It's a rare day when the American people can celebrate a victory over the Too Big to Fail banks that tanked the world economy in 2008.
But with Senate confirmation of Richard Cordray as the first permanent director of the Consumer Financial Protection Board, this is indeed a day for the American people to celebrate.
And it's a day to give special thanks to Elizabeth Warren, a true American hero who conceived of a federal agency to protect American consumers from defective financial products and fought to give it life. By all rights, Ms. Warren should have been the first director of CFPB, but the Obama administration withdrew her nomination two years ago under Republican pressure.
But some stories have a happy ending: Ms. Warren returned to Massachusetts, ran for Ted Kennedy's old Senate seat, and ended Scott Brown's short Senate tenure. In a delicious irony, it was now-Senator Warren who was presiding over the Senate and holding the gavel when Cordray was confirmed.
So Elizabeth Warren, take a bow. You richly deserve it.
Elizabeth Warren first proposed a federal agency to protect consumers from defective loan products in a Summer, 2007 article in an obscure policy journal, Democracy: A Journal of Ideas. She put forth a simple, but elegant concept: If the government protects consumers from defective manufactured products costing a few dollars, why shouldn't it protect consumers from defective financial products costing tens or hundreds of thousands of dollars? As she 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?
...Clearly, it is time for a new model of financial regulation, one focused primarily on consumer safety rather than corporate profitability. Financial products should be subject to the same routine safety screening that now governs the sale of every toaster, washing machine, and child's car seat sold on the American market.
...So why not create a Financial Product Safety Commission?
Then came the 2008 financial meltdown from which the U.S. and global economy is still suffering the fallout. The crisis was caused by a chain of financial misdeeds which began with lenders giving overpriced mortgages to people who didn't understand and couldn't afford them, and then continued with financial institutions packaging these defective mortgages into securities and selling them to investors, ratings agencies (who are paid by the same financial institutions) rating these securities as AAA, and finally by the financial institutions betting against the same mortgage-backed securities that they were selling to investors.
In the wake of this crisis, Barack Obama and many Congressional Democrats adopted Elizabeth Warren's proposal for a Consumer Financial Protection Board and it was incorporated into the otherwise weak Dodd-Frank financial reform bill which was passed by Congress. In fact, it was probably the best thing in the Dodd-Frank bill, which otherwise did little to limit the size and scope of Too Big To Fail banks. The Obama administration opposed an Amendment proposed by Senators Sherrod Brown and Ted Kaufman to limit the size of banks and the Amendment failed to pass the Senate with many Democrats voting against it under pressure from campaign contributions from the banks and the lack of support from Obama. A weak version of the Volcker rule purporting to prevent behemoth banks from using federally-insured deposits from consumers and business to make risky trades for their own accounts in the global financial casino was included in the Dodd-Frank bill. But nearly three years later, it has yet to be implemented.
So the Consumer Financial Protection Bureau is the crown jewel of financial protection as far as American consumers go. As Elizabeth Warren pointed out on All In With Chris Hayes last night, already the CFPB has forced credit card companies to return nearly half a billion dollars in ill-gotten gains to American consumers. The CFPB was set up a consumer protection hotline where consumers can seek government help from fraudulent lenders. (Go to cfpb.gov). This means more money in the pocket of American consumers -- who can spend it to buy goods and services which will help create jobs -- instead of in the hands of big financial institutions who will use it to speculate in global financial markets.
Elizabeth Warren -- the mother of the Consumer Financial Protection Bureau -- deserves a big round of applause from the American people.
But she's not done yet. She's teamed up with Republican John McCain to get Congress to do what it failed to do with Dodd-Frank -- reinstate a 21st century version of the Glass-Steagall Act that for five decades separated "boring" commercial banks, which take deposits from and make loans to individuals and business and are protected by federal insurance, from investment banks and hedge funds which bet their funds on risky investments. For 50 years Glass-Steagall helped protect the American economy from a financial meltdown of the kind that occurred in 2008. Warren and her newfound ally John McCain opposed in her effort to reinstate Glass-Steagall not only by the big banks with their thousands of lobbyists and hundreds of millions of dollars in campaign contributions, but by the Obama administration.
But I wouldn't risk all my money betting against the success of a tenacious fighter like Elizabeth Warren. Six years ago, who would have thought her idea of a federal agency to protect consumers from financial abuse would come into being? As Senator Warren wrote to supporters today, "Sometimes Goliath loses to David".
And who knows. If Hillary Clinton (who shares many of Barack Obama's economic advisors and lack of support for breaking up Too Big to Fail banks) decides not to run for president in 2016, maybe Elizabeth Warren will throw her hat into the ring. I fella can dream, can't he?