Elizabeth Warren Strikes Back Against New GOP Efforts to Weaken Dodd-Frank

The senator, joined by Obama allies and architects of the financial regulations, are slamming the House’s proposed budget.

Sen. Elizabeth Warren (D-MA) listens to testimony from witnesses during a Senate Banking, Housing and Urban Affairs Committee hearing on 'Mitigating Systemic Risk Through Wall Street Reforms,' on Capitol Hill, July 11, 2013 in Washington, D.C.
Eric Garcia
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Eric Garcia
March 18, 2015, 8:07 a.m.

The White House, former Obama ad­min­is­tra­tion of­fi­cials, and Sen. Eliza­beth War­ren are cri­ti­ciz­ing at­tempts to weak­en the Dodd-Frank fin­an­cial-re­form law in House Re­pub­lic­ans’ pro­posed budget, set­ting the stage for a policy fight that’s only just be­gin­ning.

The budget, re­leased on Tues­day, would put the Con­sumer Fin­an­cial Pro­tec­tion Bur­eau un­der con­gres­sion­al ap­pro­pri­ation, which crit­ics say could res­ult in few­er funds for the bur­eau, since Re­pub­lic­ans in Con­gress would con­trol how much money it re­ceives.

War­ren, a Demo­crat from Mas­sachu­setts who served as an as­sist­ant in set­ting up the Con­sumer Fin­an­cial Pro­tec­tion Bur­eau be­fore she ran for Sen­ate, said the House GOP budget could com­prom­ise the agency’s in­de­pend­ence.

“The con­sumer agency has put in place strong rules to pro­tect con­sumers from tricks and traps in fin­an­cial products,” War­ren said in a state­ment to Na­tion­al Journ­al Tues­day night. “The big banks don’t like that—and that’s the num­ber one reas­on the CFPB should re­main free of polit­ic­al in­flu­ence.”

The White House joined War­ren in its cri­ti­cism, say­ing that put­ting the bur­eau un­der the ap­pro­pri­ation of Con­gress would lim­it the agency. The ad­min­is­tra­tion also cri­ti­cized the Re­pub­lic­ans budget pro­pos­al’s “cre­at­ive-ac­count­ing sav­ings” that shift fund­ing for the agency to ap­pro­pri­ations.

“In ad­di­tion, it risks re­turn­ing us to the days of ‘too big to fail,’ pro­tect­ing Wall Street firms from im­port­ant reg­u­lat­ory safe­guards and put­ting or­din­ary cit­izens and the eco­nomy at risk,” the White House said in a fact sheet Tues­day even­ing.

War­ren and the White House’s united front against the Re­pub­lic­an pro­pos­al once again shows the com­plex re­la­tion­ship the Obama ad­min­is­tra­tion has with the sen­at­or, a pro­gress­ive fa­vor­ite. Obama and War­ren are at odds about parts of the pro­posed Trans-Pa­cific Part­ner­ship, but both were sup­port­ive of fin­an­cial re­form on Wall Street.

The House budget also would scrap what’s known as the Or­derly Li­quid­a­tion Au­thor­ity, a pro­vi­sion that gives the Fed­er­al De­pos­it In­sur­ance Cor­por­a­tion, the in­de­pend­ent agency cre­ated dur­ing the Great De­pres­sion meant to main­tain sta­bil­ity of the U.S. fin­an­cial sys­tem, the power to as­sume op­er­a­tion­al and fin­an­cial con­trol of a troubled fin­an­cial in­sti­tu­tion con­sidered sys­tem­ic­ally im­port­ant. In that role, it has the re­spons­ib­il­ity to merge, sell, and man­age the in­sti­tu­tion’s as­sets, as well provide money ne­ces­sary to bring an or­derly end to the troubled in­sti­tu­tion.

Re­pub­lic­ans say cut­ting this pro­vi­sion pre­vents tax­pay­ers from be­ing on the hook for bail­outs of fin­an­cial in­sti­tu­tions be­hav­ing badly. But the White House struck back on Tues­day, say­ing, while Re­pub­lic­ans claim the budget does not rely on gim­micks or “cre­at­ive-ac­count­ing tricks,” the sav­ings made by get­ting rid of the pro­vi­sion would be both.

“[The Or­derly Li­quid­a­tion Au­thor­ity] was en­acted to en­sure tax­pay­er funds are nev­er again used to bail out ‘too big to fail’ fin­an­cial in­sti­tu­tions,” the White House fact sheet said.

Mi­chael Barr, a law pro­fess­or at the Uni­versity of Michigan who served as the Treas­ury De­part­ment’s as­sist­ant sec­ret­ary for fin­an­cial in­sti­tu­tions, said re­mov­ing the Or­derly Li­quid­a­tion Au­thor­ity would re­in­force the concept of too-big-to-fail fin­an­cial in­sti­tu­tions.

“One of the key fea­tures is giv­ing the gov­ern­ment the abil­ity to wind down a firm like Leh­man Broth­ers if it gets in trouble,” he said, re­fer­ring to one of the in­sti­tu­tions whose col­lapse was part of the 2008 fin­an­cial crisis.

Re­pub­lic­ans have pre­vi­ously used spend­ing bills and oth­er must-sign le­gis­la­tion to weak­en parts of Dodd-Frank, know­ing it would be dif­fi­cult for Demo­crats to vote against them. But in this case, the White House and pro­gress­ive Demo­crats like War­ren are draw­ing lines in the sand, vow­ing to stop ma­jor parts of Dodd-Frank from be­ing weakened or re­pealed.

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