizabeth Warren, Now More Than Ever
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The White House today is under pressure, with insiders asking: After the strong showing of the Republicans in the midterm elections, should the president move to the right or to the left?
This is entirely the wrong way to think about the problem – the administration needs to get beyond its mental framework of early 2009, which led it sadly astray with regard to the financial sector. The President needs to find people and themes capable of cutting across the political spectrum; specifically he needs to promote strongly the ideas of Elizabeth Warren – what we need in financial services, above all else, is much more transparency.
The premise – and central mistake – of the Obama administration in 2009-10 can be summed up in what the president said to leading bankers on that fateful day, March 27, 2009: “My administration is the only thing between you and the pitchforks”.
The organizing notion then, provided by Larry Summers and presumably Tim Geithner, was that the “responsible” administration would protect global megabanks from “dangerous” populists, in return for cooperation and better behavior. This kid gloves strategy turned out to be a very bad bet – not only is it far from best practice with regard to handling failed financial systems (there must be consequences for executives and shareholders, at the very least), but it also allowed banks and their close allies to bounce back to profitability and use that cash (underwritten by the taxpayer) to oppose the administration on financial reform and, according to credible public reports, to funnel large amounts of money into various “populist” anti-administration midterm campaigns.
The administration, to its credit, did see Elizabeth Warren as an important potential ally early on – hence the emphasis on the new consumer protection agency for financial products. But the White House also should have played this card more aggressively by stressing at every turn Professor Warren’s central idea, the need to protect families from opaque small print and deceptive practices.
The Chamber of Commerce and other lobbyists help spend bank profits framing the consumer protection debate as being about “regulation,” but that is not the issue. We have had plenty of regulation in recent decades and still have lots of regulators. The issue is capture. Big banks in particular disproportionately captured the hearts and minds (and maybe more) of federal regulators.
The best idea for rolling this back is Elizabeth Warren’s – require more transparency and full disclosure. In effect, this is applying the best idea from the 1930s reforms (when it was applied to securities and other investments) to mortgages and credit cards. In the 1920s, there were terrible abuses of consumers around the investments that they were sold (see Michael Perrino’s new book ). In the 2000s, the abuses were concentrated on the liabilities side of the consumers’ balance sheet, i.e., on what they borrowed; again these were egregious abuses.
This is the key point that Ms. Warren communicates effectively time and again – and to very broad audiences (including CEOs, in her effective no-drama style ). The nonfinancial private sector completely gets and understands this point; if you sold boxed cereal in the same way that financial services have been sold (by some people), you would be kicked out of the boxed cereal business – by your industry colleagues. The financial sector, unfortunately, has lost its moral compass and ability to police itself. The right approach is to require full disclosure of all material information – just as we do for the securities industry. It’s not perfect, to be sure, but it has served us well for going on 80 years.