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Could Financial Protection Bill Be a Secret Weapon for Democrats in 2010?

4 years ago
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Can one mild-mannered Harvard law professor help the Democrats avoid an electoral calamity this November? It's possible.

The person I have in mind is Elizabeth Warren. She chairs the Congressional Oversight Panel, which monitors the TARP bailout. But perhaps more important is her unofficial title: mother of the proposed Consumer Financial Protection Agency. Several years ago -- before the 2008 crash -- she cooked up the idea of a federal agency that would set and enforce rules to protect consumers from the unscrupulous practices of banks, credit card companies, mortgage lenders and other financial firms. After the subprime crisis led to a global meltdown, her proposal picked up momentum, eventually becoming a centerpiece of President Obama's financial reform package. In the fall, the House passed a mostly strong version of the CFPA. Now, it's being considered by the Senate -- where Big Finance lobbyists and Republicans are trying to strangle this watchdog in the crib. On Monday, Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, is scheduled to release his financial reform package, and observers, including Warren, are waiting to see if it will contain a muscular and independent CFPA.

For weeks, Dodd has been negotiating with Republicans, who have objected to setting up the CFPA as a stand-alone agency (they favor shoving it into an existing department), and they do not fancy allowing this new outfit to enforce the safeguards it will establish. That is, they want it to be toothless. These Republicans are in league with an army of banking lobbyists working feverishly to destroy the CFPA. (Warren says that a trade association head recently told her that the financial industry has retained 54 lobbying firms to block the CFPA -- and a 55th to coordinate the maneuvers of the others.)

What's happened with the CFPA and financial reform is akin to what has occurred with health care reform. Dodd has conceded placing the CFPA within another department, while preserving its independence. Thus, the Democrats weakened the original proposal in search of a bipartisan compromise with Republicans, who are likely to remain obstructionists. Whatever Dodd unveils next week, GOPers are likely to denounce it and plot to smother the CFPA. (Can you say filibuster?)

Enter Elizabeth Warren. She is a plain-talking advocate. At a Thursday forum at the New America Foundation (in which I participated), she put the fight over the CFPA in simple terms: "This is families versus banks, not liberals versus conservatives, not Democrats versus Republicans." She pointed out that financial regulation has never focused on how to protect consumers. There already are consumer financial protection laws and rules, but the Federal Reserve, for one, has not put them to use. Credit card agreements, she noted, used to be 700-words long. These days, they run 30 pages. And that's because banks have purposefully made their financial products more complex in order to concoct new ways to fleece consumers who cannot figure out what's in the fine print. If the government can protect Americans from faulty infant car seats, polluted drinking water, and pills that don't work, she asks, why can't it do the same for unsafe financial products?

So what does this have to do with 2010 election?

There's no doubt voters are damn mad. (Ask Martha Coakley.) Unemployment is close to 10 percent and could well stay that high for months to come, if not longer. Meanwhile, many of the execs and schemers who got rich rigging the system that failed have been bailed out by the government -- meaning, us poor suckers, the taxpayers. Consequently, voters will be looking for targets, as in incumbents. And there are more incumbents with D's after their names.

There may not be much the Democrats can do to escape an electoral tide of anger. But if they can show that the Republicans are protecting the Wall Street players who drove the economy into a ditch, that certainly can't hurt. To have any shot at this, though, the Dems have to cut through all the political clutter and make a clear case.

Warren and the CFPA could give them a shot. If the GOPers stand in the way of creating a tough CFPA, the Democrats, led by Obama, ought to go crazy on this. Unlike, say, credit default swaps, this is not complicated. The president will merely have to say something like this: "It's a simple choice. Which side are you on? The banks or hard-working American families? Congressional Democrats and I are trying to create an agency that will protect you from the sleazy practices of banks and credit card companies. The Republicans are working behind closed doors with the lobbyists. Who do you want to win?"

Obama will have to say that over and over -- so it registers. He will have to vow -- angrily, if he can -- to veto any financial regulatory reform bill that does not contain a strong Consumer Financial Protection Agency. He will have to lean on Dodd to force a real showdown with the Republicans, rather than negotiate away too much to forge a muddy and weak compromise. But there's a charge to be led here. There's a big stick to be waved -- and to be used. And if Obama and the Dems swing it hard enough, there's the chance that voters may notice.

Warren has declared that she herself is willing to say no to any deal that yields a weak CFPA and said that if that's the likely outcome, she'd rather see "no agency at all and plenty of blood and teeth left on the floor." Obama and the Democrats need to channel her fierceness -- and steal her lines. Losing a well-defined fight over the CFPA could be a winner for them, if it shows voters that the D's are battling for them and the R's are fronting for the banks.

This is no silver bullet for the Democrats. But if they don't want to be blamed -- fairly or not -- by voters for the current economic mess, they ought to listen to Prof. Warren and fight like hell for a CFPA that can fight for consumers.

You can follow David Corn's postings and media appearances via Twitter.

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