GOP Attack on Warren Is On Schedule

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To the surprise of no one the GOP has stepped up its attack on Elizabeth Warren who is putting together the new Consumer Protection Agency that was part of the financial reform bill. One might ask why they don't want a competent person to head up the new agency and there are several answers. Krugman points out that banking interests do not want someone with her skills looking over their shoulders, and the GOP, of course, has been sucking up to the banking lobbies for campaign contributions. Krugman also believes that there is an ideological reason. The GOP has sold the country on the idea that government regulation is bad since the Reagan administration. The banking crisis exposed that myth since most people believed that deregulation of the banking system facilitated the financial crisis. The GOP never wants a good myth to be demystified so they are back to their old game of blaming government regulation for everything, including the financial crisis. The last thing they want to see is an extremely competent regulator heading up the Consumer Protection Agency.

Krugman points out that Warren was one of the few leaders who was vocal about lending practices prior to the crisis. She believed that consumer debt, which had doubled as a percent of income, was dangerous to households and to the the economy. The agency responsible for mortgage lending did not see this as a problem. Alan Greenspan, who headed up the Fed, had faith in the ideology of consumer sovereignity. Consumers can be trusted to make decisions that are in their best interest so he did not heed the warnings about lending practices from other members of the Fed who raised concerns about predatory lending practices. It turned out that they and Warren were correct. Predatory lending was bad for consumers and it was bad for the banking system and the global economy.

Another reason for opposing Warren, which Krugman did not mention is that Warren has written a book on the hollowing out of the middle class in the US. In her book she argues that real household wages for the middle class have been relatively flat for 30 years. In order to maintain their standard of living, women responded by entering the work force. For a time, two income households were able to enjoy a standard of living that one member of the household had been able to provide. Before long, even two wage earners were not enough to maintain a middle class standard of living. That is when households, with the cooperation of government, began to maintain their standard of living by taking on excessive debt. Warren's concern for the middle class, and her analysis of the underlying problem, which is flat growth in wages, is not a story the GOP likes to have told.

The administration understands the opposition to Warren very well. The question, according to Krugman, is whether they will see it as an opportunity or as choice that is too risky. The Treasury Department is rumored to oppose Warren's selection and the administration has to be concerned about raising campaign contributions from Wall Street which was one of the largest contributors to Obama's 2010 election campaign.