Warren, Geithner Look Past Tensions to Shape Agency

Elizabeth Warren, appointed last week to help set up a new U.S. consumer financial-protection agency, spent much of the past two years critiquing Treasury Secretary Timothy F. Geithner. Now, he will oversee her.

The Consumer Financial Protection Bureau, a watchdog for products from credit cards to mortgages, may be shaped as much by Warren’s ability to work with Geithner as by the financial firms and industry critics trying to steer its agenda. As leader of a congressional panel overseeing Wall Street’s bailout, Warren repeatedly faulted the Treasury Department’s actions and grilled Geithner -- once counting seconds as he testified.

“There’s a perception that it got a bit dicey in the questioning,” said Kevin Petrasic, a lawyer at Paul, Hastings, Janofsky & Walker LLP in Washington and former counsel at the Office of Thrift Supervision. “It’s imperative that they put whatever past differences, or whatever it was, behind them, so it doesn’t influence policy. Frankly, they need each other.”

Warren, 61, a Harvard Law School professor, will serve as President Barack Obama’s assistant and as a special adviser to Geithner, reporting to and working for the Treasury, White House spokesman Robert Gibbs said Sept. 17. Tomorrow, she and Geithner are set to host a forum in Washington to collect opinions on how to simplify mortgage disclosures for borrowers.

‘Natural Tension’

Regardless of whether they get along personally, Warren’s objectives as a consumer watchdog may differ from Geithner’s priorities as secretary of the Treasury, which oversees the health of financial firms and the broader economy.

“There is a natural tension between consumer protection concerns and prudential ones, although there is also a big area of common interests,” said Douglas Elliott, a fellow at the Brookings Institution in Washington and a former managing director at JPMorgan Chase & Co. “Sometimes steps taken to protect consumers will decrease banks’ profitability and add to their risk levels, which adds risk to the banking system and therefore worries prudential regulators.”

Warren, in a Bloomberg Television interview on the day she was appointed to the consumer bureau position, was asked if she would go to Obama if she has a dispute with Geithner.

“I actually am going to wear two hats; that was exactly how the president described it to me,” Warren said. She, Obama and Geithner “see eye-to-eye on this consumer agency. And because of that, we are all trying to push in the same direction.”

‘Fiercest Advocates’

Treasury spokesman Steven Adamske cited a letter Geithner sent bank regulators on Sept. 17 calling Warren a “pioneer” on consumer issues and a “tremendous asset to all of us as we take on the task at hand.”

The consumer bureau, created under the Dodd-Frank financial-overhaul act signed by Obama in July, will start with a $400 million budget. Its mandate includes guarding against exorbitant fees, confusing contracts and other “unfair, deceptive or abusive” practices. The agency has power to write regulations, extract information from companies, levy fines and authorize states to enforce its rules.

Obama named Warren to lead a committee establishing the regulator, calling her “one of the country’s fiercest advocates for the middle class.”

The adviser position lets her avoid a Senate confirmation battle and immediately influence the agency she’s credited with proposing. Lawmakers including Senate Banking Committee Chairman Christopher Dodd have said Warren could have trouble winning enough votes to be confirmed as head of the agency.

Warren’s criticism of firms including Citigroup Inc. and American International Group Inc. led business groups and Republican lawmakers to question whether the law professor, who has never run a government agency or large company, could be an unbiased leader of the consumer bureau.

TARP Panel

In taking the new position, Warren stepped down from the Congressional Oversight Panel, which scrutinized how Treasury had spent money as part of the Troubled Asset Relief Program. The panel’s reports included criticism that TARP failed to help small businesses, that Treasury inadequately collected information about lending trends and that the department’s efforts to help troubled homeowners were ineffective.

TARP created a “moral hazard” letting large banks think they are “too big to fail,” Warren’s panel said in a July paper. The bailout program “worked really well for the Wall Street banks, but it didn’t work well for the rest of the banks in the system,” she told Bloomberg Television that same month.

HAMP

At a June hearing, she and Geithner, 49, clashed over the government’s $50 billion Home Affordable Modification Program and how to measure whether it is helping enough homeowners.

“What is the metric for success here?” Warren asked. “Is it 120,000 families saved over 15 months at a time when 186,000 are posted for new defaults and foreclosures every month?” After Geithner declined to give a number, Warren asked again.

“Are you telling me that preventing one foreclosure would have been enough for our $50 billion?” she said.

“No, no,” Geithner said before Warren cut him off.

In some cases, time pressure fueled the strain between them. During a September 2009 session, Warren urged Geithner to finish his testimony in the allotted five minutes. “I’m winding it up,” Geithner replied. When he finished, Geithner said he had taken “only about six minutes.”

“And 19 seconds,” Warren said.

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net;

To contact the editors responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net

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