ICYMI: WSJ Editorial: President Warren's Empire
Washington,
March 16, 2011 -
The consumer finance czar answers to no one and sets her own budget.
A House subcommittee will hold an "oversight" hearing today on the new Consumer Financial Protection Bureau, the über-regulator that will soon have jurisdiction over most of the country's credit-making institutions. We put "oversight" in quotes because Congress has little say over either the new bureau or its unofficial czar, Elizabeth Warren.
This unprecedented lack of accountability is by Ms. Warren's design. The bureau was the Harvard professor's idea, and she lobbied the Obama Administration and Congress to make it part of the 2010 Dodd-Frank financial reform. That law calls it an "independent bureau," akin to an independent agency like the Securities and Exchange Commission. But that's deceptive. Unlike other agencies, it isn't subject to annual Congressional appropriations.
Incredibly, the law says the bureau's director gets to set her own annual budget by requesting a share of the "combined earnings of the Federal Reserve System." The total she can request is capped this year at 10% of the Fed's total operating expenses (which in 2009 were $5.4 billion). That cap rises to 11% next year and 12% in 2013, and the Fed Chairman has no authority to deny her request. The director can also request an additional $200 million more per year for the next five years from Congress.
This arrangement may be unconstitutional under the separation of powers, and we hope it is soon tested in court. It was a deliberate political gambit to make the bureau less accountable to either Congress or the rest of the executive branch. In July, when its powers fully vest, the bureau will have supervisory authority over banks with more than $10 billion of assets and independent rule-making authority.
Both are cause for worry, given that the bureau will not have to incorporate the views of other banking regulators into its rules when it comes, for instance, to issues of safety and soundness. While the IRS Commissioner and Comptroller of the Currency report to the Treasury Secretary, Ms. Warren and her successors can tell him to crush rocks.
The affront is compounded by President Obama's decision to evade the spirit of the law by letting Ms. Warren set up the bureau without Senate confirmation. Republicans objected to her potential appointment, and even Democrat Chris Dodd said she would be hard to confirm. So Mr. Obama created a special position for her at both the White House and Treasury, letting her essentially create the bureau and hire its staff without facing the Senate. She has proceeded to sign up a raft of liberal antibank populists, such as former Ohio Attorney General Richard Cordray, former AFL-CIO deputy counsel David Silbermann and University of Connecticut law professor Patricia McCoy.
Ms. Warren is also establishing the bureau's priorities. She has backed stringent regulations on credit-card companies and worked to forge alliances with state Attorneys General. She's also using the bureau's presumed power to dictate a $20 billion foreclosure settlement with banks and muscling in on inter-agency processes to set mortgage servicing standards. Whoever Mr. Obama does formally nominate to run the bureau later this year will be Ms. Warren's factotum.
This is no way to run a government, especially not one that Madison envisioned. The consumer bureau is essentially a bureaucratic rogue. We'd like to see Congress kill the agency entirely. But at the very least Congress should remove it from the Fed, make it part of the Treasury and subject it to annual appropriations. No one elected—or even nominated—Elizabeth Warren
