Bankruptcy

Two Thoughts on the Warren Nomination for the CFPB

By Bob Lawless

The latest catnip for the 24-hour news cycle seems to be speculation on whether President Obama will nominate Elizabeth Warren to head the new Consumer Financial Protection Bureau. Like Adam, I was resistant to say anything on Credit Slips because I figured few would care or be surprised to learn that she has the unequivocal and strong support of a co-author, collaborator, and friend posting on a site where she used to be a regular blogger. As I have read the media reports, it has struck me that the debate is becoming about the caricature of a person I know rather than the actual person. Along those lines, here are two thoughts.

I should probably disclose that I have not spoken to Warren about the CFPB in months. In fact, the last time we communicated about the topic, the legislative process was just beginning, and it was either still being called the FPSC or the CFPA or some other alphabet-soup creature. I don't even know if she wants the job (although I hope she does.) 

Some are speculating whether Warren is too pro-consumer, too anti-Wall Street, too pro-middle class, too anti-predatory lending, and a lot of other "pro's" and "anti's." The only "pro" that I have known Warren to be is "pro-fact." That is to say, she is in favor of facts and investigation and against speculation. A lot of analyses in the academic and policy world often rest on some key assumptions about human behavior or other important facts. I can recall academic seminars where a participant would make an assertion, and Warren would start peeling back the analysis until we got to the key assumption. Then, the question would come (and, as I write these words, I can hear her voice saying it): "How do we know that is true."

The question was not meant to end discussion by suggesting the assumption was untrue. Rather, it was intended and often would lead to an evidence-based debate about the matter at hand. For those who want to understand Warren's approach to regulatory issues, one article in particular stands out for me: "Bankruptcy Policy," University of Chicago Law Review, vol. 54, pp. 775-814 (1987). The article is illustrative of a pragmatic approach to very difficult policy issues. In the article, Warren embraces economic analysis--what might be called a "market-based" approach by some commentators today--but as a tool to broaden inquiry, not to close it off. She writes that she offers "a dirty, complex, elastic, interconnected view of bankruptcy from which I cannot predict outcomes nor even necessarily fully articulate all the factors relevant to a policy decision." Warren contrasts her approach to the clean and rational conclusions offered by her opponent in the scholarly exchange, but defends her approach as "more realistic and more likely to yield useful analysis."

Although this article is written in the context of a specific debate about bankruptcy law, it is illustrative of a pragmatic approach to policy questions that is skeptical of claims about foundational truths and generally anti-dogmatic. If you want a head of the CFPB who will hew to a particular ideology--on either side of the issues--then Warren is not your person. She is a person who goes where the facts lead her and will change her mind based on new evidence. Indeed, I sometimes wonder whether her popularity stems from an electorate who is looking for less ideology and more leadership from their public officials.

My second thought on Warren's possible nomination comes from someone who was skeptical that a CFPB-type agency could have a positive effect in the long run. I have no question that the CFPB will do useful things in the short run, but twenty years from now, I'm concerned that we will have another regulator captured by the industries it regulates. A CFPB that is the pawn of the financial industry could do much more harm than good--consider the current example of the agency that was supposed to oversee off-shore drilling.

One of the best bulwarks to hold off agency capture will be if the CFPB can attract dedicated career professionals for its staff. I can't imagine a person in a better position than Warren to do this. (Adam made a similar point in his post.) Warren is extremely effective at identifying talented individuals, motivating them to do their best work, and promoting these persons in their own careers. There are numerous lawyers and law professors around the country who would tell you stories of what she has done for them, both encouraging them and letting them know when they have done less than their best work. We need someone to get the CFPB started who has the best chance to make it an effective force for decades to come.

Elizabeth Warren to head the CFPB is an easy call. Take that for what it's worth--my disclosures were at the beginning. I hope the Obama administration sees it the same way. There are media reports that a decision will happen soon or, alternatively, is not imminent. I am confident the timing will prove to be one or the other.

Full post as published by Credit Slips on July 21, 2010 (boomark / email).