President Barack Obama is tweaking the legislative fine print to get his consumer champion. Coming from a credit card issuer, Elizabeth Warren might not like that modus operandi. But Main Street will welcome having her establishing the consumer financial protection agency. The president may not care that Wall Street feels differently. Still, the manner of his pick carries risk.
As the saying goes in Washington, "people are policy." The appointment of Warren to a special advisory role is a case in point. Thanks to the Harvard law professor's plain-spoken criticisms of banks, she has become a folk hero to liberals who have been clamoring for her to lead the new Bureau of Consumer Financial Protection. And Obama will need them to turn out in force if Democrats are to minimize what are expected to be steep losses in the November midterm elections.
But as something approaching a hate figure for the financial lobby, Warren was too radioactive for Obama to risk the Senate confirmation process that would have been needed to make her the formal head of the new agency. Hence the clever interim Plan B, under which she will advise the president and the Treasury on setting it up.
Obama himself has warm words for Warren, but she isn't especially popular within his economic team. As head of the Congressional Oversight Panel, for instance, she has publicly clashed with Treasury Secretary Timothy Geithner over the $700 billion bank bailout. While Geithner thinks the bailout was crucial to economic recovery, Warren thinks it an opaque and unaccountable bank giveaway that has failed to restart lending. It's a significant disagreement with an accepted White House strategy, albeit one inherited from the previous administration of George W. Bush.
Nor does her appointment do anything to heal White House divisions with Wall Street. While the president may not be too bothered about that politically for now, longer-term it makes practical sense to have a constructive dialogue with the financial sector. Shorter-term, hiring Warren in a way that's seen as an end-run around Senate Republicans could prompt GOP senators to retaliate by further delaying three stalled nominations to the Federal Reserve board, including Janet Yellen as vice chairman.
Consumers may be justified in liking the idea of having Warren in their corner. But as she of all people could tell Obama, the fine print can contain hidden costs.
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