Why Elizabeth Warren Terrifies Wall Street -- She Makes Sense

Last Updated Mar 16, 2011 12:31 PM EDT

Nothing seems to freak out Rupert Murdoch -- sorry, the Wall Street Journal -- more than a strong woman with a mandate to police Wall Street. Smell the fear:
A House subcommittee will hold an "oversight" hearing today on the new Consumer Financial Protection Bureau, the über-regulator that will soon have jurisdiction over most of the country's credit-making institutions. We put "oversight" in quotes because Congress has little say over either the new bureau or its unofficial czar, Elizabeth Warren.
You know the paper is worried when it starts speaking in German. Of course, this notion of Warren's über-hood is false in any language. That's because the CFPB will be the most closely scrutinized financial regulator in all the land.

The bureau will have to answer to a council of other banking and government agencies, which in some cases can override the CFPB's authority. Congress may change its rules, while the courts can ensure the agency remains within the law. The bureau is required to consult with other watchdogs before passing a rule. Its budget, which Republican lawmakers are trying to cleave nearly in half even before the bureau officially opens, is strictly capped. It must request additional funding through the Federal Reserve, never known for its bolshie tendencies. The CFPB also must periodically report on its activities to Congress and is audited by the GAO.

As Warren notes today in discussing the CFPB's progress on Capitol Hill, no other financial regulator faces such extensive constraints. But what really gets the WSJ sweating are the terrible things the bureau can do with its power, to wit:
She has backed stringent regulations on credit-card companies and worked to forge alliances with state Attorneys General.
How dare she support "stringent" regulations, as opposed to, you know, the loose, floppy kind that make your ass look smaller! And state AGs? Cossacks, every last one of them. (Pssst, a word to the WSJ's op-edniks: If you're trying to paint someone as a bomb-chucking radical, it doesn't really make sense to also depict them as the czar. Just sayin'.)

Warren in her own words
But let's allow comrade Warren, a Harvard University law professor, to describe for herself what the CFPB is up to so far. She describe its mission simply as "making markets for consumer financial products and services work in a fair, transparent, and competitive manner," a goal tempered by her recognition that "government regulation also has played a part in making credit products more opaque." Here's a condensed list of some of the bureau's priorities drawn from her statement before a House Financial Services subcommittee:

Mortgages:
The past few years have demonstrated how problems in the mortgage market can pose a systemic threat to our overall economy. If there had been basic rules of the road in place [for] mortgages, consistently enforced at the federal level by an agency fully accountable for protecting consumers, the current economic crisis would not have developed in the way it did.... If there had been just a few basic rules and a cop on the beat to enforce them, we could have avoided or minimized the greatest economic catastrophe since the Great Depression. In the future, the new consumer bureau will be that cop. Transparency in the mortgage market is critical. If a family can see the costs and risks up front, that family is safer â€"- and we're all safer.
Credit cards:
Changes that make the credit card market more transparent can echo throughout our economy. If the costs and risks of credit card products are clearer, consumers will be able to make straight-up comparisons among cards â€"- and to make the best decisions for themselves and their families.... Making credit cards easier to understand and compare can also spur innovation. Instead of producing ever-more-complicated cards with more hidden fees and surprises, card issuers would have additional incentives to produce innovations that are attractive to customers.
Financial education:
The Dodd-Frank Act required the CFPB to establish an Office of Financial Education. This office will be a 21st century resource for consumers who are looking to better understand how different products and services work, and we will provide access to tools and information that can help consumers select the products that are best for them.
Supervision, enforcement and fair lending:
One of the consumer bureau's chief responsibilities will be to supervise certain non-bank financial companies that provide consumer financial products and services. These include mortgage brokers, mortgage lenders, mortgage servicers, payday lenders, and private student loan providers. This will be the first time that many of these non-bank financial services companies will be subject to federal compliance examinations.... We will strive to enforce the federal consumer financial laws appropriately while remaining cognizant of increasing compliance costs and burdens for regulated entities.
The edicts of a tyrant or a few sensible prescriptions for a financial industry in dire need of some common sense? You tell me.

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