Politics & Policy

Time's Nearly Up for Elizabeth Warren


Elizabeth Warren is the architect behind the Consumer Financial Protection Bureau, the new agency created to police many financial products, including mortgages, and a centerpiece of the Administration's reform efforts. Opposition from Wall Street, Republicans, and some moderate Democrats prevented the Harvard law professor and longtime critic of the banking sector from being nominated to head the bureau after its creation last year. Instead, President Barack Obama appointed Warren as a special adviser in September and asked her to prepare the bureau for its July 21 launch. The move was seen by her supporters as a chance for Warren to placate her critics and clear the way for an eventual nomination.

Six months later, there's little evidence Warren has succeeded. Opposition from Wall Street banks and Republicans has only intensified after her involvement in proposing a $20 billion fine on the mortgage industry. While she's won the support of many small community banks, Warren has converted no new allies in the Senate, leaving her short of the 60 votes needed for confirmation. Before retiring in January, Senator Christopher J. Dodd (D-Conn.), co-author of the Dodd-Frank regulatory reform bill that created the consumer agency, urged Obama to put somebody else in the job—a vote of no confidence that helps explain rumors that Warren is considering alternative paths, including a run for the Senate. Representatives for Warren declined to comment.

In recent weeks the Administration has reached out to two other Democrats, former Michigan Governor Jennifer Granholm and former Senator Ted Kaufman of Delaware, about taking the job, according to people familiar with the Administration's deliberations. Both declined. Senate Banking Committee Chairman Tim Johnson (D-S.D.) calls Warren "one of a number of excellent potential candidates" but says the Administration needs to move forward.

Speed matters because Republicans see an opportunity to weaken the bureau. Over the past few months the GOP has introduced bills that would replace the director post with a five-member commission and reduce the bureau's budget and authority. Warren "has raised more concerns than she has allayed," says Representative Patrick McHenry (R-N.C.), who favors reining in the agency. Michael Lux, chief executive officer of Progressive Strategies, a liberal consultancy, says Republicans' criticism is a tactic "to scare up campaign contributions from banks" and make it politically costly for Obama to give Warren a recess appointment, which requires no congressional approval and would allow her to lead the bureau through 2012.

In her interim role, Warren's authority is limited and she can't pass binding regulations. But she has already hired dozens of consumer bureau staff members, secured a permanent home for the agency near the White House, begun work on a fraud-alert hot line, and hosted conferences on credit cards and mortgages. She has also spent much time meeting with small lenders across the country, working to convince them that the CFPB's rules will level the playing field and help them compete with the big banks. Robert L.Palmer, chief executive officer of the Community Bankers Association of Ohio, says his members are enthusiastic. If Warren "leaves, and the direction changes, we're not going to be very receptive," Palmer says.

Big banks have received less attention. Warren's February calendar reveals only one discussion—a phone call—with a Wall Street executive (Jamie Dimon of JPMorgan Chase (JPM) and a few meetings with trade groups representing the large banks. "She met with people, which is nice," says Sam Geduldig, a Republican banking lobbyist. But "actions speak louder than words."

One recent action, in particular, rankles financiers. Documents released in the past few weeks show that Warren advised the federal and state officials investigating alleged wrongful foreclosures to include in any settlement with the mortgage industry a $20 billion fine and a requirement to reduce loan balances for several million struggling homeowners. Republicans on the House Financial Services Committee say she failed to properly disclose her role in the negotiations while giving testimony on Mar. 16. Treasury Secretary Timothy Geithner called Federal Reserve Chairman Ben Bernanke from Europe earlier this month to assure him that he didn't support the settlement offer, according to two people briefed on the matter. "The mortgage stuff has really confirmed the kinds of concerns that people have had about her," says Wayne Abernathy, an executive vice-president at the American Bankers Assn., whose members include the largest banks.

A recess appointment may be Warren's last chance at running the consumer protection agency. Liberal groups that include the blog Daily Kos are encouraging her to run instead for the Senate in 2012 against Scott Brown, the freshman Republican from Massachusetts. Some Republican legislators may prefer her as a colleague rather than as a regulator. Warren "might be a nice professor," says McHenry, "but she hasn't shown herself capable of running a government organization."

The bottom line: It's looking less likely that Warren will ever run the CFPB. Liberals are urging her to consider a run for the Senate.

Dougherty is a reporter for Bloomberg News in Washington.
Schmidt is a reporter for Bloomberg News in Washington.

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