Dodd

What's the Hold-up on Elizabeth Warren?

Zach Carter — Tue, 14 Sep 2010 15:07:35 -0400

Nobody seriously disputes whether Elizabeth Warren is the best-qualified candidate to head the Consumer Financial Protection Bureau. Everybody recognizes the bipartisan political appeal that Warren has with voters, and Democratic strategists know that no action in their power would play better to the party's base than a Warren nomination—a vital maneuver ahead of the November elections. President Barack Obama has no less than three procedural options to get Warren on the job. So: What's the hold-up?

The bank lobby has been doing everything it can to block Warren's nomination, but there are simply no good reasons to bypass her. In the field of finance, there is simply no consumer advocate more accomplished than Warren. She's quite possibly the finest bankruptcy scholar in the country, she came up with the idea for a Consumer Financial Protection Bureau in the first place, and as Chair of the Oversight Panel for the Wall Street bailout, she has proven that she is willing to ask tough questions and hold powerful people accountable for their actions (she has also been profoundly non-partisan, critiquing Democrats and Republicans alike). Warren has even authored a terrific book on managing household budgets, one which is not only full of excellent advice, but which proves she understands the economic pressures facing everyday Americans.

Wall Street bankers say this kind of record is grounds to question her "impartiality," but after decades of regulatory appointments that came straight from the banking industry, this cry rings hollow. John Dugan, the top bank regulator appointed by President George W. Bush was a bank lobbyist before Bush got him the job—I don't remember bankers worrying about his impartiality.

Moreover, the CFPB is supposed to advocate for consumers by design. That's the whole point of the agency. It's supposed to do so in a nuanced and sophisticated manner, but Warren's entire career shows evidence of exactly these characteristics. You don't have to read through academic law papers for proof, just read her blogs on consumer credit..

So what is Obama waiting for? Outside the offices of Wall Street CEOs, Warren enjoys extremely broad appeal among the general public. She's a former Republican from Oklahoma who fights for working people, not for Democrats or leftists or any other political group or special interest agenda. She wants to see the middle class protected from financial predation. That's not a radical ideology—it's common-sense economics and basic business ethics. Senators would find it very difficult to explain a vote against Warren to their constituents.

But if Obama really doesn't believe Warren can muster the votes in the Senate, he has two other options. He can appoint her during a Congressional recess, or, thanks to a provision of the bill that established the CFPB, he can name her "interim" head of the agency, neither of which require confirmation. There's no reason to be ashamed of such a move, as Warren would easily garner the 50 votes mandated by the Constitution. The only question is whether she could clear 60 votes to get around contemporary Senate rules, and we're only really asking that question because one bank-lobby-friendly Senator asked it, without offering any evidence of confirmation hurdles, while acknowledging that he himself would vote for her.

Obama could even combine these options, naming Warren interim head of the CFPB right now, while simultaneously submitting her nomination for the permanent post to the Senate. This move would allow Warren to begin her work at the agency immediately, as Congress goes through the confirmation process.

Any of these strategies could be perfectly acceptable, depending on the details. Nobody wants to see a fake-out, where Obama puts Warren in the post for a few months, only to replace her with a bank-lobby pick after the election. But there's plenty of evidence that the president sincerely wants to get Warren the job—he fought hard to create the CFPB, and he has praised both Warren and her work repeatedly. He has several options for getting Warren on the job right now and keeping her there for years. So what's the hold-up?

Chris Dodd is Embarassing Himself

Zach Carter — Tue, 14 Sep 2010 15:06:38 -0400

Sen. Chris Dodd, D-Conn., is grasping at straws to block Elizabeth Warren's nomination as head of the Consumer Financial Protection Bureau. He's making a fool of himself, and hurting his party's political prospects for November.

Dodd's latest foray into bank lobby dirty work came today in a series of inflammatory comments to reporters. Dodd made the preposterous claim that if Obama nominated Warren to the CFPB, Congress would retaliate by de-funding the agency. Here's Dodd, as reported by HuffPost's Ryan Grim:

"This is a big job, an important job, and it needs to be -- you've got to build the support for that institutionally or the next Congress - and none of us know what the outcome's going to be politically -- you could gut this before it even gets off the ground. If you don't have someone running it early on, it jeopardizes the existence of the consumer protection bureau," he said. Asked how Congress would gut it, he said: "Money. Take away the money. That's how you always do it."

This is just absurd. The CFPB is funded through the Federal Reserve, not Congressional appropriations. Dodd knows this. He was a top negotiator on the CFPB and wrote much of the bill. The only way Congress could actually de-fund the agency would be to pass a new law and get President Barack Obama to sign it. Obama would never sign a bill gutting the CFPB—he fought hard to get it included in the Wall Street reform bill—and Congress would never be able to get a two-thirds majority needed to override a veto. Defunding the CFPA is politically impossible, and will remain politically impossible regardless of what happens in November.

Speaking of November, Dodd's recent shenanigans are creating political problems for Democrats. His transparent pandering to the bank lobby on the Warren nomination makes his entire party look bad, and has tainted the public perception of the Wall Street reform bill. It almost looks like an intentional act of political sabotage. If Dodd's colleagues care about getting re-elected, they should convince him to shut his mouth.

It's also truly astonishing for an outgoing Senator to be threatening a President of his own party through the press like this. Warren is clearly the best candidate to head the CFPB. Dodd's opposition doesn't make him look reasonable or moderate, it makes him look like he's working for the Wall Street executives who drove the economy off a cliff. You'd think he could hold off on this kind of behavior until he's officially out of office.

Sen. Cantwell's Courageous Vote

Zach Carter — Thu, 20 May 2010 13:18:00 -0400

The most courageous vote yesterday in the Senate was cast by Sen. Maria Cantwell, D-Wash., who refused to let the Senate sign-off on an unnecessarily weak Wall Street reform bill. Cantwell has been trying to fix a fatal loophole in the derivatives language which prevents regulators from enforcing new rules on the secretive shadow markets that brought down AIG. So far, the Democratic leadership has sided with the banks against Cantwell.

Here's the basic problem. When Sens. Chris Dodd, D-Conn., and Blanche Lincoln, D-Ark., combined their derivatives bills in April, they cut language from Lincoln's bill that would have made it illegal for banks to break the new derivatives regulations. As a result, the bill does a pretty good job listing activities that banks cannot engage in, but if banks simply decide not to follow the rules, regulators will not be able to crack down on them.

These problems were first reported in a story I wrote for AlterNet in April. Since then, HuffPost's Shahien Nasiripour has elaborated on the matter, and both Mike Konczal and David Dayen have explained the issue in detail. I have also spoken about the conundrum with Laura Flanders begin_of_the_skype_highlighting end_of_the_skype_highlighting on GRITtv. Sen. Cantwell has an amendment that would close this loophole and make it an explicit violation of law for anyone to break the new derivatives rules Congress will enact. But for some reason, Dodd and Senate Majority Leader Harry Reid, D-Nev., have prevented that amendment from coming up for a vote on the Senate floor.

This is a separate, and much more fundamental fight than the contest between Dodd and Lincoln over whether banks will have to spin-off their derivatives businesses—which Dodd also appears to be hellbent on gutting. The spin-off issue would require that any derivatives dealing operations be divorced from taxpayer guarantees that commercial banks benefit from. It's a very important provision, but the loophole Cantwell wants to close has to do with the basic functioning of the derivatives market—regardless of which firms operate as dealers. Without Cantwell's amendment, Lincoln's spin-off language is rendered meaningless.

Make no mistake, derivatives are the central fight in Wall Street reform. The debate over the Volcker Rule in large part hinges over the proposal's impact on derivatives trades. The market amounts to hundreds of trillions—trillions with a "t"—in bets on anything you can dream up. These trades occur totally in the dark, without either market or regulatory supervision, making the derivatives market a hotbed for fraud and abuse, as evidenced by the Securities and Exchange Commission's fraud suit against Goldman Sachs. The subprime mortgage nightmare simply could not have expanded to its disastrous scope without the derivatives market, which allowed banks and hedge funds to bet on lousy mortgages. Nobody knows what underlying assets will spark the next epic financial crisis—this time around it was housing-- but if derivatives are not reined in, they will be used wreak havoc on the broader economy.

Wall Street banks make billions of dollars every year from keeping this business in the shadows. J.P. Morgan Chase alone thinks that bringing the market out of the shadows will cost it up to $2 billion in annual profits.

The central problem is the secretive nature of the derivatives market. When banks want to execute a trade, they just call each other up and agree to it, and the trade is finished. Nobody in the market has to sign-off on their ability to make good on these bets, and no regulator can look out for abusive or reckless trading. The minimum reform necessary would require a third-party to guarantee the bets that each side of the trade makes. When Bank of America bets with AIG, this third-party not only verifies that each company can make good on their side of the contract, this third-party agrees to pay in case one side does not follow-through on their obligation. This process is called "central clearing," and the third party is known as a "clearinghouse."

Central clearing prevents the cascade of defaults that policymakers were worried about when AIG went down in 2008. Once it became clear that AIG couldn't make good on its derivatives bets, there was a major worry that dozens of other banks would take serious hits, collapse, and cause dozens of other collapses in the process. If we have a clearinghouse intermediating all derivatives trades, it will be the clearinghouse, not taxpayers, who are on the hook when derivatives bets go bad.

The current reform bill contains a host of good central clearing requirements, but if Cantwell's amendment is not adopted, regulators will not be able to enforce those rules.

This is not a matter of liberal or conservative dispute. Every serious student of Wall Street reform, from Republican Treasury Secretary Henry Paulson to President Obama to socialist Sen. Bernie Sanders of Vermont, believes that central clearing is absolutely necessary to prevent the insanity we saw in 2008. All Cantwell wants to do is actually enforce those rules. She is absolutely right to withhold her vote for the bill until it meets this very low minimum standard. Dodd and Reid may be able to steamroll her by winning over Republican Scott Brown of Massachusetts. That would be a political victory for the Democratic leadership, and a major defeat for our economy.

Liveblogging The War On Wall Street Reform

Zach Carter — Wed, 19 May 2010 15:16:39 -0400