Nominate Elizabeth Warren to the Consumer Financial Protection Bureau

Posted by AzBlueMeanie:

Simon Johnson, former chief economist of the International Monetary Fund, professor at the MIT Sloan School of Management, senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers, writes this persuasive post in favor of President Obama appointing Elizabeth Warren to head the Consumer Financial Protection Bureau (even if he has to do it by a recess appointment). Nominate Elizabeth Warren – Provide the Pecora Hearings We Need:

[Elizabeth Warren] should now be nominated to the CFPB position. There will be strong Republican opposition and some Democrats who are close to the financial sector may be lukewarm. But a public hearing on her case represents our best opportunity to experience a modern version of the Pecora Hearings – the Senate Banking Committee hearings in the 1930s that laid bare the inner (and rotten) workings of the biggest financial firms (see Michael Perino’s book on Pecora for details).

These hearings would represent a major step forward towards forging a new consensus regarding how to really establish markets (as opposed to the crazy government subsidy schemes that predominate). In addition, the administration would win a big victory with Ms. Warren’s confirmation.

Elizabeth Warren hasworked long and hard to build a working relationshipwith reasonable people in the banking community. These investments now seem to be paying off, with the president of the American Banker Association saying this week that his organization would support Professor Warren if she is nominated (although he later backtracked and said he meant they would be supportive “if she is appointed”). Community bankers have already expressed support in various ways.

Her arguments are very hard for Republicans on the Senate Banking Committee or more intransigent bankers to refute in any kind of public setting – because there is very little of the “market” in our currently predominant banking sector arrangements.

A proper Senate confirmation hearing would be the perfect platform for Ms. Warren to explain, (a) not only do “too big to fail” banks now constitute and hugely dangerous government subsidy scheme, but (b) based on these subsidies, they are becoming larger and acquiring more market power that can be – and has been – used to abuse consumers in a nontransparent fashion.

All attempts so far to construct some form of Pecora Hearings have failed – partly because the issues are complex and partly because of partisan fighting. The Financial Crisis Inquiry Commission made some progress but could reach no consensus (or bring anyone to justice). Senator Levin’s hearings into Goldman Sachs grabbed attention and were most helpful in the Dodd-Frank reform debate but again no one is going to jail – and few people even grasp what were the real issues at stake. And the Department of Justice has preferred to pursue insider trading cases, perhaps taking the view that these are easier to explain to juries.

But Elizabeth Warren cuts through the complexity and offers a message that – outside of Washington – plays well across the political spectrum.

Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.

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Elizabeth Warren is offering to allow proper markets to work again within at least part of finance. She has convinced many community bankers that her intentions are sincere and that her principles-based approach can work.

It’s time for the president to stand up to abusive financial practices facilitated by cynical and nontransparent subsidies.

If nominated, Elizabeth Warren’s confirmation hearing would become a defining moment for thinking about finance in America.

And reform would win. All the missed opportunities, botched bailouts, and kowtowing to megabanks would fade into the background. Every attempt at change must face many setbacks – and financial reform has really struggled to have any impact.

But at the end of the day, if Elizabeth Warren wins, we all win.

You know what to do… contact the White House and tell President Obama to nominate Elizabeth Warren to the Consumer Financial Protection Bureau and to be willing to fight for her confirmation (by a recess appointment if necessary). And contact your congressional representatives to tell them to support Elizabeth Warren over the predatory banksters of Wall Street. Enough is enough!

"Somebody's going to emergency, somebody's going to jail."