Best Person to Head New Consumer Protection Agency Opposed by Tim Geithner

Treasury Secterary and TARP mastermind, Tim Geither is said to oppose the nomination of Elizabeth Warren as head of the new Consumer Financial Protection Bureau. His opposition might be the best endorsement one could have.

Shahien Nasiripour of the Huffington Post elaborates on why Geithner would oppose her:

Warren, a professor at Harvard Law School whose 2007 journal article advocating the creation of such an agency inspired policymakers to enact it into law, has rocketed to prominence since the onset of the financial crisis as one of the leading reform advocates fighting on behalf of American taxpayers.

Warren has been an aggressive proponent for the bureau in public and behind the scenes, working regularly with President Barack Obama’s top advisers and the Democratic leadership in Congress. Since 2008, she has overseen the Congressional Oversight Panel, a bailout watchdog created to keep tabs on how two administrations spent hundreds of billions of taxpayer dollars to bail out Wall Street while struggling to keep distressed homeowners out of foreclosure and small businesses from collapsing…

In addition, her increasing public profile could make it difficult for Geithner, who will oversee the unit until it’s transferred to the Federal Reserve. His role would involve trying to balance her advocacy on behalf of borrowers with the demands of the nation’s major financial institutions, his traditional constituency. Geithner’s objections to Warren taking over that role also involve her views on Wall Street, sources say. The longtime professor believes the nation’s megabanks are Too Big To Fail and have been among the biggest abusive lenders in the country. Her toughness on giant banks is said to be a longtime source of tension with Geithner.

Warren understands the need for greater clarity and transparency in the financial sector. In her Daily Show interview last year, she pointed out that it was deregulation that led to the major banking crises including the current one as well as the Savings and Loan Crisis (See Garn–St. Germain Depository Institutions Act and Depository Institutions Deregulation and Monetary Control Act).

After the fiasco with FEMA in Hurricane Katrina, it’s obvious a government bureaucracy needs an effective leader to function properly; otherwise, business will be the same as usual for behemoths like Goldman-Sachs. Unlike many politicians, she understands the threat the middle class faces. In fact, she wrote a book discussing these exact problems. The PBS summary:

The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, the authors lay out their arguments against the “predatory” lending practices of the mortgage and credit card industries and their effect on American families. The authors maintain that re-regulation of consumer lending is needed to level the playing field between creditors and families and reverse a disturbing trend: the transfer of wealth away from lower- and middle-income families, “directly into the pockets of giant lenders and their shareholders.”

In a fantastic lecture at UC Berkeley, Warren explains why the middle class is facing such a threat. A user from the social bookmarking website Reddit provides a summary:

Key points (as percentage of annual income):

• Saving went from 11% to less than nothing
• Credit Card Debt went from 1.4% to 15%

So basically what was once saved has instead been spent. But spent on what?

Consumption spending on: Clothing, Appliances, and Food all decreased. So where did the money go? The increases are found in important areas (which she describes as “fixed, relentless expenses”):

• 76% Mortgage (People buy bigger houses; true “entry level”, affordable homes are not being built)
• 74% Health Insurance
• 52% Cars (People need two cars)
• 100% Child care (Stay-at-home Mom’s save money)
• 25% Taxes (Two incomes = bigger tax bracket)

The seventies single-income family spent about half it’s income on the basic expenses, whereas the current two-income family spends about three quarters of their income on these basic expenses.

She makes the point that two income families are necessary today, and almost all the income is already “fully budgeted.” In the seventies, if the primary bread winner gets sick or fired, the stay-at-home Mom could go to work to provide a cushion.

She also points out that income volatility (the likelihood of getting fired) has gone up drastically since the seventies. The odds of suffering an economic blow for a family with two children has gone up 95%. The cost of a new home for a family with two children has gone up 100%, which she attributes to people buying homes near a good school.

She also points out that the widespread belief in the seventies was that if you had a good work ethic and a high school diploma, you’d make it into the middle class. The widespread belief today is that preschool and a university degree are required to make it into the middle class.

As we all know the middle class is eroding, and it is imperative we have someone like Warren who knows this so she can help prevent the coming collapse. In a 2005 article from Boston Review, in fact, she and Amelia Warren Tyagi outlined a few potential steps that can save the middle class from the predatory banks and elite:

Credit. Each year millions of families are trapped by credit-card issuers and mortgage lenders that market deceptive products and use unscrupulous billing practices. America needs to develop product-safety standards for credit cards and mortgages, just as we have for all other consumer products. No one can sell a toaster in the United States that has a one in 11 chance of burning down someone’s home; likewise, a mortgage that has a one in 11 chance of putting someone in foreclosure should be banned. Credit products should be clear, honest, and not loaded with tricks and traps.

Schools. A failing public-school system affects more than the poor children who are trapped in it. It also puts enormous pressure on middle-class families to buy property in the right school districts, thus pushing up housing prices. Improving the quality of public education would diminish the financial pressure on middle-class families.

Preschool and college. A generation ago, we all paid taxes to support the 12 years of education we thought every child needed to be solidly middle-class. Today parents are on the hook for two years of preschool and four years of college—and they pay this out of their own pockets. Those six additional years of tuition payments are not extras; they have become part of the minimum standard of education for middle-class work. It is time to expand public education to cover the basics.

Health and disability insurance. Decent health insurance is rapidly becoming a luxury that median-earning families cannot afford. Faux insurance and no insurance are leaving millions of families one diagnosis away from financial meltdown. It is time to get serious about making health insurance affordable. And health insurance alone is not enough. National short-term disability insurance—to cover illnesses and accidents—needs to be on the agenda as well.

Savings. Creditors have spent billions of dollars to advertise the attractiveness of debt. America needs a few rules that promote family savings: checkoffs so that tax refunds can go straight into retirement accounts, easier payroll deductions, and tax incentives for all savings. It would also help if the chairman of the Federal Reserve promoted saving rather than pumping up home-equity borrowing, putting the interests of families—not the profits of banks—first.

Retirement. People must not be abandoned when they can no longer work. When a company promises an employee a pension, the government has a responsibility to make sure the company is setting enough aside to meet this obligation. Social security must remain secure, but programs to encourage saving and to buttress employer-sponsored pensions are also necessary to ensure the long-term security of the middle class.

It’s amazing that someone with such keen insight in to the crisis we face hasn’t been sidelined by the elite. Without a doubt, it is imperative Warren head the new agency to give the financial reform bill some teeth.