How The Federal Reserve’s Failed Consumer Protection Alone Makes Elizabeth Warren The Only Choice for the CFPB

Back in March, Mary Kane of the Washington Independent made a great catch. She wrote about the Consumer Advisory Council (CAC), the consumer protection group at the Federal Reserve. Mary on the agency: “Some members also say the CAC is supposed to the consumer’s voice, but things never quite worked out that way. Their specific complaints: Over the years, industry officials outnumbered the consumer representatives at the meetings. Consumer reps felt their concerns weren’t heard. And the industry reps used their memberships on the CAC to lobby for their positions against regulation.”

Here’s my favorite part. Mary went through transcripts of meetings with this group when they were discussing the CARD Act, the credit card regulation originally put into place by the Federal Reserve and later accelerated through a law passed by Congress. Here’s a great quote:

Edna Sawady, CAC chairwoman: Last month, the Board issued a proposed rule to implement the provisions of the Credit Card Act that go into effect on February 22, 2010. I’m sure you will get a kick out of the date, because you’ll hear a lot of discussion of what’s going to happen on February 22, 2010. I’ll just give you a sneak preview — don’t go to the grocery store.

Kevin Rhein, Wells Fargo executive: Or buy gas or anything else.

Read that again. This is what consumer financial protection at the Federal Reserve has looked like. What a disgusting way of viewing the topic. “If we try to fix the broken consumer financial market there will panic, chaos, human sacrifice, dogs and cats living together… mass hysteria!” No numbers, no argument for why regulation would be important here, nothing.

Notice how the discussion tone moves seamlessly from from the regulator to the banking executive. We look from outside from regulator to banker, and from banker to regulator, and from regulator to banker again; but already it was impossible to say which was which.

I really enjoy reading and writing about how the Federal Reserve dropped the ball on consumer financial protection. Both the fraud element and how the Federal Reserve didn’t enforce the laws already on its books is well documented. From time to time we’ve dug up Federal Reserve minutes about how wrong they got it.

My favorite is this meeting from July 2000 held by the Federal Reserve in North Carolina, with Martin Eakes of Center For Responsible Lending and Self-Help and community bankers screaming at the top of their lungs about subprime mortgages and dubious home equity loans. Governor Gramlich’s tone in response comes across as ‘why are these hippies wasting my time and why isn’t this meeting over yet?’ Guess who turned out to be right.

The battle for the CFPA was a major one. Remember when the Chamber of Commerce crated a webpage simply titled: It was a bold move, saying to reporters and their funders that they would kill this. And they didn’t. But it is in the Federal Reserve. It isn’t an independent agency. The Federal Reserve could be a powerful place for this agency, perhaps even more so than if it was independent, but it is far more crucial that the first appointment is an outsider. The Federal Reserve’s track record has been horrible, and it has been horrible in the worst of crony ways. An outsider with a bold plan for the agency could use the strengths of the Federal Reserve with incorporating few of the weaknesses.

There are certainly a lot of people qualified on the inside. But if all these people want to do is climb the Federal Reserve’s ladder, keeping this agency quiet and unproductive is going to be a major gold star on the resume. Elizabeth Warren is an outsider here, and her actions on the Congressional Oversight Panel show that she can stand up to the Federal Reserve. And without an outsider to the regulatory apparatus leading the CFPA, with a generic Federal Reserve choice, we could end up with yet another person nodding along with the banking executives at how all these lucky duckies don’t appreciate anything.

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5 Responses to How The Federal Reserve’s Failed Consumer Protection Alone Makes Elizabeth Warren The Only Choice for the CFPB

  1. Ted K says:

    Outstanding post as usual Mike. Outside of James Kwak nobody touches you on Finance blogging. And I am a junky of ECON/FIN blogging so I ought to know. Great stuff. I guess the legislation calls it CFPB after we’ve been calling it CFPA all this time??? Getting confused on the appropriate acronym. That basturd Dick Shelby probably decided he could make some McCarthy-esque like attack on it if they called it a Bureau, and bumbling idiot Chris Dodd nodded “Duuuuuhh…… , yeah that’s a good idea Dicky!!”

    If President Obama doesn’t choose Elizabeth Warren for head of CFPA, my question is what is the point in having 59 Democrats in the Senate and majority in the House and a President of “change” when they all fall down like dominoes/pussies when the American Bankers Association throws campaign dollars at the Republicans???

    “All that is necessary for the triumph of evil is that good men do nothing.” ( Edmund Burke)

    Again, if Obama doesn’t choose Elizabeth Warren for CFPA, I will be staying home eating pizza someday in November 2012. And I can tell you, if someone like me doesn’t show up, his political base won’t show up either. So he and Rahm Emanuel can chew on that fact for awhile if they like. And everyday he needs to think about choosing Elizabeth Warren for the job, my guess on President Obama’s IQ level drops a few points.

  2. fiscalliberal says:

    So – Preemption was government support of sub prime fraud. They stopped the state Attourney Generals from prosecuting and then refused to enforce the laws on the books. This along with the Supreme Court ruling codified in law the Alan Greenspan Ayn Rand ideology (market supremacy) which ended up in total collapse and failure of their financial system. No independent in vestment banks exist today, all of them running to the government Fed Window as Holding Banks.

    Our conservative friends chant the mantra “get the government out”. This effectively happened with George Bush. Upon it failure, they bought out Bear and cashed in Lehman with the resulting fiasco showing other area’s of AIG and Banker Credit Default Swap fraud. Today, Grechen Mortganston documents how the big bankers promoted fraud.

    The tragedy is that the Fed and Treasury did not have the capability to determine that all of this is a unsustainable business model. People, in and out of the government saw it comming but were ignored by the industry, regulaters and government.

  3. Andy says:

    I don’t think that it’s very clear in this quote that Sawadny is NOT an employee of the Federal Reserve. The page you linked to says “The Council, which has generally drawn little public attention, was created by Congress in 1976 as the public’s link to the Fed, and it includes about 30 members, representing consumer advocates, the financial services industry, government, and academia.” Sawadny works(ed?) for Keybank. She was serving as the leader of the council of outside voices. You may accuse her and the WF guy of overstating the problem — they clearly did — but they weren’t doing so as Fed employees, just as representatives of their institutions.

  4. Some people say that even if Elizabeth Warren is the best (which she is by far), they can’t get her confirmed over a Republican filibuster.

    Well, what would the Republicans do if they wanted someone who would be great at preventing regulation but they couldn’t get him by the filibuster? Of course, they’d just do a recess appointment and wouldn’t give a crap how it looked. It will be little known or cared about by election time. The Republicans are far more ruthless and united than the Democrats, and as a Result the filibuster hurts them far less than it hurts the Democrats.

    Abolishing the filibuster should be the Democrats top priority. That would be the best thing they could do to advance EVERY one of their top goals over the long run.

    For more on this see my comments here:

  5. Pingback: Richard (RJ) Eskow: Elizabeth Warren and Her Discontents « In The News « Obama America

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