Elizabeth Warren Should Bow Out to Spur Change: William D. Cohan

Surely Professor Warren is clever enough to see the proverbial writing on the wall. The inconvenient truth facing Elizabeth Warren, the controversial Harvard Law School professor President Obama would like to run the newly created Consumer Financial Protection Bureau, is that she has made herself so bloody disagreeable on Capitol Hill that she has obliterated her chance of winning the Senate votes she needs to be confirmed.

Accordingly, for the good of the country, she should stop the charade now and resign her temporary post at the new agency so that a more politic leader can be found (and confirmed), enabling the agency’s important work of protecting consumers from all sorts of predatory behavior to get underway full-throttle.

Warren can then get a well-deserved pat on the back and return to Harvard to contemplate the suggestion made last week by Democratic Party officials that she consider a 2012 run for the Senate against Scott Brown, the centrist Republican who won the special election for Edward M. Kennedy’s seat after Kennedy died in 2009. (More free advice to Warren: Don’t take on Brown.)

It’s not that Warren wasn’t on to something when she conjured up the idea for the bureau in a 2007 essay she wrote for the journal Democracy titled “Unsafe at Any Rate” -- a play on consumer advocate Ralph Nader’s 1965 book on the auto industry, “Unsafe at Any Speed.”

Toasters and Mortgages

Warren wrote: “It is 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 -- and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?”

The essay caught Obama’s eye, and in the aftermath of the financial meltdown he and Warren made sure the new bureau was included in the largely toothless Dodd-Frank financial re-regulation law.

High-Water Mark

In retrospect, that may have been Warren’s high-water mark. Fearing last fall that she would not get the necessary votes in the Senate to head the new bureau, Obama appointed her as his special assistant to set it up, under the auspices of the Federal Reserve, and make her “original vision a reality.” But she can’t lead the new agency unless she wins Senate approval, which must happen, or not, before the bureau opens officially on July 21 . (Republicans last week used a procedural maneuver to block any attempt by Obama to give Warren a recess appointment over the Memorial Day weekend.)

Warren’s personal style has angered many congressmen. At a hearing last week before a subcommittee of the House oversight committee, Warren and the subcommittee’s Republican chairman, Patrick McHenry of North Carolina , got into a petty row about whether or not Warren could stay at the hearing for more than an hour. When McHenry sought to adjourn the hearing so that the committee members could attend a floor vote before returning to continue, Warren objected because she believed she had informed McHenry’s staff that her time was tight. That’s when the gloves came off.

“Congressman, you are causing problems,” Warren said. “We had an agreement.”

“You’re making this up,” Mr. McHenry replied, causing audible gasps from the audience. “This is not the case .”

Accused of Lying

As the uncomfortable debate raged, Representative Elijah Cummings, Democrat of Maryland, sought some peace. “Mr. Chairman,” he said, “I’m trying to be cordial here -- you just accused the lady of lying. You need to clear this up with your staff .”

But McHenry did not concede any ground, reflecting what a partisan lightning rod Warren has become. “I was shocked by Ms. Warren’s blatant sense of entitlement,” he said in a statement after the hearing. “She was apparently under the assumption that she could dictate a one-hour time limit for her testimony to Congress, and that we were there at her behest instead of the other way around. This is just further example of her disregard for Congressional oversight .”

Over to the Senate

This conflagration followed an already dicey conversation earlier in the hearing about whether Warren had “lied” -- McHenry’s word -- in recounting her role in advising the attorney general of Iowa about settling some mortgage-related lawsuits. Warren said she got involved at the request of Treasury secretary Tim Geithner; McHenry claimed she overstepped her mandate.

Meanwhile, over in the Senate -- the body that actually confirms appointees -- Warren is faring little better. In early May, 44 Republican senators sent the president a letter saying they would oppose any nominee of either party to head the bureau until “the lack of accountability in the structure” of it is “reformed.”

As the Senate’s top Republican, Mitch McConnell of Kentucky, put it, the “deeply-flawed” Dodd-Frank law granted the bureau’s director “unprecedented authority over financial institutions and main street businesses” and has given him or her “vast rulemaking, supervisory, investigative and enforcement powers and the authority to regulate … not just traditional financial institutions, but also potentially thousands of entrepreneurs and small businesses.”

A Political Ploy

This reeks of a political ploy by the Republican senators to gut an agency despised by their financial backers on Wall Street.

Oddly, a number of political analysts viewed the Republicans’ letter as tantamount to a “retreat” from fighting Obama on Warren and predicted it would make a recess appointment all but inevitable. Yet, having succeeded in averting that scenario last weekend, Republicans are trying to thwart the possibility of another attempt by refusing to recess over the July 4 holiday. (Something about having one or two senators stick around Washington over the holiday.) Enough shenanigans already.

Although my Bloomberg View colleague Jonathan Alter has argued forcefully that the Warren fight is worth having for Obama, the truth is that while it may be a fight worth having, it is not a fight that Obama can win.

Warren would be serving the president best if she just realized this and returned to the Commonwealth of Massachusetts, head held high.

(William D. Cohan is a Bloomberg View columnist. The opinions expressed are his own.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    William D Cohan

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