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The Elizabeth Warren Witch Hunt Continues

posted by Adam Levitin

The latest chapter in the Republicans' Elizabeth Warren witchhunt would be farcical, if it didn't have such potentially serious consequences. Congressional Republicans are now demanding that Elizabeth Warren recant her Congressional testimony about her role in the non-existent mortgage servicing settlement.  The problem?  Professor Warren stated that she "advised" the Treasury Secretary on the settlement, whereas Republicans allege that:

according to the CFPB Settlement Presentation, the CFPB did more than provide advice:  it recommended the goals and provided a detailed framework for the structure of the settlement....rather than merely dispensing advice to those involved in negotiating the settlement, the CFPB was actually its primary architect.

In other words, the Republicans are insinuating that Professor Warren misled Congress in her testimony because she said she "advised" when in fact she "recommended." This charge is truly laughable and shows what a desperate witchhunt the Congressional Republicans are conducting as part of their rear-guard action for the banks. This doesn't even pass the straight face test. I half expect their next letter to demand that Elizabeth Warren show up at the House dunking pond to see if she floats or sinks.

Let's consider the evidence here. It is a CFPB powerpoint presentation analyzing possible structures for a settlement of the largest consumer financial fraud case in history. The point that is particularly objectionable to Congressional Republicans is an analysis that shows that a $5B penalty as part of a settlement would be far too low given the benefits banks gained from servicing fraud and that $20B would be more appropriate.  

Here's the Republicans' logic:  

  • CFPB's analysis suggests that $20B is a more appropriate fine than $5B. 
  • Media reports (but no government documents of which I know or official statements) have stated that fines in the range of $20B-$30B have been proposed.  
  • Ergo, CFPB is masterminding the whole operation. 

This analysis misses the mark in four critical ways.

First, it assumes that there's consensus within the government on a $20B fine. Sadly, there ain't or this case would be much closer to an actual settlement. 

Second, it dismisses the possibility that sources other than the CFPB might have suggested $20B. I wouldn't be so sure about that. The CFPB isn't so powerful within the Administration that it can push a number like $20B without the support of some of the bank regulators and other parties within Treasury.

Third, it ignores that nothing in this powerpoint relates to the 27-page proposed AG term sheet, which is a critcial part of settlement proposals and to which the banks have made a paltry counterproposal that largely promises to do things they are already supposed to do. At most, then this is evidence that the CFPB contributed to one speculative piece of a complex settlement proposal. To repeat, there is nothing in the CFPB powerpoint that is in the AG term sheet and nothign in the AG term sheet that's in the CFPB powerpoint. So where's the connection? 

Finally, it ignores that the CFPB cannot be the primary architect of the settlement. CFPB has no authority to do anything except advise.  CFPB does not exist yet.  There is a CFPB transition team that is part of the Treasury Department.  There are no CFPB email addresses even, only Treasury email addresses (remember, CFPB will be under the Fed, not Treasury). Elizabeth Warren and the CFPB transition team cannot bind the US government or the state AGs in a settlement. All they can do is offer advice, suggestions, recommendations, etc.  It is the decision of the relevant bank regulators and attorneys general whether to adopt those recommendations or not, just the way lobbyists often draft legislation for Congress, but it's Congress's decision whether or not to adopt the legislation.

So what this ultimately boils down to is that Congressional Republicans are blaming the CFPB because its advice was adopted.  If the CFPB's advice had been ignored, no problem, but because they were persuasive, now there's an issue. Bottom line is it wouldn't matter a lick if Elizabeth Warren had drafted the entire proposed term sheet herself in her own handwriting and put her signature and thumbprint on it and that became the final deal terms. It would still be nothing more than advice. To suggest that Congress was in any way mislead is just laughable.  

But notice where this game is leading--this is the Republicans' attempt to assemble a portfolio of arguments against Elizabeth Warren becoming the Director of the CFPB. As long as the CFPB remains without a Director, it cannot be an effective force in investigating foreclosure fraud and holding the banks to account, which means the AGs' only settlement leverage is the threat of litigation, which will take years to play out, by which point there won't be any distressed mortgages left to modify. Maybe the banks will pay a fine, but it will be a fraction of what they'd pay under the settlement. So the game here is for the banks to run the clock--negotiate in bad faith with the AGs and rely on their Congressional pals to keep the CFPB out of action. That's a strategy that could save the banks' billions. I'm sure they'll find good uses for that money. 

For some other good takes on this non-issue see here and here


Some do things right. A few do the right thing. I have known Elizabeth Warren since 1989 and while we have not agreed at times, I know she has consistently tried to do the right thing. I am a Rebublican, and also an American. Elizabeth will weather the present storm inside the beltway.

as a repub, i find this ridiculous

What's the old law school adage? When the law's agin' ya, argue the facts; when the fact's agin' ya, argue the law; when they both agin' ya, call your opponent names!

You know, when a clients ask for my advice, they generally expect a recommendation of what to do. So I give them that. I guess that's why I'm not a Republican any more.

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