Simon Johnson asks “Who is Afraid of Elizabeth Warren?” Zach Carter finds that editorial writer Mary Kissel is leading the Wall Street Journal’s opinion column’s attack campaign against Elizabeth Warren. Here’s their argument: “The consumer bureau is essentially a bureaucratic rogue. We’d like to see Congress kill the agency entirely. But at the very least Congress should remove it from the Fed, make it part of the Treasury and subject it to annual appropriations.”
Jesus wept. Listen, the Federal Reserve had an agency called “Division of Division of Consumer and Community Affairs.” We know this because on January 20th, 1998, the Division of Division of Consumer and Community Affairs circulated to the Governors a memo urging them to vote to “adopt a policy to not conduct consumer compliance examinations of, nor to investigate consumer complaints regarding, nonbank subsidiaries of bank holding companies.”
They followed this advice of the consumer affairs division of the Fed. Which juiced the subprime market through a regulatory arbitrage; regular banks had a rule that shadow banks did not, and bank holding companies suddenly were given a push to find creative ways to create nonbank subsidiaries off-balance sheet hidden from investors. This is a matter of fact. The Federal Reserve has always been involved with consumer protection; it’s just that they’ve done a terrible job of it, always treating it as subservient to making bankers happy and we need to re-conceptualize the role of it as it being the priority mission.
You know who else is involved with consumer protection? Everybody. The OCC, OTS, NCUA, Federal Reserve Board, FDIC, FHFA, HUD, VA, FTC and DOJ all have consumer protection in their mission. For all (except possibly the FTC, which lacks massive jurisdiction) it’s an orphan and subordinate mission. By consolidating regulators lenders that deal with consumers have a single, straightforward regulator to deal with, reducing burden and increasing clarity by providing a level-playing field. From the Roosevelt Institute’s Make Markets Be Markets conference, graphs courtesy of the Consumer Federation of America, you can either have this:
Also, quick: How many mortgages are there in the country? Put away the google, the short answer is that nobody knows. There’s terrible data in general, and terrible public data in particular, on the consumer lending market. Most of the debt data we have are aggregate data that the Fed puts together for macro models. For people like me who think we have a balance sheet recession, where the distribution of debt matters, having a BLS-like set of resources to pull trusted and consistent data would be awesome. And here’s another interesting thing about the CFPB: it has a mandate for research and data collection.
This anti-Warren rage never ends, though it always surprises me. This Tim Noah article is the best I’ve seen about the CFPB: Phantom Rogue: How can the CFPB be raging out of control when it hasn’t done anything yet? Read all of it. The GOP is going crazy accusing Warren of doing things when (a) the CFPB doesn’t exist and/or (b) the CFPB can’t do that specific feature anyway. The CFPB’s actions are subject to a veto vote from the FSOC. If anything, that makes its not independent enough, and certainly not a rogue institution.
I still think Warren is the best candidate for the job. The past several months have gone very well. So what causes this level of freakout?
Is it that she’s critical of Wall Street and the way bailouts were handled? That’s pretty representative of the country. Is it that she doesn’t assume entry-level convex optimization math proves that markets always work perfectly in a world with bad information, bailed out too big to fail institutions shaking hands with the government, in a world with power, in a world where capital structure and debt matter in a critical way, etc.? Warren uses economic analysis, and uses it well, but as the beginning of the discussion, not the end of it. I still don’t get it.
Aside: For those discussing if economics is a science, and are frustrated that educated people think there’s something shady about the way economics as a science is deployed in elite conversation, this post of Warren’s from a while ago about whether an economic statement is a question of fact or of law shows a sophistication in terms of working through the implications of economics.