Thursday, Aug 22, 2013 07:45 AM EST
The senator tells Salon how one senator can
wield tremendous power -- and (kind of) addresses those '16 rumors
By David Dayen
It’s
been well-documented that the 113th Congress specializes in getting
nothing consequential done. While the nation’s supply of named post
offices is apparently well-stocked, anything more critical has generally
stalled out, with little hope to break the gridlock.
So let’s say
you’re a high-profile freshman senator walking into this den of
inertia, and you want to make your large following proud and advance
your agenda, but you’re in no position to do that legislatively? How do
you, Elizabeth Warren, find your way through this minefield, and even
chalk up successes?
“It’s all about learning to use the new
tools,” Warren told Salon in an interview this week. “In the Senate,
there are more tools in the toolbox than are obvious.” Warren, now the
senior senator from Massachusetts (Ed Markey, with a 37-year
congressional career, is the junior member), has employed those more
unconventional tools effectively, doing her part to both change the
conversation around the financial industry inside and outside
Washington, and change the sharpness of the regulatory response to
financial misdeeds.
Warren sits on the Senate Banking Committee,
which has marked up all of two bills so far this year (she played a role
in both, passing an amendment to a
national insurance licensing bill and working closely with the committee leadership on
reforming the Federal Housing Administration). But she has really shone in oversight hearings, where she has
gained a reputation
for offering uncomfortable questions to regulatory officials about
their lack of prosecuting criminal activity on Wall Street. “Too big to
fail has become
too big for trial,” she said at a hearing in February. “How big do the biggest banks have to get before
we consider breaking them up?”
she asked Treasury Secretary Jack Lew in May. And she’s used the bully
pulpit outside the hearing room, too, schooling CNBC anchors so badly on
the history of financial regulation that the network
forced the clip to be removed from YouTube.
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This creates a consequence
for the regulators
for lax enforcement. Nobody wants to end up on the business end of an
Elizabeth Warren viral video, and the hope is that the prodding will
spur the regulators into action, or at least keep them alert. “There’s a
lot that banking regulators can do to make the system safer without
Congress passing any new laws,” Warren told Salon. “But only if they do
their jobs. It’s about accountability in both directions. The largest
financial institutions should be held accountable, and so should the
regulators.”
She added, “They are not there to serve the banks,
they are there to serve the public. I’m reminded of that when we have
public hearings. I try to ask questions that the public wants to hear.”
This
extends beyond the occasional badgering of witnesses (“I beg your
pardon,” said Warren when I termed it that way, though she
misunderstood, as I have a great affection for badgering). In one of her
first major actions, Warren opened an investigation into the
Independent Foreclosure Review, which was supposed to review every
foreclosure from 2009-2010 for errors, but ended up so botched (the
banks picked their own reviewers) that regulators shut it down and gave
wronged homeowners a seemingly random amount of cash compensation,
typically around $300. Warren demanded information on how the aborted
reviews were conducted, what they found and how regulators arrived at
the final penalties. After a series of embarrassing hearings on the
subject, last month Federal Reserve chairman Ben Bernanke
promised the release of some details, though none have yet come out.
Other agencies have come to expect Warren’s queries. Just yesterday, she
asked the Justice Department
about why it settled with five large banks who submitted fraudulent
mortgage insurance claims to the FHA for $225 million, when based on the
number of claims made public in a government report, the damages could
have been as high as
$37 billion. That comes out to a settlement for 0.6 percent of potential damages.
Warren
has had more luck with the Securities and Exchange Commission, which
she previously criticized for generating settlements with giant
financial institutions on securities fraud and other violations without
making the guilty party admit wrongdoing. Corporations
can’t stand this
because they expose themselves to future litigation, could suffer
reputational risk and even lose their banking licenses. But putting this
price on misconduct could have a tremendous deterrent effect (in
addition, fines in cases where the defendant admits wrongdoing are
not tax deductible).
The Massachusetts senator used both hearings and a
series of letters to new SEC chairwoman Mary Jo White to question the policy. This has borne fruit: White
announced
a new settlement policy that will require admissions of guilt in more
cases. “I’m very optimistic about the direction Mary Jo White is taking
the SEC,” Warren said. “She didn’t make a generalized ‘we’re going to
get tough’ statement, she identified a class of cases in which the
agency would take a different position, with harsher consequences for
companies that don’t cooperate.”
“Commissioner White is showing some real spirit,” Warren added. “She has come in and made it clear that it’s a new day in town.”
Just this week, hedge fund manager Philip Falcone
admitted wrongdoing
in a settlement over improper use of funds at Harbinger Capital, the
first individual to do so since White announced the new policy. While
Falcone
didn’t admit to liability
on specific violations of law, Warren called it a “step in the right
direction,” and an indication that “the SEC is a watchdog that’s
starting to show some teeth.”
So while critics call Warren’s
verbal jabs mere showboating, combined with her persistence they have
had a tangible impact, both exposing some bank-friendly regulators and
spurring others to better alternatives. “Those who criticize her for
being all talk and no achievements don’t understand the Senate,” said
Jeff Connaughton, a former chief of staff to Sen. Ted Kaufman who wrote
an appreciation of Warren
earlier this year. “I think she and others have made regulators think
twice about how kid glove treatment of the banks will look in a harsh
Senate spotlight.”
Warren has also done plenty of unsung work in
her freshman year. She actually has the highest attendance at Banking
Committee proceedings so far this year, making 27 out of 35 hearings and
executive sessions, more than chairman Tim Johnson or ranking member
Mike Crapo. And in hearings, she almost always stays from start to
finish, learning from her fellow members’ questioning and often
tailoring hers to cover a different subject area. “I learn a lot from
those hearings,” Warren said. “Not everyone is engaged, but there’s a
core of people really interested in the issues and really driving them.”
The
freshman senator named her Banking Committee colleagues Sherrod Brown
and Jeff Merkley as part of this core group. (She even had nice words to
say for Republican Bob Corker, whom she has worked with on the future
of Fannie Mae and Freddie Mac “since before I was a senator.”) Another
reformer, Carl Levin, has made a habit of using his Permanent
Subcommittee on Investigations to delve into issues of financial crimes,
most recently with the “London Whale” trade by JPMorgan Chase. Levin’s
report was instrumental in the criminal indictments of two ex-traders at
the bank for hiding losses and lying to regulators and investors.
“Progress on the London Whale and admit or deny has come because of
three or four determined senators and despite two captured committees,”
argued Jeff Connaughton.
The increased scrutiny has a cumulative effect. When one regulatory agency like the SEC changes its policy, it
provokes other agencies
to consider toughening theirs. When one senator points the way toward
more provocative questioning of the broken regulatory response to a
tsunami of financial crimes, other senators want in on the act. “She has
elevated ‘the game’ of other senators,” said Bartlett Naylor of Public
Citizen. “No longer can her peers survive a committee hearing on a
one-minute staff briefing before asking a question written for them, if
it might be at odds with one of her positions.”
Warren is hoping
such momentum-building will play out in her first banking legislation,
which would reinstate the Depression-era “Glass-Steagall” protections
separating commercial banking (like taking deposits and making loans)
from investment banking (like trading derivatives and other Wall Street
casino gambling pursuits). Critics allege that the Glass-Steagall repeal
had nothing to do with the financial crisis. But in a system where
those duties are separated, Warren believes, regulators would have an
easier time at their jobs. “They wouldn’t have to develop expertise in
multiple lines of business,” she said. “The SEC can oversee the non-bank
institutions, and bank regulators could focus on the safety of banks.”
While all big legislation faces a long road in a divided Washington,
Warren partnered with Republican John McCain, Democrat Maria Cantwell
and Independent Angus King on the Glass-Steagall bill to raise its
profile, using an outside-inside approach. “We’re two freshmen and two
members not on the Banking Committee,” Warren said, “and we got together
to make this a more urgent issue.”
Regardless of the eventual
outcome of that bill, Warren has learned that a senator has power if he
or she knows how to wield it. As for how else she can make an impact,
Jeff Connaughton has a suggestion. “Run for president.”
I asked if she had any reaction to that kind of buzz. The senator had a pat response. “No!”
Read the full transcript of our conversation here.
Massachusetts Sen. Elizabeth Warren (Credit: Reuters/Eric Thayer)
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