Published on naked capitalism, by Yves Smith, March 29, 2015.
… Warren fingered Citigroup’s extensive connections to the Executive branch when she fought the addition of a rider to a must-pass spending bill that would eliminate a Dodd Frank provisions to force banks to stop trading certain derivatives in taxpayer-backstopped entities (the so-called swaps pushout rule). As you’ll see below, not only did Warren have the bad taste to point out that the current Treasury secretary is a Citigroup alum, and that Sandy Weill, Citigroup chairman, had offered Timothy Geithner the opportunity to run the bank, she also said that Dodd Frank had come up short by not forcing Citigroup’s breakup. If you’ve not seen this speech, you need to watch it. You’ll understand why Citigroup is desperate to find a way to leash and collar Warren.
Video: Remarks by Senator Warren on Citigroup and its bailout provision, 9.43 min (also on YouTube).
Even though Warren lost the swaps pushout rule battle, the ferocity of the fight, the attention it garnered, and her and her allies’ relentless focus on the bank tactic of using arcane-seeming provisions to shift risk onto the public, as well as their deep political connections, threw a wrench in the financiers’ plans. They’d hoped to roll what little post-crisis reform that took place by going after technical-seeming provisions that they assumed the dumb chump voter would never notice. Instead, Warren turned the tables by using the effort to inflict considerable public relations damage.
As much as the Warren attack might not seem like much of a victory, it’s important to understand what she and the other bank opponents are achieving. The banks count on the public not understanding and not caring about the more arcane aspects of finance, and furthermore assuming that bank reform is settled. On the political front, the power of the financiers doesn’t lie simply with their lavish campaign donations; it also lies in the perception that opposing them is a political death sentence.
And that is why Warren has become so dangerous to them. Remember that Obama brought her in to start up the CFPB in a classic “keep your enemies close” strategy. It’s a near certainty that they hoped to destroy her politically because she, as a Harvard academic with limited administrative experience, would flail about and fail in executing such a mammoth task. So they were stuck with her when she succeeded and was the obvious candidate to run the new agency. The Administration cast about for months trying to extricate itself from the mess it created, finally nominating Richard Cordray, a Warren hire at the CFPB, and enticing her with the bright shiny toy of a Senate seat.
The Administration (remember that Obama is still very much the party leader) again got too clever by half. It decided to exploit Warren as a major fundraiser. But that gave her an independent power base. And given the carnage in the Congressional midterms, the wisdom of following Democratic party dictates isn’t looking too hot for individual Congresscritters, unless they hail from conservative districts. The public is waking up to the party’s limousine liberalism, and voters who care about economic fairness are increasingly staying home on election days.