In talks with banks over regulation, Michael Barr has stayed tough. "That we don't always agree with lobbyists is a good thing"
When banks and their Washington lobbyists try to assign blame for the thrashing they've taken in the battle over financial regulation, one name usually comes up: Michael S. Barr.
The 44-year-old assistant Treasury secretary is one of several Administration officials charged with pushing the overhaul measure to final passage, expected in the coming weeks. A law professor and devotee of behavioral economics, Barr has championed policies especially disliked by Wall Street, including the creation of a consumer financial protection agency and the so-called Volcker Rule prohibiting banks from trading for their own accounts. "Our view is that he doesn't understand the industry very well, doesn't have a background with the industry, and has a philosophy that is inimical to free enterprise," says Wayne Abernathy, executive vice-president of the American Bankers Assn.
Barr agrees his relationship with the industry can be prickly. "They have just come off a period of time where they wrote the legislation and the [Bush] Administration literally invited them into the closed room to cut deals, and that's not the way we work," he says. "The fact that we don't always agree with the lobbyists is not a bad thing."
Barr is helping lead the search for people to run the consumer protection unit and the regulatory agency for national banks. The industry fears Barr will make himself the top choice for one of the posts, most likely the consumer protection job, says Abernathy, who held Barr's position in the George W. Bush Administration. Barr declined to discuss his future.
Advocates of tougher financial regulation credit Barr with helping to preserve the consumer agency's independence, which almost became a casualty during Senate negotiations. "There are many reasons why that doomsday scenario has not played out, but Michael Barr is one of the very significant reasons," says Travis Plunkett, legislative director for the Consumer Federation of America.
Banks found him to be an implacable adversary, even when they sought a compromise on the provision of the Volcker Rule that bars them from owning hedge funds. First banks tried to get a 10 percent ownership cap, then 5 percent; they threw in the towel when Barr rejected even 3 percent.
Barr envisions the consumer agency as a laboratory for ideas derived from behavioral economics, which seeks to steer consumer or corporate decisions in the direction the government wants by blending psychology and economics. Bankers and Republicans complain that the theories are a cover for Democrats' predilection to interfere with the free market. Barr says that consumers with access to risk and reward information make better choices, so government can be less intrusive. "A lot of the effort is built around having better information, using empirical data to understand how people actually think and behave," he says.
On leave from the University of Michigan, and with his wife and three children at home in Ann Arbor, Barr's life in Washington revolves around the congressional schedule and the bill. He sometimes holds midnight staff meetings and heads home every weekend. "We are going to get a bill and it's going to be a good bill," he insists. "But the margin between that and just nailing it is what I'm focused on now. And I like nailing things."