It’s not everyday that a special interest lobby is as unashamed as Wall Street has been about Elizabeth Warren’s potential nomination to run the new consumer protection bureau, which is designed to watchdog things like shady mortgages and payday lending. From the start of the heated debate over the tepid reforms President Obama proposed for the financial sector, the banks and their congressional backers were plain about their distaste for Warren’s meddling. House Republicans went so far as to introduce a bill that sought to block her, in fact if not name, from running the consumer protection agency she urged Obama to create. And this week, when Obama backed down from appointing Warren to the post, the banks finally got their way. Yeah, I know, that’s something we’ve all gotten used to hearing. But it’s something that we’ll be hearing a whole lot more thanks to this particular Obama retreat.
The furor with which Wall Street opposed Warren’s potential nomination to head the Consumer Financial Protection Bureau, which comes into official existence this week, is the most telling sign that she was precisely the right person for the job. To understand this debate, it’s crucial to grasp how Washington works. It is a town literally built around balancing power—three branches of government, two chambers of Congress with staggered elections and bipartisan committees, myriad constitutional stipulations delegating authority to one office or another, all in an effort to dole out power evenly. Politics, simply put, is the process of trying to upset that balance in your favor.
And if there’s one central problem with Obama’s governing style, it’s that he spends so much energy abdicating the power allocated to his office while everyone else is furiously working to accumulate more of it for their own. While George W. Bush relished telling the rest of Washington that he was “the decider,” Obama never tires of describing what he doesn’t have the power to achieve.
The banks, however, understood the institutional flow of power in Washington from the start. So they worked hard to ensure that Obama’s new financial regulatory body—the first one that that’s charged specifically with looking out for consumers—had as little institutional power as possible. They made sure it was housed inside the Federal Reserve, rather than existing as a stand-alone agency. (Democrats ultimately decided that was better, too, since it may insulate the agency against congressional budget games.) Thus, the Consumer Financial Protection Agency became the Consumer Financial Protection Bureau. They made sure the office had a limited scope of enforcement authority. And they made sure that any rules it wrote could be vetoed by existing regulators. That’s what is perhaps most striking about the new “cop on the beat” for Wall Street: this one must radio headquarters before making any arrests. The existing regulators—the same ones who knew about the banks’ shady lending practices and junk securities but refused to act—can veto any new rule the new consumer watchdog writes.
The bureau’s institutional weakness means that its only hope for relevance lies in a powerful director—someone who has enough political power to make up for the office’s lack thereof. Time and again we’ve seen how a savvy individual who knows how to pull Washington’s bureaucratic levers can move an agenda. The political press corps loves to profile these movers and shakers almost as much as the business press loved writing about Wall Street’s pre-crash “masters of the universe.” Think Donald Rumsfeld. Elizabeth Warren quickly proved she is that kind of player—she has the ear of the president, has developed the trust of well-placed congressional power brokers and knows how to make headlines. She was well-equipped to bring the kind of political pressure that’ll be necessary to move any meaningful new rules on behalf of consumers.
But Obama sat on her nomination for a year, diminishing his ability to shove it through Congress with each day that passed. Finally, on Sunday, he instead nominated Richard Cordray, a former Ohio Attorney General and the current head of enforcement at the bureau. Warren, who is expected to instead run for Senate in Massachusetts, gave Cordray her hardy endorsement and most consumer advocates seem to agree he’s no slouch. But Cordray lacks the two most important qualifications for his job: power and influence. Tellingly, the statements that dominated news following the nomination’s announcement were those of Obama and of Warren, not of Cordray.
But at least now we can get the agency up and running, right? At least Obama has removed a hurdle to moving his Wall Street reform agenda, correct? Wrong.
Again, the president fundamentally misunderstands how power works in his city; as long as you’re giving it away, opponents and friends alike will keep taking it. So, predictably, Republicans have pledged they won’t clear Cordray either—or anyone else, for that matter. In fact, they refuse to so much as recognize their year-old victory on ensuring the consumer protection bureau is institutionally weak. Instead, they’ve spent the past year hammering away at the idea that the bureau is wildly powerful and unaccountable. They will hold confirmation of its director hostage until the White House agrees to weaken the institution further still. And why shouldn’t they? Why be content stealing the sun, when the president is consistently willing to give away the moon, too?