Monday, October 04, 2010

Elizabeth Warren's prospects at the CFPB

I'm trying to see the cup half full, the Obama administration cup, that is. But they don't make it easy for us.

Bmaz in The (Liz) Warren Commission and Financial Reform Emptywheel 10/03/2010 points out that while it's great to have Elizabeth Warren as head of the Consumer Financial Protection Bureau (CFPB), the delay in her nomination related to the definition of the actual scope of the CFPB's authority, which was apparently accomplished without much input from her. And the prospects for her final confirmation are by no means certain.

On the related issue of the evaluation of the TARP financial-rescue program, Bmaz cites Gretchen Morgenson, Count on Sequels to TARP New York Times 10/02/2010.

Economist Simon Johnson gives his evaluation in TARP Is Gone – But May Soon Be Back The Baseline Scenario 09/30/2010, including the recently-adopted financial reform that is one of the Obama administration's signature accomplishments:

[B]y the time the administration put forward its financial reform ideas, the big banks were back on their feet – and ready to throw huge numbers of lobbyists and unlimited cash into the fight to preserve their right to take inordinate risk and to mismanage their way into disaster.

The administration’s proposals were weak to start with and were diluted by the House of Representatives (with a very few holding actions, most notably by Representative Paul Kanjorski). Surprisingly, and against great odds, the legislation was not gutted in the Senate – due primarily to the efforts of Paul Volcker (from the outside) and Senators Kaufman, Levin, Brown, and Merkley, the reforms became a little bit stronger. But the Dodd-Frank Act, while including some sensible consumer-protection measures, essentially does very little to reduce system risk as we move into a new credit cycle. In particular, there is nothing that ensures our biggest banks will be safe enough or small enough or simple enough so that in the future they cannot demand bailouts – the bailout potential exists as long as the government reasonably fears global financial panic if such banks are allowed to default on their debts[.]

Where do we stand today, with the Financial Stability Oversight Council meeting for the first time tomorrow? In a devastating speech last week, Mr. Volcker hit all the nails on the head – our financial system is badly broken. This will lead another runaway mania and another awful collapse. [my emphasis]
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