The progressive blogosphere seems pleased with Elizabeth Warren’s initial foray in the Senate Banking Committee. For instance, Huffington Post trumpeted, “Elizabeth Warren Embarrasses Hapless Bank Regulators At First Hearing.” While Warren fronted the question many American have asked, “Why no trials of big banks?” and made a coded reference to Aaron Swartz, it’s more accurate to say that the jury is still out on how effective Warren will be.
Warren makes effective use of a bad format, but let us labor under no delusions at to its limitations. The time limits on questions in Congress wind up producing sound-bites, grand-standing, and run-out-the-clock obfuscation rather than meaningful interaction. So while it looks like Warren scored a “gotcha” on the OCC and the SEC, her question was more of a trap than it might have appeared, and the compressed response time may have unwittingly served to leave the public more in the dark about what reasonable regulatory conduct might look like.
Now if Warren had had the time to engage in a Socratic dialogue with the Tom Curry of the OCC (and he’d decided to be forthcoming), it might have gone more like this:
Warren: So when did you last put a big bank on trial?
Regulator: Well, we give consent orders. The banks have to comply with them in areas we regulate.
Warren: Well, they often don’t. You just settled a consent order with ten servicers because they didn’t comply with your consent order to conduct an independent investigations of complaints from borrowers who’d been foreclosed upon. Did you consider ligitating? Did you investigate their actions?
Regulator: That would take too long. Our priority was to get money to homeowners faster. We announced checks will be gong out in March.
Warren: Well that might have seemed like a more pressing priority, but that gets back to the issue I raised earlier: it looks like the banks made money from their illegal conduct and the fees are just reducing their profits some. Can you tell me if your agency has ever even given serious though to taking a big bank to trial?
What this type of discussion would hopefully eventually tease out is that banking regulators don’t consider ligitigating because they have a ton of power over banks. They can revoke their licenses. That was what Benjamin Lawsky, the New York banking superintendent, threatened to do to Standard Chartered. From his order:
IT IS NOW HEREBY ORDERED that, pursuant to Banking Law § 39(1), SCB shall appear before the Superintendent or his designee on Wednesday, August 15, 2012, at 10:00 a.m., at the Department’s offices located at One State Street Plaza, New York, NY 10004, to explain these apparent violations of law and to demonstrate why SCB‟s license to operate in the State of New York should not be revoked;
This sort of thing is so Not Done that all the regulators in DC who had been involved in the negotiations became apoplectic and started calling Lawsky a rogue regulator. And substantively, all they could do was name call. Standard Chartered tried a bit of wet noodle waving in the form of leaking that it might sue Lawsky. Lawsky got a big settlement and the bank admitted to $250 billion of impermissible money transfers, when it has earlier asserted only $14 million were out of compliance.
In the days when regulators weren’t so craven, you’d see occasional shows of regulatory muscle. Salomon Brothers, then the biggest Treasury bond dealer, had a trader who was trying to rig bids at auction by abusing a gentleman’s understanding as to how many bonds a firm could bid for. When the Treasury made the understanding a rule, the trader went nuts, abused the Treasury official, and kept submitting overly large orders. The Fed (which runs the auction) threw the excess orders out and told Salomon to get the trader to behave. After a while, he started submitting bids in customers’ names without their permission, which is illegal. The firm figured it out but didn’t report it to the Fed. The Fed found out via the Wall Street Journal. Four days after the story broke, the head of the firm, the vice chairman, the general counsel, and the trader’s boss all resigned at the instigation of the Fed. The Bank of England also forced Barclays CEO Bob Diamond to resign over daring to impugn one of its officials during the investigation of the Libor fixing scandal.
So the fuller answer to Warren’s question to the banking regulators* would involve addressing why don’t they sue (answer: they have so much power they don’t need to sue) which then gets to: “Well if you have so much power, why do you tolerate so much bad behavior?” And it also, in practice, gets to “Since in reality, you aren’t willing to pull the license of a major bank, since it is too big to fail, and you and they know that, why aren’t you using litigation?” Her question would allow her to get to the core of the TBTF issue and lack of effective regulatory responses, but there is no way for her to begin to get there in five minutes in a committee hearing.
So while Warren fans are happy with her debut, these star turns are useful for signaling, but they are not how she will make a difference, if she can make a difference. The Senate gives her ready media access, but the convention in the Senate is for newbies keep a low profile for the first six months. Warren might be allowed some liberties on banking issues, given her expertise in this arena. Notice how she breezily overstepped her time limits in the video clip. But expect her to hew to convention elsewhere, otherwise she could undermine her ability to get things done. Remember, Hillary Clinton had to bring fellow Senators coffee as a freshman to prove she didn’t have airs.
That also means we are likely to remain in the dark about where Warren stands on other issues that affect middle class families, like social insurance programs and the progressivity of taxes, until after the deficit pact is done (Warren will be expected to fall in with the party position), unless we have another kick-the-can deal in March and real fights take place when she is in a position to operate a bit more freely.
So the early signs of how tough-minded Warren intends to be will come through the letters, speeches, and positions she takes on banking matters outside the formal Committee sessions. Her early talk is promising, but we need to see how she follows up with action.**
Update 3:50 AM : Reuters took note of the fact that some other Senators expressed their unhappiness about the foreclosure review settlement:
Lawmakers also expressed concern about a settlement between more than a dozen banks and the Office of the Comptroller of the Currency and the Federal Reserve in which the banks agreed to pay some $9.3 billion to end case-by-case reviews of past home foreclosures.
New Jersey Democrat Bob Menendez asked whether it was fair to end the reviews if certain borrowers still wanted them.
“Despite keeping their legal rights to sue the banks, most borrowers don’t have the financial means to litigate their cases if they feel the compensation was inadequate,” he said.
Thomas Curry, who heads the OCC, said the settlement “isn’t perfect” but that it was necessary to end a long, flawed review process that had grown expensive.
It pains me that the media dutifully parrots the official value of the settlement, which has a lot of hot air in it (writedown of deficiency judgments, which are pretty much worthless as it is). The number that matters, which is the pot out of which wronged borrowers will be paid, is $3.3 billion, a mere 1/3 of the headline number.
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*Even though the SEC was in the hearings, I don’t consider it to be a banking regulator. It is a securities market regulator. And it is also hopelessly hamstrung by being dependent on Congressional appropriations. Joe Lieberman regularly threatened to cut the SEC’s budget even when it proposed taking only fairly tame, pro-consumer moves. You can be sure the retaliation would be brutal if the SEC were to step out too far on any issue, save maybe enforcement against foreign financial firms.
** I am sure some readers are going to pipe up about how I had argued against Warren running for the Senate. Let me remind you of the core issue, which was that being in the Senate was not the highest and best use of her talents and visibility. The first idea for her was to change the discourse in the US by primarying Obama and making the fallen state of the middle class her issue. She would have gotten even more profile and could have moved the Overton window to the left. Second was for her to form a shadow CFPB at Harvard to keep the real one honest and keep pressure on the banks by making consumer finance abuses more visible.
In general, I think Warren underestimates her personal power and therefore overestimated the value of the Senate to her. She managed to get a new Federal agency created through publicizing a study she helped lead at Harvard (the Harvard Bankruptcy Project, which provided the research foundation for her bestseller, The Two Income Trap) and personal lobbying. That’s a remarkable accomplishment. She got far more visibility and credibility through her work at the Congressional Oversight Panel and in setting up the CFPB. She can still probably make a difference at the Senate, but Senators are required to represent their constituency, not just focus on banking-related matters. I hope she does find that she’s able to promote her policy agenda through the Senate. The jury is out on that issue as well.
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THE TAX CODE
{In the days when regulators weren’t so craven}
Indeed, once upon a time – in LaLaLand on the Potomac (or Hudson) – regulators had true-grit.
But one must wonder, over the past thirty-years, since Reckless Reagan brought income taxes to the floor, if a pervasive sea-change in mentality has not taken hold in America. Not just Wall Street but Main Street as well.
The Tax Code now permits, deductions included, for a family of TenPercenters or fewer to pay only 15/22% of the take-home revenue in taxes. (Click on info-graphic here.) Meaning, they kept between 80 and 85% of their total take-home pay.
Now, consider this: How many of us would have had the moral fortitude to get off the business Merry-Go-Round where one might grab at the Golden Ring of Great Fortune under the above conditions?
Consider further this: You work on Wall Street in the heart of the biggest Capital Mechanism on earth. Your company is dealing in billions upon billions of dollars each and every day. Would you not be tempted to … uh, indulge your baser spirits?
Many were, many did … most did not get caught for the fraud they committed. Yes, securitizing Toxic Waste was fraudulent.
Instead they skedaddled off to their beachfront homes in Florida or the Bahamas or elsewhere in the sunny Caribbean. And they are laughing at you poor suckers who did not take the “plunge”.
MY POINT?
Why are their speed limits regulated by radar traps? Because “speed kills”.
The regulators in DC (Alan/Ben) and NYC (Tim) were asleep at the wheel. So, NO KUDOS are due them for their lamentable lack of professional competence.
Yves:
I agree with your earlier arguments that Warren’s talents (and more importantly her independence) would have been better served outside of the Senate where she has to be a team player for the Dem party.
You said: “Senators have to represent their constituency not just focus on banking related matters.”
True enough. And Warren, who was handed a seat on the powerful banking committee, also has an obligition to the party to use that seat to raise money for the party from the banks etc. Wall Street is highly motivated to please members of that committee and Warren’s fund raising job will be easy.
Unless… she does something foolish. Like start sticking her nose into foundational matters related to the Wall Street/Banking cartel’s wealth extraction juggernnaut. If she pursues WS with the standard tactics of scratching around the surface of things that the paper tiger Senate Banking committee is known for, she’ll do fine. If she gets out of line she will find that fund raising is difficult. She will fail to meet her numbers imposed by Harry Reid while her colleagues on the committee are all easily meeting theirs.
And the banks will be talking to Harry: “So Harry, why put an academic in that seat?” The inference would be clear: Harry made a bad judgment. He should consider moving Warren out of that seat. He has the legit reason to do it: she is not pulling her weight on fund rasing. If Harry doesn’t move her, he might notice a not too large but also not insignificant shift in WS donations in favor of the Rs on the committee. And if it really got bad and Warren was agitating the party base with exposures of WS malfeasance, the shift in donations might even go beyond the limits of the banking committee.
So Harry will have a talk with Liz. And Liz will have to engage in some self doubts about whether to be part of the team or whether she should pursue those things important to her personally (i.e. establishing genuine regulation of WS). Wouldn’t it be selfish for Warren to forgoe the fundraising heavy lifting? All of her colleagues would like to do the same. But instead they make the sacrifices, they forgoe the personal glory they would have if they took the WS CEOs to the wood shed. So, Harry might say, the team was behind you 100% during your election and its got your back now; I know we can count on you.
Warren should have steered clear of the Senate.
Warren has said privately that she does not want to run for a second term and therefore will not have to spend half her time fundraising like most Senators do. So that would relieve her of some constraints. Even so, I’m not sure how much she can accomplish.
Warren has said privately that she does not want to run for a second term
That may explain why no one, no human at least, even bothers to answer the phone, never mind call back when you leave a message with a clear return number at both beginning and end of call, at her Boston headquarters, (617) 565-3170.
Wow. I guess whatever her intentions, predilections or talents are they don’t include giving a d**n about constituents. That is truly pathetic (about the phone number being like the Bermuda Triangle).
:(
But there’s still a ‘Donate’ button every time she sends a newsletter out.
If she’s not running for Senate, there’s only one useful position to run for …. in 2016.
I guess we’ll have to cheer her on then.
When was the last time any individual Senator made any difference whatsoever?
Warren will either play ball or be eased out. Her choice will be whether or not to get rich. Hmmmmm.
I’ll wager a hundred (in any currency you prefer), that an ex-Senator Warren doesn’t lay down for the money.
I do agree that she ain’t gonna get diddly squat accomplished while in Washington. I mean, what good can one, right honorable rookie Senator do when outnumbered by 99 (or so) backstabbing scallywags?
Truly though, I believe Lizzy is not in it for the cheese. Call me corny, or call me hopeless romantic, but I think it is quite likely Elizabeth Warren is the walking embodiment of a Pretty Good American!
Note: Giggle. That’s what passes for optimism these days: there is a better than decent possibility that We the People have one person –at least!– working on our behalf inside that teeming and scheming, opulent and humongous, Beltway Palace.
Congress is where citizens go to die. Other than as a bully pulpit, a seat in Congress is mostly useless, if not an outright burden, to anyone concerned with real change (or ethics, honesty, etc.). Warren might be able to make some use of it, if she is serious about not running for re-election, but I fear she’ll just end up like Cynthia McKinney and Dennis Kucinich.
Sadly, of course, banking policy is about the only area in which she seems to diverge meaningfully from the other Obamacrats, er Democrats in Congress. Maybe she’ll figure out something useful to do with a Senate seat, but I ain’t holdin’ my breath.
How did you feel about BHO in 2006? 2008? Now?
In the run-up to the 08 election, I thought it possible Obama might have greatness in him. By the summer of 2009, however, I was writing that once this sell-out President left office, and started calling in just those favors already owed, his private jet could be nothing less than a personally retrofitted Boeing 747.
The banks should gift Barrack him a plane, that puts Air Force One to shame, is close to what I wrote at the time.
Still, I stick by my bet. An ex-Senator Warren will not take a dime of special interest money.
Note: Will I be shocked if she does? My wallet will be, but no, not really me. Like I always say: the thing separates Us most obviously from the animals is corruption.
If she wants to go after regulators who were IN OFFICE at the time of the bank bailouts, She needs to call up Timothy Gethiner. He was the chief Wall Street Regulator at the time. Also MS. Warren when was the last time AN ELECTED OFFICIAL went to trial over bad policy that hurt the tax payer? Like the one who were in the bank bailout deals and TARP deals then left the room and made huge investment changes the same day. Like Nancy P, Frand Dodd, Harry Reed…..
Thanks for this, Yves. I pray that D.C. does not corrupt her but she is only one woman. When I was first going through my loss of innocence, (as I like to call it) I wrote to all of my elected officials, regulators, the press — and to Elizabeth Warren who was “just” a professor at that time. Guess who was the ONLY one to respond? Her letter was a mostly an I feel your pain kind of letter but I’ll take that over the “I will cause you more pain by my actions/inaction” (lack of) response of the others.
The first idea for her was to change the discourse in the US by primarying Obama and making the fallen state of the middle class her issue.
For Warren to have made that primary would have also proven that the DNC is not totally corrupt which would be like proving that water runs uphill even when you’re not standing on your head. Just couldn’t a happened…
Warren is competent.
Warren gets second guessed a lot.
She should not run because she cannot win. She won.
If she does win, she will not get an important committee posting. She did.
And she cannot make any difference. Apparently she thinks she can.
If you are insinuating I said either of those, I never did. I said the Democrats were using her, that having her run was a no-lose proposition for them since she’s pull lots of money out of other races, while IF SHE LOST it would be depicted as a repudiation of her tough stand on banks, that it really didn’t matter to most people. I said she’d have a tough battle because Harvard types don’t go over well in the rest of the state. And it wasn’t clear Menino, the powerful mayor of Boston who likes Scott Brown, would support her. He had successfully kneecapped previous progressive candidates. You seem to forget she was trailing Scott Brown for months, by as much as nine points.
In fact, Menino came to her support about as late as he could, Sept. 27, and that was because it looked then like the Democrats might lose the Senate, and having the Republicans in charge of both houses would be very bad for Boston. And the poll results in Boston show Menino pushed very hard for her. Ironically, the possibility that Obama might lose, which I thought was her biggest campaign risk, worked to her advantage. The panic after Obama’s terrible first debate performance put Menino in her camp. Even though her final vote count showed a solid win, the Huffington Post victory notice points out this was a tight (and hardfought) race for the entire campaign. http://www.huffingtonpost.com/2012/11/06/scott-brown-election-results-2012_n_2049629.html
And you are ALSO missing the point that I’ve made repeatedly, that she could make more of a difference OUTSIDE the Senate. Tell me who the most powerful Senator in history was, what they got done, how many terms they were in the Senate to get that done, and exactly what it amounted to. Contrast that with Ralph Nader. Nader is, hands down, the person most responsible for consumer safety regulations in the US. Warren could play a Nader type role more effectively than he did, she already has enormous name recognition and as a Harvard prof, has more native credibility.
All excellent points. Being other than a Senator, maybe she could even answer her phone.
For instance, Huffington Post trumpeted, “Elizabeth Warren Embarrasses Hapless Bank Regulators At First Hearing.”
Well Woop-De-Do…Da De. Embarrassing a banker no less.
HuffPo is having one of it’s neo-liberal days. Look at the intro blurb of this other headline post, Kneejerk conflation of Obama and Bush could be the most ridiculous talking point to come out of the mouths of liberals in the post-Bush era. -Bob Cesa in No Obama Is Not ‘Worse Than Bush’ on National Security or this snippet of an article on the SOTU speech by George Lakoff… “That is how the president has changed public discourse. He has changed it at the level that counts, the deepest level, the moral level.” http://www.huffingtonpost.com/george-lakoff/how-the-state-of-the-unio_b_2693810.html Geesh! Enough sugar to make your teeth chatter.
There are some days HuffPo will actually post something (worth reading) by Bill Black or Michael Hudson, or Dan Froomkin, for instance, but today is not one of those days.
“The time limits on questions in Congress wind up producing sound-bites, grand-standing, and run-out-the-clock obfuscation rather than meaningful interaction.”
Until one of these senators or congresspeople either go on a hunger strike or a female bares her breasts in the well of the house or senate to call attn. to the rampant corruption, I will assume the purpose of all other actions are for sound bites and grand-standing.
Forget the breasts; those codgers would figure the ladies were a present from Goldman traders.
We would like to thank Deer Park bottled water for sponsoring this testimony.
Your excellent post on this begs the questions: What adjustment(s) to the committee hearing format would facilitate the more robust q&a you’ve illustrated?
What sort of pressure would be effective in forcing
the committee to implement such changes? No doubt
most of the members are banking industry brown nosers. Where are they vulnerable to public pressure? Fear of embarrassment usually works(Senator Bob Packwood’s behavior was so embarrassing it turned Senator McConnell into a statesmen albeit for just one floor speech to force a resignation.)How can NC readers squeeze the committee to effect real change and not more kabuki theater?
There is too much lamenting in this post and comment string, after our “hero” just got her first hit in this double-header ball game called Congress. “She shoulda’ hit it outta da park!” Or, “she should be batting clean-up, not leading off.” Sheesh. Here’s my take. The recent Frontline documentary “The Untouchables” struck a nerve – at least temporarily. Beyond a doubt, that documentary bagged Mr. Breuer, the head of DOJ’s criminal division. This is no small thing – he was a gatekeeper.
What we need is enthusiasm – a loud cheer from the stands. Laughing Fascist above is right – there is limited tolerance for cowboys (or cowgirls) in the Senate. Push too hard and she would be marginalized – unless that pushing were to generate a political movement. I think OWS should organize a Send the Damned Banksters to Jail rally in front of the U.S. Capitol. The opportunity to do so is slipping away with the statute of limitations. Perhaps we could time the march to coincide with another Banking Committee hearing. Put 10,000 Americans on the steps of the capitol singing her praises and Ms. Warren’s star would rise, perhaps beyond the grasp of the banksters.
Sorry, there I go daydreaming again.
We get the leaders we clap for?
“This is no small thing – he was a gatekeeper.”
This is a small thing — he was merely a representative of the culture. There is a ready supply of careerists eager to step into his shoes, far more so than there are people who might scuttle a case that cost $10k to build just because <whinge>the guy didn’t actually do it</whinge> or something equally silly.
Warren raised alarm bells when she put such aggressive language on her own campaign web site regarding what a nuclear threat Iran was and how oh-so-close we are to our oh-so-close, did I mention we were close, allies, Israel.
But unlike Obama who will likely succeed in his mission of cutting the safety net and making the world a better place for billionaires, Warren actually is a better choice than Brown who was himself a better choice than Vichysoise Coakley.
Still, as Yves pointed out, the choice of Senator ties her down. If this is part of her bid for a presidential run, it is a path fraught with bad compromise and the danger of being a total sell out by the time she succeeds.
Yves: How can I send you something that needs to be read by you? Do you have contact info? Thanks, Donna
She is just a sociopathic war monger. http://www.nakedcapitalism.com/2011/10/elizabeth-warrens-job-plan-war-with-iran.html
If she is really against the banking industry sociopaths, she would stop beating the war drums as well. Otherwise, this “senate hearing” is just more jerk off material.