A Bonus for Consumers
“Wall Street bonuses in 2010 alone totaled $20.8 billion — more than 51 times the size of the C.F.P.B.’s budget cap.”—Elizabeth Warren in testimony before the House Financial Services Committee
THREE BILLS WORKING THEIR WAY THROUGH the House Financial Services Committee are precisely what most Republicans on the committee and its subcommittees say they are not — a collateral attack on Elizabeth Warren. Republicans on the committee are lying, but that’s not unheard of among legislators.
Warren is a special assistant to the president, and a full-time employee at the Treasury Department, where she is “standing up” the Consumer Financial Protection Bureau (C.F.P.B.), which will be open for business on July 21.
The idea of a free-standing Consumer Financial Protection Bureau with its own budget and rule-making and enforcement authority was something Warren came up with in 2007, after years of teaching bankruptcy law. She was on the Harvard law faculty at the time, but had previously taught at Rutgers.
Warren is not a Capitol Hill novice. In 2008, Senate Majority Leader Harry Reid appointed her to chair the Congressional oversight panel monitoring the $700-billion Troubled Asset Relief Program that the Bush administration put in place to bail out collapsing financial institutions. In testimony before Congress, and in the clear, concise, monthly reports published by the oversight panel, Warren was unsparing in her criticism of the finance industry.
The C.F.P.B. that was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act is not everything Warren envisioned. It is housed in the Treasury Department, so is not a free-standing agency. The rules it promulgates are subject to appeal, its (substantial) budget is capped by law, it is subject to Government Accountability Office oversight, and its executive officer is required to report regularly to Congress.
Yet on the day after Dodd-Frank passed in July 2010, Warren told me that “members of the House-Senate conference committee and their staffs … created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks.”
Not perfect, but good. And Warren is the most qualified candidate to lead the agency. She’s also smart, well-versed in the law, and admired in consumer-advocacy circles.
That’s what the sideshow in the House is about.
SIDESHOW—All three of the House bills targeting the C.F.P.B. were introduced by finance industry courtesans: Spencer Bachus (R-AL), Shelly Moore Capito (R-WV), and Sean Duffy (R-WI).
None of the bills will pass the Senate. The legislation has, however, provided an opportunity for Republicans on Financial Services to hector Warren each time she has been called before a House committee to testify.
As someone who watches Congressional hearings, I cannot recall one witness treated so badly by so many. Republicans on the committee are out to gut the consumer protection agency and to kneecap Warren.
Consider the bills. Bachus, who chairs the House Financial Services Committee, filed legislation that would replace the C.F.P.B.’s single director with a five-member, bipartisan commission — an organizational structure guaranteed to obstruct rulemaking and regulation.
Duffy, a Tea Party freshman, has written a bill that would substantially lower the standard, and decrease the number of votes on the newly created Financial Stability Oversight Council, required to overturn a C.F.P.B. rule.
Capito, who chairs the subcommittee drafting the legislation, sponsored the most disingenuous of the three bills. Were it to pass, the bureau could not begin to function without a “Senate-confirmed director in place.” It is a “wink-wink, nod-nod” provision for Senate Republicans who continue to block appointments President Obama made shortly after he took office.
“The C.F.P.B. is one of the best pieces of the Dodd-Frank bill, at least regarding the interests of the American public,” said David Arkush, who directs Public Citizen’s Congress Watch program. “These bills are all intended to weaken the agency, to make it much harder to get work done there.”
MUSCLE MEMORY—What’s eating at House Republicans who have gone around the bend on the consumer protection bureau? A lot. For the first time, consumer-protection authority scattered across 12 federal agencies will be consolidated in an independent bureau that will regulate mortgage brokers, mortgage lenders, mortgage servicers, payday lenders, credit card companies, private student loan providers, and all banks with assets greater than $10 billion.
Mortgage lenders will be prohibited from hiding “teaser rates” in dense contractual clauses that lock in steep escalation of interest rates. They will, instead, be required to provide three- to five-page closing statements in the place of the standard 20- to 30-pagers a borrower confronts at closing.
Credit card companies will be required to provide understandable, three-page contracts, rather than the 10- to 20-page documents they mail to applicants.
Payday lenders now charging 200 percent to 400 percent will be required to fully disclose the terms of their loans and could face usury caps.
This is rulemaking and enforcement authority aimed at the House Republicans’ donor patrons (or, one might say, their Johns). Democrats on the committee eagerly accept the largesse of the boys who run the nation’s banks, but at least the Democrats looked beyond self-interest to include consumer-protection in what is otherwise rather tame financial reform.
The Republicans can’t seem to get there. The shielding of bankers is ingrained deep in the muscle memory of Republicans — even after the finance sector has moved on and is not actively lobbying the issue, according to a committee staffer.
Republicans also worry about the independence of the C.F.P.B., which will draw its funding directly from the Federal Reserve and only go to Congress if additional appropriated funds are required.
Warren provided some perspective on the costs of the agency. “It will take nearly 20 years of operation,” she wrote, “for the C.F.P.B. to spend as much money as it cost the government to resolve IndyMac — a single institution that failed in the financial crisis of 2008.
“To put it another way,” she added, “if the C.F.P.B. fully used the amount authorized for transfers from the Federal Reserve System, its expenses in FY2011 would be the equivalent of $1 for every open mortgage in the country plus $.32 for every open credit card account. Wall Street bonuses in 2010 alone totaled $20.8 billion – more than 51 times the size of the C.F.P.B.’s budget cap.”
That works for me. And for most consumers.
But it gives Congressional Republicans the willies. So they work assiduously to undermine the bureau and ensure that Warren doesn’t direct it. In doing so, they have created an opportunity for the president.
“The consumer protection agency is popular with the public,” said Public Citizen’s Arkush. “And Elizabeth Warren has a lot of public support. The president should nominate her now. The Senate can begin hearings and public debate on the nomination. If the Republicans stonewall, he should make a recess appointment.”
It will likely require a recess appointment to get Warren in place, as 44 of the 47 Republican Senators signed a letter threatening to filibuster anyone Obama nominates unless the agency’s powers are dramatically scaled back.
Arkush makes another argument, which Warren also made in her testimony. The financial crash of 2007 began with banks selling subprime loans, which would have been detected by an agency tasked with looking out for consumers. It was the subprime loans, packaged and sold as derivatives, and insured by AIG, that created a worldwide recession when AIG threatened to default.
In 2008, the worst year of the Great Recession, U.S. household wealth fell by more than $11 trillion.
NYU in the U.A.E.
by Alison Fairbrother
The crown prince of Abu Dhabi has found an unlikely ally in his struggle against pro-democracy activists: New York University.
This odd alliance is the result of a business deal. Last year NYU opened a liberal arts college in Abu Dhabi. The “portal campus” is a collaboration between the NYU administration and the government of Abu Dhabi, the capital of the United Arab Emirates and wealthiest of the seven-emirate federation that comprises the U.A.E.
The offshore expansion is part of a growing trend. Western research and cultural institutions are opening branches in wealthy Persian Gulf states, where they operate at the behest of illiberal governments willing to foot the bill.
The emirate of Abu Dhabi currently hosts a University of Paris-Sorbonne campus along with NYU, and will soon be home to extensions of the Louvre and Guggenheim museums. The emir’s subjects can experience the academe and culture of the West without applying for a visa or purchasing an airline ticket, although Western cultural and political values aren’t necessarily included.
New York-based NYU professors from the organization Faculty Democracy describe the arrangement as an overreach by university President John Sexton, whose secretive negotiations with Sheikh Mohamed bin Zayed al Nahyan, the crown prince of Abu Dhabi, left little room for faculty input until plans for the campus were under way.
Faculty members have asked if the university’s standards of academic freedom will be upheld now that the NYU brand has been transplanted to a country where political parties are illegal and dissent is criminalized.
Their question is about to be answered. The government of Abu Dhabi arrested six Emirati activists and scholars and is detaining five of them for “opposing the government system, and insulting the President, the Vice President and the Crown Prince of Abu Dhabi,” according to an April 25 statement by Attorney General Salim Saeed Kubaish.
Political arrests are not uncommon in the U.A.E. Yet recent actions by the government are part of a serious escalation, says Human Rights Watch researcher Samer Muscati. “We haven’t seen this calculated attack on civil society and activists where they are rounding people up and detaining them for an extended period of time.”
CRIMES OF CONSCIENCE—The five detainees had signed a petition calling for civil reform in the U.A.E., including the establishment of parliamentary elections and changes to the federation’s constitution. They were joined by more than a hundred signatories, including Emirati scholars, lawyers, and activists.
Among those detained is Nasser bin Gaith, a financial analyst and lecturer at the Abu Dhabi campus of the Sorbonne. In public forums and at campus lectures and events, bin Gaith has been a vocal critic of the U.A.E. government. “No amount of security — or rather intimidation by security forces — or wealth, handouts, or foreign support is capable of ensuring the stability of an unjust ruler,” bin Gaith wrote in an article on a website in the U.A.E.
In response to the arrests, 133 members of NYU’s faculty signed a petition calling for the administration to condemn the violations of Emirati citizens’ rights by their government. “All of these detentions call for comment from members of the NYU community, but the arrest of a faculty member at a foreign branch campus in Abu Dhabi is of particular concern to NYU faculty,” the petition reads.
NYU officials responded that the administration is committed to academic freedom at home and abroad, as outlined in American Association of University Professors (AAUP) guidelines that entitle professors to “freedom in the classroom in discussing their subject,” and “full research freedom.”
NYU’s leadership also made it clear that it will remain silent on the arrests. When questioned at a faculty senate meeting, President Sexton said that professors at the Abu Dhabi campus should respect local limits on freedom of expression, adding that it is never appropriate for a university to comment directly on political matters in any country, including the United States.
The Sorbonne has not released a public statement about the arrests, and in private communications with Human Rights Watch, minimized its relationship with lecturer bin Gaith, who remains detained for his criticism of the state.
Brown University Professor Anthony Bogues said the suggestion that academic freedom is a political issue misses some of the foundational questions about the university’s role in society. “Wherever you have situations where you have very limited freedom of speech, you are going to have limited academic freedom — that means you lack the freedom to ask a whole set of questions about society, particularly if those questions impinge on how the society is governed,” says Bogues, who has studied the relationship between Western academic institutions and counterparts in the developing world.
In 2008 the AAUP issued a statement on the rights of university employees overseas, committing to support faculty members and their academic freedom, even in states that have traditionally been inhospitable to free and open debate.
“The concept of the liberal arts has everything to do with a university’s position in society as a guardian of rights … you would expect the NYU administration to show some leadership,” says Andrew Ross. Ross is an NYU professor of social and cultural analysis. He also serves on AAUP’s national committee on academic freedom.
Asked if a public statement issued by NYU could affect public policy in the U.A.E., Ross pointed to the work of AAUP and Human Rights Watch, which used the Guggenheim, NYU, and Louvre campuses in Abu Dhabi to leverage better standards for migrant workers there.
Intimidation of scholars and activists in the U.A.E. is worsening. Government authorities dissolved the boards of a prominent legal nonprofit foundation and a teachers’ association in early May, replacing members with state-sanctioned proxies. Both groups had signed the petition directed at U.A.E. authorities. The government has restricted access from within the country to a popular political website, www.uaehewar.net. And a local news portal where the activists share information has been blocked.
Although there have been no street demonstrations in the U.A.E., authorities in Abu Dhabi appear to be preparing for them. Iran’s PressTV reported that the U.A.E. has hired Pakistani mercenaries trained to control protestors. The New York Times reported that 800 Colombian mercenaries working for former Blackwater CEO Erik Prince might also be used to suppress dissenters.
Meanwhile, NYU has turned its attentions to another expansion project: NYU Shanghai was announced in March, as a partnership between the university and the Shanghai Municipal Education Commission.
—With Alison Fairbrother. Alison Fairbrother is a writer in Washington, D.C.