Weekly Audit: Why Elizabeth Warren Should Head New Consumer Protection Bureau

by Zach Carter, Media Consortium blogger With the Wall Street reform bill finally cleared through Congress, activists and intellectuals are pushing hard to make sure that this bill isn't the last word Congress utters about Big Finance. We need deeper and more robust reforms, but it's also critical to ensure that the new bill is implemented as effectively as possible. Part of that means appointing officials with a proven record as robust reformers—people like Elizabeth Warren. Too-big-to-fail lives on What more do we need to keep Big Finance from ravaging the middle class? As Stacy Mitchell notes for Yes! Magazine, the bill Congress just signed off on doesn't really address the core problems posed by our out-of-control banking system. Too-big-to-fail is alive and well, and lawmakers must push to break up the megabanks during the next legislative cycle or risk another economic calamity. Mitchell writes: "Since the collapse, giant banks have only grown bigger and more powerful, and less responsive to the needs of the real economy. While the financial reform bill includes several worthwhile measures, it will not set the industry right or entail a fundamental alteration of its scale and structure." There are still some great reforms in the current round of legislation, among them the creation of a strong new Consumer Financial Protection Bureau (CFPB) to write and enforce rules on mortgages, credit cards, overdraft fees and more. The first person to head this new regulatory body will be tremendously important to its future. They will set the tone for the bureau's operations and establish a culture that will define it for years to come. Elizabeth Warren: The Obvious Choice The most obvious pick to head the agency is Elizabeth Warren, who currently chairs the Congressional Oversight Panel for the Troubled Asset Relief Program. Warren has been a rare force of accountability for the Wall Street bailout. She's also a capable and committed reformer. Her current post has almost no formal statutory power, but Warren has used a series of reports and hearings to publicize previously obscure failures on issues ranging from the AIG bailout to the unmitigated foreclosure crisis. She also just happened to be the person who came up with the idea for creating a CFPB in the first place. But while Warren is the top candidate for the post, she's facing stiff opposition from the Treasury, as Annie Lowrey details for The Washington Independent. The source of the tension? Warren's public criticisms of Treasury from her current position. In short, the Treasury is upset that she's doing her job well. Kevin Drum of Mother Jones also weighs in, calling Warren "the obvious choice" for the new CFBP role. A Warren appointment, Drum notes, would send a clear signal to voters that the Obama administration is serious about reining in financial excess. It would also demonstrate that President Barack Obama is actually paying attention to the concerns of the people who elected him in 2008. A Strong CFPB Will Strengthen Economic Recovery From a policy perspective, Warren's long list of accomplishments on banking reform will be critical to the new CFPB, because financial abuses of consumers have not abated since the mortgage meltdown, despite widespread public condemnation. As I emphasize for AlterNet, banks scored a total of over $38 billion in overdraft fees in 2009, while the industry's combined profit for the year was just $12.5 billion. The problem is not only that banks are engaging in rampant predation, but that predation is their dominant line of business. Instead of making responsible loans to support the economy, finance is gouging the middle class with tricks and traps. But current regulators have been extremely reluctant to do anything about this behavior. The CFPB needs a strong leader who can immediately put an end to these kinds of activities and coherently set the tone for the bureau's future conduct. There is simply no candidate better qualified for the post than Elizabeth Warren—selecting anyone else would be a clear sign that Obama is not serious about reining in Wall Street. Fighting fraud Consumer protection is not the only arena that will need strong oversight in the coming years. We'll also need aggressive prosecutions of financial fraud. On Thursday, Goldman Sachs agreed to pay $550 million to settle a fraud suit brought against the company by the SEC. The arrangement is something of a mixed bag—Goldman did not admit to any wrongdoing, but it did acknowledge that it mislead its investors, which is a very big liability for a Wall Street titan to take on. The admission will also make it much easier for Goldman to be successfully sued by clients who got a raw deal from the megabank. But as Amy Goodman and Juan Gonzalez of Democracy Now! note in an interview with Rolling Stone reporter Matt Taibbi, the settlement is also largely a disappointment. If the SEC had pursued and received a verdict against Goldman, it may very well have extinguished the company altogether. But even more frightening, Taibbi notes, is that Wall Street is interpreting the deal to mean that the government will not pursue further prosecutions against financial fraud. The financial crisis that reached a fever-pitch in 2008 was fueled by inadequate rules, but it was also largely a story of banks aggressively breaking the rules that did exist. At the most basic level, banks issued millions of fraudulent mortgages, then packaged those fraudulent mortgages into securities and sold them off to investors without telling them that the securities were fraudulent. They also resorted to all kinds of wild tricks to artificially inflate the values of their assets and deceive the public about the scope of their potential losses. Fraud, in other words, was at the very heart of what went wrong during the housing bubble, and if the SEC and the Justice Department refuse to take action against other fraudsters, they will encourage future abuses. As Mitchell of Yes! emphasizes, citizens can express their outrage by moving their money from banking behemoths to safe, community-oriented local banks. Breaking up the big banks will require federal action, but we can pressure policymakers into doing the right thing by changing our own economic habits. The sooner we do so, the better. This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. 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