Warren Plays Volcker-Like Role for Obama in Finance Regulation


President Barack Obama struck a familiar chord when he named Elizabeth Warren to help set up a new consumer protection bureau

(Bloomberg) — President Barack Obama struck a familiar chord when he named Elizabeth Warren to help set up a new consumer protection bureau: putting a prominent figure in an advisory role to validate his economic message.

At the start of his presidency, that validation came from former Federal Reserve Chairman Paul Volcker. His appointment to lead the president's Economic Recovery Advisory Board within weeks of Obama's election lent the president credibility with the financial industry and Americans wary of his policies.

In Warren, 61, Obama chose a longtime consumer advocate and Wall Street watchdog who is a favorite of Democratic activists. She'll take on the job as an assistant to the president at the same time as Obama's political advisers are trying to position Democrats as champions of the middle class, less than two months before congressional elections.

Volcker's experience in the White House, where he's at times had to push for influence over policy in competition with National Economic Council Director Lawrence Summers and Treasury Secretary Timothy Geithner, may offer a blueprint for Warren, as well as raise questions about how much sway she ultimately will have.

"Warren is playing the role that's similar to the role that Paul Volcker played, in that she's a hugely important symbolic figure," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "In both cases they have no formal power, so they can make recommendations which the president and Secretary Geithner can take or leave as they find appropriate."

Volcker's Expertise

To be sure, Warren, who will be on the government payroll, doesn't bring the same hefty resume as Volcker. Even at 83, the 6-foot 7-inch former Fed chair remains one of the most respected American experts on the economy.

While Volcker has at times been sidelined by policy differences with other Obama advisers, he's been brought out at key points over the last 20 months to bolster the president's policy decisions.

Earlier this year, amid rising public anger at Wall Street, Obama had Volcker at his side when he announced he was adopting the "Volcker Rule" as part of his financial regulatory overhaul plan.

Volcker didn't know the rule would be named for him until the president said it, according to a person familiar with the matter. The working title during White House deliberations was "Restricting Certain Bank Activities."

As Volcker envisioned it, the provision would have banned banks from running private-equity and hedge funds. What emerged from Congress was a provision of the law that allows banks to contribute up to 3 percent of the equity in such funds.

Volcker told associates that he was disappointed with the final version, saying it diluted his original proposal.

Question of Influence

"Just as Volcker was involved, but his architecture was not allowed to prevail, one has to be concerned that Elizabeth Warren is an advertisement for political emphasis on the middle class that won't be ultimately embodied in the product," said Robert Johnson, director of the Economic Policy Initiative of the Roosevelt Institute in New York.

Like Volcker, Warren is taking on an advisory role tailored for her. Obama named her on Sept. 17 to be a special adviser to Geithner, leading a panel that will build the Consumer Financial Protection Bureau, and an assistant to the president.

Warren can carry the message that the administration is seeking to deliver amid voter concern about the economy and the 9.6 percent unemployment rate. When he announced the appointment, Obama said she is "a janitor's daughter who has become one of the country's fiercest advocates for the middle class."

Avoiding Fight

The appointment allowed Obama to avoid a protracted and divisive confirmation battle that would have followed a nomination of the Harvard University law professor to head the new bureau.

Warren, who is credited with conceiving the idea of a consumer agency, was the chairwoman of the congressional panel overseeing the Troubled Asset Relief Program. Her criticism of firms such as Citigroup Inc. and American International Group Inc. won her celebrity status among consumer advocates and prompted business lobbyists and Republican lawmakers to question whether she could be an unbiased overseer of consumer protections.

White House spokeswoman Jen Psaki said "there is no more powerful role" than that which Warren will play setting up and staffing the bureau.

"The unacceptable alternative would have been to sideline the architect of the agency for months through a confirmation battle at a time when passionate leadership at the helm was essential," Psaki said.

Warren said she never really wanted the job of heading the bureau.

Start Immediately

"I had this idea for this agency and thought, 'That's it. You know, other people will take care of it,'" she said in a Sept. 21 interview with CBS's "Early Show." "The president asked me to come here and start to work immediately, not to worry about titles."

Warren's role in the administration is more formal than that of Volcker, who is an unpaid adviser and heads a panel that isn't set up to administer or make policy. Still, she'll have to rely on Geithner, with whom she has sparred in the past, to sign off on her recommendations, Baker said.

"She's in this vaguely surreal world where she has no formal power," Baker said. "Maybe the administration would be listening to her recommendations over the next six weeks, but after that, do we know that they'll continue to take her as seriously?"


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