It’s been a few months, but we’re back to debating whether or not Elizabeth Warren needs to be the first head of the Consumer Financial Protction Bureau she’s currently setting up through her non-confirmed position at Treasury. Warren is unquestionably eloquent and whip smart; the consumer protection agency was her idea and she’s a natural choice to lead it.
The notion, promulgated by Republicans, that she’s a power hungry regulator just drooling over the opportunity to savage banks with onerous rules and loopholes is ridiculous. But the idea, sometimes voiced by liberals, that seems to suggest she’s some sort of regulatory messiah, the only human being who can rescue America from another financial crisis is several degrees more ridiculous, and quite frankly, much more dangerous. The myth of infallible authority, especially when it comes to the financial sector and the economy, is not new. (See: Greenspan, Alan.) It never turns out well. Paul Krugman gets at something similar today.
But then he goes and says, “If a basically moderate, reasonable, well-intentioned person with such a good track record can be demonized, there is truly no hope for reform.” That’s just silly. Consumer protection is popular and has the potential to do the American people a real service. And if we understand the loans and credit lines being thrown at us, there’s a better chance the whole system will be better off. But any back-of-the-envelope political math will tell you that Warren isn’t going to get the job. If selected, Republicans will vote against her. The world will move on and there are other people who can competently carry out her vision at the CFPB.
If you could wave a magic wand and change one thing to make the financial sector safer, less prone to another globally felt implosion, your best bet sure wouldn’t be using it to get Elizabeth Warren 60 votes in the Senate. It also wouldn’t be cutting pay on Wall Street or hiring certain regulators or putting ponzi schemers and inside traders in jail. Those are personal approaches to what is fundamentally a structural risk. You’d be much better off, say, tightening capital restrictions and leverage ratios at banks across the globe. Warren’s role at the CFPB might be worth a political battle — I’m not saying anybody shouldn’t make their case — but it’s a mistake to overstate it. No matter the outcome, it’s not the ground that reform lives or dies on.