Choose Your Financial Future Be Daniel Or Be Eaten

Isaiah J. Poole

When Elizabeth Warren, the White House adviser who is setting up the Consumer Financial Protection Bureau, went to speak before the U.S. Chamber of Commerce this morning, one of the things she compared the visit to was the Biblical story of Daniel in the lion’s den. It’s a particularly apt comparison, since while the headlines of Warren’s speech uses phrases as “olive branch” and seeking “common ground,” the lion has made it perfectly clear that he still wants to eat Daniel for lunch.

Predation, after all, is in the lion’s DNA. It’s why in the United States we don’t allow lions to roam outside of a cage in a zoo.

So at the Chamber’s Capital Markets Summit we were treated to two visions of consumer finance, the world as Elizabeth Warren as Daniel would have it and the one sought by Chamber president Thomas Donohue, representing the financial sector lion gnawing at its leash, desperate to break free and snatch all of the prey it can capture and devour.

The contrast couldn’t be sharper. Warren believes that both business and consumers win when there is a referee that is responsible for making the playing field even and fair. While her charge is to protect consumers against illegal and unethical behavior by banks and other financial companies, she has been meeting with and listening to the concerns of the financial sector. “I believe in regulatory engagement with industry, and I understand that industry provides a critical perspective in the regulatory process,” she said.

She also said that at her bureau “we’ve built a structure to make sure that any rules we write will be fact-based and grounded in a deep understanding of the market being regulated.”

Warren also underscored that the consumer financial protection bureau “is the only bank regulator—and perhaps the only agency anywhere in government—whose rules can be overruled by a group of other agencies,” namely a group of regulators called the Financial Stability Oversight Board, which includes the Federal Reserve Chairman the head of the Securities and Exchange Commission and the Secretary of Housing and Urban Development. As she said, “this is an extraordinary restraint.”

But that’s not good enough for the lion, Donohue.

The Chamber president said that even with the ability of the SEC, the Fed and housing agencies to put a check on the consumer bureau’s power, he wants the agency further strait-jacketed. Instead of a single director, he backs legislation pushed by Republicans in Congress to have the bureau run by a bipartisan, five-member board. “”We think a bipartisan five-person commission would provide a lot more balance and accountability in the bureau’s management than a single powerful director,” he said in his speech.

Translation: Having failed in the original objective in keeping the financial protection bureau from being created in the first place, at least with a five-member board the financial industry can play divide-and-conquer and render the bureau impotent to issue any regulations other than what the industry wants. Rather than being the cop on the beat beholden to the people that the creators of the bureau envisioned, the bureau becomes a security guard for the financial industry.

Donohue’s speech was filled with red herring threats on the one hand and the soothing and disarming purrs of a feline at rest on the other. You need a “reasonable level of risk” in the marketplace to encourage innovation, investment and job creation, he said—as if anyone was suggesting that “reasonable risk” should be wrung out of financial markets. Encouraging whistleblowers to report corporate malfeasance directly to federal regulators without reporting the wrongdoing to their bosses would render ineffective the compliance mechanisms companies already have in place, he warned. (After all, an executive such as Countrywide’s Angelo Mozilo wouldn’t have countenanced the firing of a whistleblower disclosing fraudulent behavior that was enhancing the company’s bottom line, would he?)

We’re not against regulation, Donohue half-purred, half-growled. “This debate is not about being for or against regulation of our capital markets. This is not a battle between regulation and deregulation,” he said.

He’s right about that, actually. It’s about who benefits from the regulations that do exist. What we saw in the run-up to the financial crisis was a deck stacked in favor of Wall Street. Banks could issue credit cards with Byzantine interest-charging schemes that would make a mathematician do a double-take, but consumers had no effective way of challenging absent disclosure and unfair applications of the rules. Mortgage brokers could encourage applicants to lie about their incomes on loans and then sell those fraudulent loans on the bond markets with a rating they essentially purchased from one of the credit rating agencies—but only the consumer gets punished for falling for the seduction; the seducer gets to enjoy the plunder.

Lions can’t help themselves, it seems. Warren extends what the media calls an “olive branch,” and Donohue swats it away with his sharp claws and then chews on it, using it to sharpen his teeth for the conquest to come. His conservative allies on Capitol Hill are on a full-bore attack to get rid of as much of the Dodd-Frank financial reform bill as they can, even though it falls short of what is actually needed to tame today’s too-big-to-fail financial behemoths. If they succeed, they will be back to partying like it’s 2006, and we will be their next meal.

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