Almost from the day Barack Obama was inaugurated, the press has amused itself with speculation about who is running the economy portfolio at the White House and who has been marginalized. For the most part, Larry Summers and Tim Geithner have won the sweepstakes. Paul Volcker, the former Federal Reserve chairman who broke the back of inflation in the early 1980s, is supposed to be on the outs. Elizabeth Warren, chair of the Congressional Oversight Panel monitoring TARP, is usually dismissed as little more than a gadfly.
On Tuesday night, reports Bloomberg, all the parties mentioned above met together over a dinner hosted by the Treasury Department "to discuss proposals to change financial regulations." According to numerous press reports, the White House is in "advanced stages" of discussion of some form of Financial Product Safety Commission that would proactively attempt to protect consumers from the latest bright idea cooked up by Wall Street.
From the Washington Post:
The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds, according to several sources familiar with the matter.
Such a commission, as has been widely noted, is Elizabeth Warren's brain-child. She first outlined it two years ago in an article for Democracy Journal, in which she infamously noted that it was "impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house... [but it] is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street..." (Which makes it all the more odd that neither the Washington Post, which broke the story, or the Wall Street Journal reported that Warren was one of the dinner guests. The Journal, as Felix Salmon astutely noted, didn't even mention her name in its coverage.)
Even as relentless a critic of everything Team Obama has proposed on the financial front as Naked Capitalism's Yves Smith agrees that "a measure like this, properly done, would represent real progress," although she can't resist also noting that it could be designed to "divert attention from how acommodative other measures have been."
Maybe so. Maybe Warren and Volcker were invited to dinner just to give the appearance of consensus seeking. But in combination with the dinner party at the White House last month that included Paul Krugman and Joseph Stiglitz, at the very least we know that the Obama administration is open to hearing divergent points of view. More importantly, it's getting very hard to argue that the White House is dragging its feet on regulatory reform. In addition to the financial products watchdog, the Obama administration has now proposed a systemic risk regulator that would give the government more authority to oversee financial institutions and has made a comprehensive call for derivatives regulation.
We can pick nits with the details of each proposal, but as the Journal's Damien Palleta reports, ultimately, all the pieces are likely to be wrapped up in one major piece of legislation that will be crafted in the House and Senate -- and the Obama administration is making it pretty clear what it wants to see coming out of Congress.
And if the banking industry is unhappy about the credit card reform bill soon to be signed into law, imagine what their reaction will be to a regulator judging the safety of their latest no-doc, no money down, option-arm mortgage product? The Washington Post is demure:
The idea is likely to face significant opposition from industry groups, which argue that stricter regulation limits the availability of financial products to consumers.
Exactly! That's the whole point! Time's Justin Fox argues that the obvious choice for the founding head of a future Financial Products Safety Commission would of course be Elizabeth Warren. Imagine if she'd been in place five or six years ago, when the mortgage lending industry started to go nuts. Maybe Times reporter Edmund Andrews -- and millions of other Americans -- wouldn't be facing foreclosure tomorrow, or already be out on the street.
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