Fasten Your Seatbelt, Mr. Cordray

President Obama with Richard Cordray (photo via bloomberg.com)

It’s nice to see the Consumer Financial Protection Bureau get its first director, despite the shaky constitutionality of Richard Cordray’s recess appointment. The CFPB, a consumer watchdog agency established to guard against the abuses that led to the 2008 financial crisis, has been operational since July, but cannot regulate non-bank institutions — e.g. payday lenders, mortgage originators — until it has a director. Republicans, who hate the idea of the CFPB and charge that it is unaccountable to lawmakers, have filibustered Cordray’s nomination. Naturally, Republicans aren’t opposed to the idea of a CPPB director in theory. As CNN reports, the GOP is asking for ” three big changes to how the bureau is overseen,” including replacing the director with a board. Republicans have “vowed to block confirmation of any nominee to run the bureau until the president agreed to approve those structural changes.” Let me get this straight: Republicans would be perfectly happy to let Obama fill the position . . . just as soon as Congress passes legislation eliminating the position. Yeah, it’s some catch, that catch-22. That’s why Wednesday’s announcement that Obama would recess-appoint Cordray, as well as three similarly filibustered nominees to the National Board of Labor Relations, was refreshing in spite of its uncertain constitutional grounds. Conservative politicians and pundits immediately panned the appointment as “lawless” (Charles Krauthammer) and “arrogant” (Sen. John Cornyn). I don’t find Obama’s actions to be either, though I’m not sure they were entirely on the up-and-up.

At first the mystery was why, given the chance a day earlier to appoint Cordray during the seconds-long gap between the first and second years of the 112th Congress, President Obama chose the option with shakier legal backing. Jonathan Cohn at the New Republic has the answer: “The problem, it turns out, is that there was no intermission between the sessions this time because the Senate never formally recessed, not even for a nanosecond.” Republicans have been calling pro-forma sessions while the majority of Congress is on vacation for precisely the purpose of preventing recess appointments; apparently, they thought to close the year-end loophole as well. And, by acting today, Obama was able to stretch Cordray’s tenure to the end of 2013, thus avoiding an election-season restaging of the battle in December 2012.

That said, I disagree with Cohn’s conclusion that the appointment was constitutional. He writes that, “legally, the issue is very simple. If the Senate was not in session on Tuesday, then Obama had authority to make the appointments.” So far so good. But then Cohn accepts the administration’s rationale that the pro-forma sessions were not “real” sessions because no business was conducted. White House officials “note that the motion (by Oregon Senator Ron Wyden) to have these pro forma sessions said explicitly that there would be ‘no business conducted.'” Whether or not business was conducted seems irrelevant to me. Nowhere does the Constitution state that the legitimacy of a Congressional session depends on the git-‘er-done productivity of its members. Heck, if actual accomplishments were required to make a session of Congress constitutionally valid, Obama could have been making recess appointments right and left since the do-nothing 112th began. I find myself in the uncomfortable position of agreeing with Edwin Meese, Ronald Reagan’s attorney general and a current chairman of the conservative Heritage Foundation, who writes in the Washington Post that neither chamber of the legislature can adjourn for more than three days without the consent of the other — and the House of Representatives has explicitly not given the Senate that permission. Furthermore, the administration undermined its own assertion that the pro-forma sessions don’t count when Obama signed legislation passed on Dec. 23 in . . . yes, a pro-forma session. “The president cannot pick and choose when he deems a Senate session to be ‘real,'” Meese and co-author Todd Gaziano write.

But there is light at the end of the tunnel. Jonathan Cohn also reports that White House Counsel Kathy Ruemmler told him the following:

These appointees were necessary for these government agencies to function. The agencies were created to enforce duly passed laws, the Dodd-Frank Act and the National Labor Relations Act. The president has a constitutional obligation to enforce the laws and to make sure that personnel necessary to enforce the laws are in place.

This is where I think Obama is on firmer ground, though perhaps not for the recess-appointment legal minutiae the administration cites. Ezra Klein, of the Post’s Wonkblog, picks up on an argument that James Fallows has been making at The Atlantic for quite awhile: that the Republican tactic of refusing to confirm nominees for agencies like the CFPB and the National Labor Relations Board, which cannot fully function without the appointees in question, amounts to what Congressional scholar Thomas Mann calls “a modern-day form of nullification.” By denying the CFPB a director and the NLRB a quorum, Republicans are not just leaving vacancies on federal courts or keeping agency leaders on “acting” status. Instead, they are “using their power to block nominations to hold kill or change agencies that they didn’t have the votes to reform through the normal legislative order.” While the Constitution gives the Senate the power to “advise and consent” on nominations, it does not enable the legislature to “nullify” legitimately established agencies or laws it dislikes. Klein continues:

That’s what Mann means when he invokes “nullification”: just as the original nullification crisis was about states refusing to implement federal laws that their representatives did not have the votes to overturn, the modern-day incarnation features Republicans refusing to implement laws they don’t have the votes to overturn.

James Fallows concurs that Republicans should not be allowed to hijack the nomination process to do an end-run around the difficulty of repealing unattractive legislation. If the GOP wants to get rid of the CFPB, then “let them make that case on the stump this year. If they prevail, they can overturn this law and replace it with what they would like. But until and unless that happens, the CFPB is a legitimately enacted organ of government and should be allowed to function.” According to this logic, Obama’s actions were not “a viligante act of an imperial presidency” (according to Fox News analyst Peter Johnson) but a demonstration of restraint. He could have chosen to recess-appoint all 202 of the nominees, for positions ranging from federal judgeships to the top job at the FDIC, still in the confirmation process. Many of these nominees have been blocked by Republicans, or by a single Republican (it only takes one Senator to place a “hold” on a nominee), and have little chance of ever being approved. Ezra Klein takes us through some of the reasons, including the limited duration of recess appointments and the obvious backlash that would face such a sweeping act. Mostly, however, Klein attributes the president’s relative caution to the difference between an average nominee and a nominee required for an agency to function. He returns us to nullification: “The answer is, without [these nominees], the institutions they’re intended to lead will fail. Obama’s maneuver was about the agencies, not the appointees.”

Does the fight against “nullification” make Obama’s constitutionally dubious actions acceptable? Does the CFPB’s “right” to exist take precedence over the Senate’s right to approve federal nominations? I’m not sure. But recess appointments would not have been necessary if the legislature had not shirked its duty to follow through on its own laws. Congress has always had the power of the purse, and despite the repugnance of Republican attempts to hamstring agencies like the EPA and the SEC by starving them of funds, the budget process is at least a legitimate vehicle for influencing hated (albeit duly passed) legislation. Casting the recess appointments as the fulfillment of Obama’s duty to keep the government functioning avoids getting bogged down in the details of what does and does not constitute a session of Congress. In an op-ed for the Times, Lawrence Tribe offers his own Constitutional citation, arguing that Article II, which instructs the president to “take care that the laws be faithfully executed,” permits “an irreducible minimum of presidential authority to appoint officials when the appointments are essential to execute duly enacted statutes.” Unanswered is whether this authority overrides restrictions against appointments when Congress is not officially in recess. Unfortunately, Tribe concludes that “the gimmicky nature of pro forma sessions is best understood as one among several factors that combine to present unconstitutional interference with the president’s irreducible power and duty.” If Obama’s “irreducible power and duty” is enough to support Cordray’s appointment, why rely on a subjective opinion about pro-forma sessions that has no constitutional underpinnings? I doubt Thomas Jefferson’s vocabulary included the word “gimmicky.”

Timothy Noah, a colleague of Jonathan Cohn’s at TNR, takes exception to Tribe’s logic. “The White House maintains that keeping the Senate in pro forma session is a stupid gimmick, which is certainly true,” he writes. “It further maintains that because it is a stupid gimmick, that gives the president the right to act as though the Senate were in recess. That’s the part I have trouble following.” Noah makes it clear that he supports the mission of the CFPB and “favor[s] a bolder stance by our president to counter Republican obstruction,” but despite several updates to his original post in which Noah relates the pro-appointment arguments of various constitutional scholars, he still isn’t convinced that Obama is technically in the right.

That may be — and that is certainly what the Chamber of Commerce will argue when it sues the administration to get the appointments tossed out. Beyond bluster, though, I’m not sure that there is much Congressional Republicans can do. Obama has made his move, Cordray has been installed at the CFPB, and the only remaining course of action may be to battle to repeal Dodd-Frank via the tried-and-true legislative process, as James Fallows suggested. Fallows has since followed up with what he calls a “cautionary view” from Mike Lofgren, a “former long-time Republican Senate staffer who has recently been writing about the destructive extremism of the current Congressional Republican party.” Lofgren moves beyond the nuts and bolts of constitutionality and addresses the practical repercussions of the recess (or non-recess, as the case may be) appointment. He believes Obama may have won a pyrrhic victory, as all forthcoming decisions by the CFPB will be shadowed by uncertainty. Lofgren writes that “One can assume every affected business will sue the government in federal court on the grounds that the bureau did not have the authority to make that decision.” Because the bureau is required to have a director before it can regulate non-bank financial institutions like payday lenders, it will be a fairly simple proposition to argue that any new regulations are invalid. Lofgren adds, somewhat darkly, that “you may be certain the Chamber of Commerce and other business lobbies will spend whatever it takes to litigate the issue all the way to the Supreme Court.” Republican consternation over the appointment is likely to dog other issues as well, further poisoning the well of bipartisanship and putting any semblance of compromise out of reach. The extension of the payroll tax cut comes to mind as a potential casualty. The Times quotes GOP Senator John Barrosso as warning that “It’s going to be very difficult for him to get anybody confirmed by the United States Senate.” This is hardly news, considering that Republicans have blocked a record number of Obama’s nominations to the federal bench and other regulatory agencies, effectively raising the bar for approval from 50 to a filibuster-proof 60. Yet the White House seems to have weighed its options and judged the fallout an affordable price to pay to bolster Obama’s anti-Wall Street credentials. As the Times reports, “Administration officials say they understand that their nominees will face an even steeper battle in the Senate now but accept it as a consequence of using Congress as their bête noire, part of Mr. Obama’s re-election strategy.”

Whatever the political calculation, I’m delighted by Obama’s sudden realization that he possesses a backbone, even if Elizabeth Warren is somewhere in Massachusetts thinking dark thoughts about the president. The president known for a while now that the GOP will brook no level of administration success. These are the same folks who discounted the president’s role in nailing Osama bin Laden, for Pete’s sake. Given the predictable backlash, it’s slightly ironic that Obama chose to spend precious political capital — he may even be deficit spending by now in the good will department, for all I know — installing his second-choice CFPB director. Elizabeth Warren, who is to the Chamber of Commerce what Margaret Sanger is to the pro-life movement, is probably thinking, Heckuva time to grow a spine, Mr. President. Of course, the response to a Warren appointment would have been even bloodier, and Warren’s chance to head the CFPB has long passed.

I have to admit that I’m ready to give the president a pass on the constitutionality issue simply because it’s heartening to see him standing up for progressive beliefs. The other option, for the executive to remain supine in the face of the Senate’s replacement of “advise and consent” with “berate and stonewall” is hardly an attractive alternative. That logic is not exactly at a premium in D.C. is evident in the GOP’s call to hold the CFPB accountable to the same Congressional committees and government regulators who failed to notice the housing bubble and predatory lending practices in the first place. For now, it seems that Obama has won this round of the CFPB fight. Unfortunately, Washington is not known to be a place where one can escape the truism that no good deed goes unpunished.

The War on Elizabeth Warren

Whom Are You Calling a Grandmother? (Photo via cnn.com)

UPDATE – 7/15/11: President Obama’s Grow-a-Spine miracle tablets have apparently not worked. Bloomberg News reports that he “has chosen a candidate other than Elizabeth Warren as director of the new Consumer Financial Protection Bureau, according to a person briefed on the matter.” Maybe it just fit with the “Let’s Cave to the GOP” theme of the recent debt ceiling negotiations. Or maybe, as Stephen Colbert suggested the other day, the Republicans have taken America hostage and are holding a gun to its head . . . . Keep it there long enough and perhaps the country will get Stockholm Syndrome.

“Elizabeth Warren, Champion of Consumer Financial Protection” (Businessweek, 7/7/11)

“An Agency Builder, but Not Yet Its Leader” (NYT, 7/4/11)

“Director or No, Wall Street’s Newest Cop Is Ready for Duty” (NYT, 6/20/11)

“The Bank Lobby Steps Up Its Attack on Elizabeth Warren” (The Nation, 6/20/11)

“Blocking Elizabeth Warren” (NYT, 6/10/11)

With July 21, the official debut date of the Consumer Financial Protection Bureau, just around the corner, Elizabeth Warren is getting a lot of press. The bureau is Warren’s brainchild, but though she has dedicated the past year to getting the agency up and running, President Obama has not nominated her as its director. Opposition by Senate Republicans would likely make her confirmation impossible, and the Times reports that “it is conventional wisdom in this town that the first director of the new Consumer Financial Protection Bureau will be anyone but Elizabeth Warren.”

Whether or not Warren is actually named head of the bureau, her part in its creation has ensured her legacy will be indelible. Businessweek devoted its July 7 cover story to the woman it calls the “Champion of Consumer Financial Protection.” The title is unwieldy, but the article makes the case that, regardless of Warren’s political future, she has already been the midwife of lasting change to the banking world.

Media coverage of Warren traffics in cliché, and Drake Bennett’s sharply-written Businessweek profile goes out of its way to puncture such stereotypes. “Warren is a grandma from Oklahoma in roughly the same way Ralph Nader is a pensioner with a thing about cars,” he notes. Indeed, The Times repeatedly makes the grayhair characterization, referring to Warren as “a driven, sometimes blunt 62-year-old grandmother” in much the same way that the cache of bin Laden documents is always a “trove” and the latest dismal job numbers are always a “speed bump” on the road to economic recovery. Bennett is not taken in by the passionate-yet-controlled hand gestures or the intent gravity that reporters typically observe in a Warren interview. He writes that she is prone to expressions like “Holy guacamole!” but adds that “it’s difficult to tell whether these are spontaneous or deliberately deployed to soften her imposing professorial mien.”

Less insightful, however, is Bennett’s celebratory tone. He lauds Warren for her contributions, making her out to be the savior of the banking world. (Sheila Bair, whose serious face graces the cover of this week’s Times Magazine and whose op-ed manifesto was recently published by the Washington Post, might have a thing or two to say about that.) He describes the broad powers the CFPB will assume on July 21: “It will supervise not only banks and credit unions but credit-card companies, mortgage servicers, credit bureaus, debt collectors, payday lenders and check-cashing shops. Dozens of researchers will track trends in the lending market and keep an eye on new products.”

Warren’s accomplishments are myriad; she is “not waiting for permission to do the job she may never get.” In Bennett’s telling, whether Warren receives an official appointment is almost immaterial, as she has already “hired hundreds of people,” including “several top hires from outside the federal government.” When the bureau opens, it will apparently run like clockwork, as “teams of analysts will follow various markets — credit cards, mortgages, student loans — to spot trends and examine new products.” Bennett has a high degree of faith in the agency’s ability to be everything to everyone; his laundry lists of the agency’s many duties support the opinions of Raj Date, Warren’s deputy at the CFPB, whose name has also been floated for the top position. Date’s take on the agency is predictably laudatory. “If the bureau and its market research teams had been in place five years ago,” Bennett paraphrases Date as saying, “they would have spotted evidence of the coming mortgage meltdown and could have coordinated with the bureau’s enforcement division to head it off.” One suspects that such grandiose proclamations were also made at the creation of the SEC and the FDIC (certainly Sheila Bair has laid out similarly lofty goals for her agency), and one only has to consider Lehman Brothers or AIG to see how effective those regulators were in avoiding the crisis of 2008. Granted, the purpose of the CFPB is to step in where the other cops on the block have failed, but anything billed as the be-all-end-all of financial regulation is bound to be oversold.

By burying Warren with praise, Bennett obscures the true challenges facing the CFPB and commits the sin that, just last week, I commended Businessweek for avoiding: He gives the business community a pass. In its examination of Transocean’s complete abrogation of responsibility for the Deepwater Horizon oil spill in the Gulf, the magazine painted a picture of a soulless, mean-spirited corporation that didn’t toe the usual Chamber of Commerce political line. This week, however, Bennett performs a delicate two-step. He pretends to slap the wrists of Warren’s Republican detractors while surreptitiously giving big business a pat on the back.

How does Bennett accomplish this? First, he minimizes the threats to the CFPB (and to the Dodd-Frank legislation as a whole) by overstating Warren’s accomplishments. He devotes a massive, thirteen-line paragraph to what the bureau can do, come July 21, then spends only four lines on what the bureau will not be able to do. It’s a caveat worth mentioning; in fact, it’s one that has been the topic of numerous concerned editorials and articles. Without a director, the CFPB is not completely toothless, but neither is it the long-armed rule-making body that Bennett proclaims it to be.  The Times writes that the lack of leadership will leave the bureau’s powers “muted.” Reporter Ben Protess continues:

Absent a director, the bureau doesn’t have the authority to oversee payday lenders, mortgage brokers and other nonbank lenders, according to an interpretation of the statute by Treasury and Fed inspectors general. Ms. Warren is not even allowed to identify the nonbank financial firms she plans to regulate.

An article in The Nation addresses the very real stumbling blocks that the new agency will face. The Republican-led House Financial Services Committee has passed bills aiming to strip the CFBP of a single director altogether, replacing Warren (or, presumably, a more benign alternative) with a five-person commission. For a party that talks so much about eliminating sprawling bureaucracy, the GOP has sure worked hard to hamstring Warren’s agency by . . . adding bureaucrats. The proposed “bipartisan” commission seems to be modeled on the perpetually-deadlocked FEC, where the conflict between Republican and Democratic commissioners has ground the business of election regulation to a halt. Ari Berman, writing for The Nation, notes that “in a rather stunning bit of hostage taking, forty-four Senate Republicans recently announced they would not approve any nominee for the CFBP unless the GOP proposals were implemented.”

The Nation is certainly not an unbiased news source, and the article devotes a mind-numbing amount of space to the money spent by the financial sector to lobby Washington and line the pockets of Republican politicians (mores specifically, the three Republican politicians who just happened to sponsor the anti-CFPB bills). Surely the millions spent by the banks on lobbyists is a problem, but reeling off the dollar amounts hardly helps the reader to understand the specific threats facing Elizabeth Warren’s brainchild. The money is not the issue; what that money buys is, and by listing campaign contributions, The Nation manages to stoke outrage without linking those contributions to particular dangers.

The crucial pieces of information in Berman’s article are less sensational. Undermining Businessweek’s assertion that the CFBP will have the authority to rein in sketchy banking practices, Berman reveals that, “despite claims about its unlimited power, the CFPB is the only banking regulator whose budget will be capped (for now, at 12 percent of the total Fed budget) and whose rules can be overturned (by a two-thirds vote from the Financial Stability Oversight Council, a new group of top federal economic policy-makers).” The power of the CFPB is hardly as unchecked as Republicans like Rep. Jed Hensarling, who calls the agency “one of the greatest assaults on economic liberty in my lifetime,” have claimed.

The threats to the CFBP are real, and they are vastly larger than Businessweek gives them credit for. On top of the bills passed in the House, Republicans have “tried unsuccessfully to cut the CFPB’s budget earlier this year and succeeded in mandating two audits of the bureau per year.” Berman writes that Warren’s “associates” quote her as describing Republican efforts as an attempt to “pull the arms and the legs off the agency.” And though Bennett asserts that “few Cabinet secretaries can claim to have left as indelible a mark on the departments they lead as Elizabeth Warren has already left on the one she doesn’t,” it is not enough that “Warren has built the CFPB largely to her specs.” It doesn’t matter how the CFPB is constructed or how talented its employees if its budget is eviscerated and its enforcement powers are curtailed. It wasn’t a lack of regulatory agencies that enabled the financial crisis but the toothlessness of the agencies that did exist.

Bennett’s claim that Warren’s development of the CFPB has been “almost entirely free of interference from Congress and the Administration” is patently false. The creation of the CFPB is not finished until it goes live on July 21, and possibly not until it assumes its full powers under a permanent director. The efforts by Republicans, on behalf of the banking industry, constitute nothing if not interference. In The Nation, Berman points out that the lobbying push has been partly successful. So far, the CFPB is “focusing on low-hanging fruit, such as clearer mortgage disclosure forms, that can draw consensus among consumer advocates and industry groups. Everyone agrees the real fights are yet to come, once the CFPB goes live and begins tackling difficult issues like policing scams in the credit and mortgage markets, and cracking down on overdraft lending fees and shady prepaid credit cards.”

This is a sharp contrast from the Businessweek paradigm, in which the CFPB is prepared to spring forth fully formed, Athena-style, from the head of Elizabeth Warren. Businessweek’s willful ignorance of the challenges facing the CFPB is dangerous because it suggests that the battle to police Wall Street has already been won. For the magazine’s wealthy, business-class audience, this is good news. Bennett allows his reader to feel warm and fuzzy about Warren’s success without challenging the status quo. A hard-hitting, take-no-prisoners approach to the topic would surely have alienated a portion of Bennett’s audience, but it would be more honest than the article he produced. He goes beyond simply not demonizing the Republican opposition to the CFPB; in fact, conservatives come off as just another thorn in Warren’s side: irritating, but not life-threatening. Instead of holding the business community’s feet to the fire, pushing Businessweek’s corner-office readers to question their complicity in the anti-CFPB lobbying efforts, Bennett gives them a pass. He doesn’t mention that the Chamber of Commerce, which The Nation reports has “a dozen lobbyists focused on the CFPB alone,” spent $17 million on federal lobbying in the first quarter of 2011. He doesn’t point out that the Chamber’s senior director has admitted that “we’re fundamentally trying to kill this.” He also neglects to list the numerous industry groups, from the American Bankers Association to the National Association of Federal Credit Unions, that have lined up to fight the establishment of Warren’s agency.

Businesspeople are, as the term suggests, people too – and it is not impossible that a few, after learning the true extent of the threats to an agency designed to protect consumers, would emerge dissatisfied with the business community’s unholy alliance with the GOP. But Bennett is only tossing softballs. Both Businessweek and The Nation quote Senator Richard Shelby, who, as the ranking member of the Senate Banking Committee, will be instrumental in confirming (or not confirming) the eventual nominee to head the CFPB. However, while Ari Berman writes that “Shelby has said that a Warren recess appointment would be ‘dangerous to the American economy,’” the nastiest remark Bennett includes is tame to the point of ridiculousness: “She’s a professor and all this,” he quotes Shelby as saying, “in a tone that makes it clear he is not paying her a compliment.”  In case even that is too harsh,  Shelby is also given the chance to opine, “She’s probably a nice person, as far as I know.”

As if he is looking for a cherry to top of his deliberate misunderstanding of the existential threats the CFPB faces, Benett concludes with another sop to Warren’s dogged, straight-shooting personality. Her future is bright, he implies, writing that “Warren gives the distinct impression that she will not suffer long if the President passes her over . . . . Whether the story ends with her confirmation or being driven from town, it’s almost certain that the character of Elizabeth Warren will come out looking just fine.” The statement is offensive in more ways than one; for starters, it’s not Warren that will suffer if President Obama caves to conservative pressure and opts for a less experienced, and perhaps less passionate, nominee. No – it’s the consumers, whom the bureau is charged with protecting, that will suffer. No one, not even Obama, is particularly concerned with Elizabeth Warren’s bruised feelings. Warren was not pushing for herself when she wrote, in her oft-quoted 2007 article in the journal Democracy, that “It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street – and the mortgage won’t even carry a disclosure of that fact to the homeowner.”

Unaddressed in Bennett’s article is what happens if the push to neuter the CFBP succeeds. If Warren is indeed “driven from town,” does that mean the banking industry and their GOP mouthpieces will have turned the CFBP into just another toothless bureaucracy? Joe Nocera, in an op-ed column for The New York Times, writes that, though Warren may not be able to win confirmation, it is a fight worth having, and not one that Obama should shrink from. Nocera concludes:

In politics, there are certainly times when compromise is the right approach. But this is not one of those times. The agency needs to begin its life unafraid to do its job, which won’t happen if the White House backs down now. By contrast, nominating Elizabeth Warren, who is nothing if not unafraid, would send exactly the right signal.