The Wall Street Journal's CFPB Smear Campaign Continues

The Wall Street Journal editorial page has its fourth hit job in two weeks attacking Elizabeth Warren. It's hard to think of the last time the WSJ editorial page assaulted any individual government official for such extended and personalized animus. (Maybe President Clinton or Elliot Spitzer?) And as I've noted before (here and here), the WSJ keeps stretching the facts in these percussive pieces.

The WSJ's attacks are also way out of line with the mainstream media. You might say they're tone-deaf. Here's a litany of recent pieces supporting the CFPB: SFChronicle, Californian, Las Vegas Sun, Philadelphia Inquirer (and again here), Bangor Daily News, Miami Herald. It would seem that everyone except Wall Street understands the need for the CFPB and that Elizabeth Warren is the person for the directorship. 

The WSJ raises three criticisms of Warren and the CFPB: (1) lack of accountability on rulemaking, (2) lack of control over funding, and (3) disingenuousness about the CFPB's role in servicing fraud settlement negotiations. The WSJ's real issue, however, isn't the level of the CFPB's accountability or funding or even its role in the servicing settlement. It's the CFPB's very existence.

Congress ought to put Ms. Warren's unaccountable bureau under Treasury with an annual budget—or, better, put it entirely out of business.

Complaints about accountability or funding are just cover for the banks' WSJ's real agenda--letting the banks go back to business as usual. How well did that work out for the country in 2008? Heckuva job, Brownie!

The WSJ editorial page has never managed to articulate an argument for why there should not be a CFPB, however. I think there's a reason for that--there isn't one that can be made with a straight face. The WSJ's motivation is it is afraid that the CFPB will result in greater fairness, transparency, and efficiency in consumer finance markets--and hence less profit for Wall Street. But even the WSJ knows that's not an argument it can make in public. So instead, the WSJ editorial page harps on accountability and legality. Let's see how well these strawmen stand up to the fire of reason.

(1) Accountability-Rulemaking

The WSJ throw up a couple of arguments about lack of CFPB accountability.  First, the WSJ argues that CFPB rulemaking is unaccountable.

CFPB rulemaking is subject to the same Administrative Procedures Act requirements as any other government agency's rulemaking--namely that there must be appropriate notice and comment opportunities--and it is subject to the same type of judicial scrutiny as any other government agency--Chevron scrutiny. While one might argue that APA and Chevron are an inadequate check on agencies' actions, that's not a CFPB problem. That's a problem with the modern administrative state.

CFPB actually is more accountable for its rulemaking than any other government agency, as it is subject to the Financial Stability Oversight Council's veto. The CFPB is the only government agency whose rulemaking is subject to a possible veto by other regulators.  This means that relative to every other government agency, CFPB rulemaking is more accountable. The WSJ discounts the likelihood of the FSOC veto ever being exercised, but the mere possibility of the veto would have a chilling effect on CFPB rulemaking.

The complaint about lack of accountability simply proves too much. The CFPB's rulemakings are subject to more checks and balances than any other government agency. Unless the WSJ is arguing for taking the government back to the 1890s, this line of reasoning just doesn't hold up.

Finally, let's remember that if the CFPB ever does get out of hand, Congress can act. That possibility alone will likely chill CFPB actions, but it's just ridiculous for the WSJ to assume that CFPB is doing something wrong before the agency even exists. If the WSJ wants to take issue with particular CFPB actions when they happen, that's reasonable enough, but what's the argument against consumer financial protection? That's what's animating the WSJ, but the WSJ is incapable or unwilling to articulate its reasoning for opposing consumer financial protection. Given the WSJ's usual ability to articulate its reasoning quite clearly, the only conclusion I can reach is that the WSJ is shilling for the banks.  

(2) Accountability—Funding

The WSJ's second crack at accountability is the CFPB's budget. The CFPB is entitled to a percentage of the Federal Reserve's operating budget. (The percentage steps up over time-it's 10% for FY2011). CFPB may also receive some supplemental funding from Congress. 

The design of the CFPB's funding was very deliberate--and part of a political compromise with Republicans led by Senator Corker. A major concern when designing the CFPB was that if it had to rely on appropriations, the financial services lobby would make repeated pushes to starve the agency into ineffectiveness. Congress, in its wisdom, recognized that as distance grew from the financial crisis, memories of why we need a CFBP would fade (case in point, the WSJ's). Therefore, it was better to commit to a funding mechanism now that is not so easy to cut off as part of an omnibus appropriations bill. 

The idea of funding a financial regulation without appropriations is hardly novel. The OCC and OTS are funded almost entirely by fees paid by banks, and the Fed prints its own money. CFPB could have been funded via direct fees on financial institutions, but there was a concern from WSJ-types that CFPB would levy overly high fees by virtue of a monopoly position. So a compromise was to have it funded by dedicating a percentage of the Fed's operating budget. 

The WSJ's complaint seems to be about the size of the CFPB's budget. This is a very odd attack. How many millions of dollars does the WSJ believe are appropriate to spending on consumer financial protection? Why is $404M or $539M too high? Should only 9%, not 10% of the Fed's operating budget go to consumer protection? The only logic by which one could argue that CFPB funding is too high is if one believes that it should be zero because the government should not be in the business of consumer financial protection. That's a really radically fringe view.  

(3) Legality

The WSJ editorial page seems to think that there's a legal problem with Elizabeth Warren being involved in mortgage servicing settlement negotiations. 

[Warren] added the bureau "will not be a party to any formal settlement," which is technically true because its powers don't vest until July. But that raises the question of the legality of its involvement in the negotiations now.

As I've noted previously, the WSJ editorial page keeps opining on legal matters without knowing the first thing about them (apparently a finance background qualifies one to opine on law). But let's not let facts and logic stand in the way of political agendas. 

What is the possible legal problem with Elizabeth Warren being involved in servicing fraud settlement negotiations? The CFPB cannot presently be a party to any settlement as it does not exist, and Warren has no ability to bind the CFPB or any other part of the federal government in a settlement. At most, then, she's in the room and putting in her two cents. Where's the legal problem there? 

The government is entitled to have Big Bird and Cookie Monster advise it if it sees fit. And here, we actually have someone with serious expertise in consumer protection. Elizabeth Warren knows more about mortgage servicing than almost anyone in the federal government. The Congressional Oversight Panel, which she chaired, devoted extensive coverage to mortgage servicing in its (often bipartisan) oversight reports (here, here, here, here, and here), and the Panel was the first to sound the alarm on the federal level about servicing fraud (here). Moreover, Warren is an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. I would hope that a person with that expertise and that title would be involved in what is potentially the largest consumer financial fraud settlement in US history. It's just preposterous that the WSJ editorial page is suggesting that there's a legal problem with Elizabeth Warren being involved in the government's servicing settlement negotiations. 

The WSJ continues to throw up lots of simply ridiculous arguments against CFPB and Elizabeth Warren. Clearly just by their very existence and presence, CFPB and Elizabeth Warren scare the bejezus out of whoever is paying the piper for this smear campaign. It's hard to think of any better endorsement of CFPB or Elizabeth Warren.

Comments

[Alessandro Machi]

I'll have to post links to this story on my various blogs. From time to time the Wall Street Journal has some excellent editorials, sorry to see them with an pre-ordained agenda.

[Knute Rife]

Show me where a man gets his corn pone, and I'll show you where he gets his opinions. The WSJ is bought and paid for by the folks who want Warren to disappear and the CFPB to be a toothless tabby. Rupert Murdoch has turned the paper into nothing but the in-house organ of the TBTFs.

[bzhou]

"Congress, in its wisdom..."

I have to admit I laughed out loud there.

[Craigie]

Accountability? More junk from WSJ editor Gigot -- perhaps the least accountable man in America, at least since he left "Shields & Gigot" nearly two decades ago.

During the 1970s a fully-accountable regular cabinet agency focused on the Consumer passed both Houses separately but was never enacted into law. There would have been a Secretary of Consumer Protections who would have been politically accountable to Congress and to the American people on a regular basis, just like other executive branch agencies.

During the 2009-2010 negotiations over the new consumer protection agency, conservatives made it clear they would never stand for a real consumer protection agency. It was simply a non-starter, even with many Dem senators (tended to be the ones who support Wall Street). Sticking it in the Fed was the closest the conservatives would allow.

For Gigot to now suddenly say that there is a lack of accountability in the CFPB is the height of hypocrisy and chutzpah. Where were Murdoch and Gigot last year? Were they out there on the front lines writing editorials to create a new, politically accountable cabinet-level consumer protection agency? Did they want a Secretary of Consumer Protections equal to the level of the Secretaries of Defense, Commerce and Interior? Of course not! They are just complainers.