Disinformation About The Consumer Financial Protection Bureau

In Washington, before lobbyists try hard to destroy something, they first spread a great deal of disinformation about it. Thus the “End Users’ Coalition” (a front for the derivatives dealers) promotes its lobbying points as fake research. And “fiscal conservatives” attempt to distract from the fact that our largest banks brought us to the brink of budget disaster – this is their preparation for demolishing all vestiges of financial reform.

On a closely related front, there is now a concerted effort to undermine the newly formed Consumer Financial Protection Bureau (CFPB), mostly by spreading disinformation about its supposed lack of accountability.

This disinformation approach contains the standard elements of exaggeration, misdirection, and distraction (all quotes are via Fred Barnes):

1. Slogans: “If you like TSA at the airport, you’ll love these guys” (Congressman Spencer Bachus).

2. This is a major step towards dictatorship. “Its powers are very, very vast…. Who in the world would consider it appropriate to have one person appointed—one person!—to set the rules for the entire financial industry. It’s a tremendous overreach. It’s incredible to think about” (Senator Bob Corker)

3. And it would be a one-person dictatorship. “”It would be dangerous to the American economy if Elizabeth Warren were put in that job by a recess appointment, thwarting the will of Congress…. [She would be] accountable to no one” (Senator Richard Shelby)

Naturally, none of this is remotely close to the facts – an important principle of disinformation is that it should create an alternative reality which, through repetition by apparently disparate and supposedly credible people, becomes regarded as containing an element of truth.

Elizabeth Warren, the interim head of the new agency, has in fact consulted widely with members of Congress (from both sides), as well as with the industry. There is a great deal of accountability, down to the level of explaining exactly how the agency will be structured and the principles that will guide its operation.

She has also shared with members of Congress the details of key personnel appointments, as well as the responsibilities that various people will have. Legislators have every right to ask tough questions about the details – and this is exactly what they have been doing.

The oversight mechanisms at work here are exactly the same as for existing regulators – the CFPB is largely a consolidation and streamlining of their powers. Of course, we might worry that legislative oversight of regulators in the past helped bring us to the brink of financial and fiscal disaster, but that is another matter (e.g., see Inside Job, which just won the Oscar for Best Documentary.)

A particular bone of contention is the role of Elizabeth Warren herself. She is currently Assistant to the President (i.e., a White House role), as well as a Special Advisor to the Secretary of the CFPB. She is not Director of the CFPB – nor is she currently the nominee for that position.

Some members of Congress are clearly positioning themselves for a bruising confirmation hearing – and sending signals that they will fight hard against any potential appointment of Professor Warren, presumably mostly on procedural grounds.

But everything about her current role, the timing of when and how the agency is established, and the confirmation hearings is exactly as laid down by the Dodd-Frank Act.

And remember that Ms. Warren was, until recently, head of the Congressional Oversight Panel for TARP – in other words, she had a prominent role overseeing part of the executive branch. She understands the need to be scrupulous and careful about process in the current situation. Her appointment calendar is posted on-line. By my count, she has met with more than 50 members of Congress in one-on-one meetings since September.

Elizabeth Warren stands for transparency. After decades of abuse, consumers of financial products deserve prices that are clearly stated up front, risks that are plainly visible, and absolutely nothing buried in the fine print. This kind of transparency allows people to comparison shop in an effective way; it will also spur market competition and encourage the kind of innovation that really benefits consumers. It’s time to end the deception that comes packaged with complicated agreements wrapped around hidden fees and all kinds of nasty surprises.

And please remind all members of Congress, regarding their oversight role during 2000-08, that despite everything Countrywide did, including the horrible way it treated consumers and the many apparent deceptions in its practices, Angelo Mozilo walked away a rich man. According to the research of Professors Sanjai Bhagat and Brian Bolton, as CEO between 2000 and 2008, Mr. Mozilo received over $90 million in salary and bonus and sold Countrywide stock worth over $500 million. (You must read the Bhagat and Bolton paper.)

Let’s have the substantive discussion, in the open — before Congress and elsewhere. Which way do we go next: Elizabeth Warren’s way, with transparency for all; or Angelo Mozilo’s way, with vast fortunes for a very few people and great misery for many?

This is not about being pro- or anti-market. This is about what kind of market you want: transparent or opaque; honest or based on deceit.

But rather than discussing the merits of the debate – and the real issues at stake – instead we are treating to phony procedural complaints and fake claims regarding how the Constitution is supposedly being undermined.

“No smoke without fire” is the principle that reasonable people often apply to stories they hear. If enough people are talking about an issue in a particular way, there must be some legitimate grounds for concern.

But, as any former official can tell you, while this presumption may be reliable in everyday life, it plays into the hands of politicians who wish to mislead you.

All the smoke around the CFPB is designed purely for mirrors; there is no merit to any of the accusations. This is the first stage in a careful and orchestrated campaign to undermine and eventually destroy the agency, with the ultimate goal of allowing some irresponsible elements in the financial industry to go back to the disgusting ways of 2000-08.