Last night, Elizabeth Warren, the administration's top adviser on consumer issues, gave the first speech of her brief tenure to the Financial Services Roundtable, a lobbying association for the financial sector. Before an audience of CEOs, members of congress, and lobbyists, she said she is willing to work with banks and listen to their ideas as she begins the task of standing up the Consumer Financial Protection Bureau. Harkening back to the New Deal, she quoted a speech by Joe Kennedy, Sr., the first director of the SEC:We are not working on the theory that all the men and all the women connected with finance, either as workers or investors, are to be regarded as guilty of some undefined crime. On the contrary, we hold that business based on good will should be encouraged.
"Joe Kennedy had it right," Warren continued. "Good regulations can create an opportunity for good businesses to thrive." She did cut any corners in sharing her views of some of the financiers' products, however, noting the intentional and damaging complexity of consumer financial contracts, and calling for clarity.
Belying her confrontational reputation, Warren tried to walk a middle ground between prohibiting pernicious business practices and simply mandating more disclosure: She endorsed a principles-based approach to regulation, an angle that is generally well-received by bankers it relies less on straightforward rules and more on broad regulatory discretion. Warren asked the assembled bankers to work with her to create simple credit agreements.
"I come to Washington as a genuine believer in markets and a genuine believer that the purpose of regulating the consumer credit market is to make that market work for buyers and sellers alike: a level playing field where the best products at the best prices win. When it works, the market is an ally to consumers. And, when it works, the market rewards those lenders who offer the best value to their customers. ...Good regulation is not about retribution designed to make an industry suffer; it is about rooting out deception so that straight up competition actually works."
This has always been the corner-stone of Warren's approach, but it will be interesting to see how her supporters on the left react to her eschewing some of the more Manichean elements in the debate about the banks. Still, every carrot has a stick behind it, and both Warren and the bankers know that if they cannot figure out a way to work together, Warren's speech made clear that she will have the tools to make life very difficult for the financial sector by prohibiting activities and mandating disclosure, two things bankers do not enjoy.
-- Tim Fernholz
