Senator Elizabeth Warren (D-MA) has the right to be proud.
When Senate Republicans gave up and voted to confirm Richard Cordray as the director of the Consumer Financial Protection Bureau (CFPB), it was the realization of a dream she first proposed in the Summer 2007 edition of Democracy: A Journal Of Ideas, before the financial crisis even hit:
So why not create a Financial Product Safety Commission (FPSC)? Like its counterpart for ordinary consumer products, this agency would be charged with responsibility to establish guidelines for consumer disclosure, collect and report data about the uses of different financial products, review new financial products for safety, and require modification of dangerous products before they can be marketed to the public.
The name has changed slightly, but her dream is now a reality, despite an unprecedented effort to filibuster the bureau out of existence. Among its many achievements, the CFPB has already recovered millions for wronged consumers.
Now Warren, along with Senators John McCain (R-AZ), Maria Cantwell (D-WA) and Angus King (I-ME), is proposing Glass-Steagall II, an effort to restore the firewall between commercial and investment banks. When she went on CNBC, Wall Street’s favorite channel tried to cast her plan as futile and a pipe dream. Warren pointed out that many people said the same thing about the CFPB. She went on to explain how the division of savings and investment had kept America’s economy functional for 50 years, until deregulation began to set in.
Financial expert Barry Riholtz saw Warren’s appearance and liked what he saw. “Kudos to Senator Warren for her patience in explaining the basics to this crew of ideologue[s],” he said.
In his post “A Brief Refresher on Glass-Steagall,” Riholtz broke down the main argument against breaking up the big banks, that it wouldn’t have prevented the financial crisis:
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As I described in the Washington Post last year (Repeal of Glass-Steagall: Not a cause, but a multiplier), the shortage of lifeboats on the Titanic did not cause it to sink, but it sure as hell raised the body count. The repeal of Glass-Steagall had a similar effect. It did not cause the crisis, but lack of a firebreak allowed it to jump easily form Wall Street to Main Street.
In prior discussions, we have discussed the many causative factors that led to the crisis. The repeal of Glass-Steagall was not one of the factors that was a direct underlying causative element. There is no doubt that its repeal allowed the credit crisis to expand faster, wider and have a greater impact than if that firebreak still existed. That is why the list of supporters for bringing back Glass-Steagall includes more than just Senators McCain and Warren — former FDIC chair Sheila Bair and current FDIC Vice chair Thomas Hoenig, former Federal Reserve Chair Paul Volcker, even former Citigroup CEO John Reed.
Copyright 2013 The National Memo