Re: The White House Needs Elizabeth Warren, Now More Than Ever

" what we need in financial services, above all else, is much more transparency"

Funny...I believe he campaigned for president about being more transparent....

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Subject: [DADL-OT] The White House Needs Elizabeth Warren, Now More Than Ever

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The White House Needs Elizabeth Warren, Now More Than Ever
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By Simon Johnson

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.

A lot of pitchforks ended up being paid for by the 13 Bankers, in various
forms (e.g., Chamber of Commerce; American Financial Services
Association).

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.

President Obama is worried about his left and needs to think also where
the center is heading.  He needs an issue that cuts across left and right.
 The left hates the abuse of power at the center of the financial system,
but the right also understands that “too big to fail” is not a market –
it’s an implicit government subsidy scheme, it’s a dangerous, unfair, and
nontransparent form of taxpayer abuse, and it should stop.

If the administration goes onto the defensive on these issues in response
to the election, the Chamber of Commerce and its fellow travelers will
have a field day.  Fresh from its successes in the midterms and backed by
an increasing wave of clandestine and – by the way, foreign – money, the
Chamber will attack again and again.

What the president needs is someone who can take the fight to the Chamber
– force them publicly to defend business practices that are unacceptable
and abhorrent to responsible entrepreneurs and executives.  (If you doubt
whether Elizabeth Warren can pull this off, see her recent speech to the
Financial Services Roundtable.)

The problem is absolutely not “fat cat bankers” (if you know a term that
more effectively unifies potential supporters of the Chamber of Commerce,
let me know).  It is that a few people (and their prominent organizations)
at the center of our financial system got out of control.  We can fix this
problem – there is no reason to subject ourselves to the risks inherent in
these individuals having excessive power and an inclination to take
advantage of ordinary people.

The nonfinancial sector gets this.  Community bankers get this.  Hedge
funds get this.  Even people who work in bigger banks (but not the biggest
or worst behaved) get this.  And people who, until recently, worked in the
global megabanks also get this.

But we need a champion.  Deputy Treasury Secretary Neal Wolin railed
against the Chamber of Commerce earlier this year for its lobbying
activities against reform, but he is too low profile to get much traction.
 Secretary Geithner may now understand these issues but he is not the
greatest communicator to the broader public.  And the rest of the Obama
economic team looks, at best, rudderless – what exactly do they stand for
or against?

Elizabeth Warren has the vision, the credibility, and the communication
skills needed to really bring overdue changes to our financial system –
and to lay the groundwork for 2012.  If the White House downplays her role
or themes, the next two years will be very difficult.


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