The Case against Elizabeth Warren

Let me start by pointing out that I think Elizabeth Warren is great. I agree with virtually everything I have heard her say. I also appreciate her forthrightness and clarity, features that elected politicians often don't have. In this way, she is more like Bill Clinton than Hillary Clinton.

Late last week Warren made an epic speech on the Senate floor pleading with her colleagues to vote against the budget bill that was needed to keep the government operating. Her opposition was based on the fact that it contained a provision slipped in at the last moment that would partially repeal one aspect of the Dodd-Frank financial reform bill that passed in response to the financial meltdown of 2008. If you missed the speech, you should take a moment to watch it. It is awe-inspiring.

 

To be sure, the provision in question is a noxious piece of legislation. It was literally written by Citibank lobbyists and would have repealed the part of Dodd-Franks that forbade financial institutions from investing in risky derivatives using depositor's FDIC-insured money. The intent of the provision was to make it less likely that financial institutions could ask the government (and taxpayers) to bail them out if their own high-risk investment strategies went sour. They could make these investments if they wanted to, but just not with FDIC-insured money. It seems like a sound principle and a commonsensical one as well.

Although I agree with her assessment of the provision in question, I nonetheless disagree with her plea to reject budget deal. Why? There are several reasons.

1. Not everyone who is on what I think of as our side of the argument agrees with Warren. For example, no less than Paul Volcker has said that the provision's main problem is symbolic. It will have little real effect on the banks. His reasoning is that he believes that another part of Dodd-Frank, the part that is commonly referred to as the "Volcker rule" would prevent the kind of systematic risk that Warren warns of. Also, Paul Krugman reminds us that the most damaging behavior that led up to the 2008 crisis did not come from FDIC insured banks, but from bank-like entities, such as Countrywide, AIG, and Lehman Brothers.
2. If the provision, obnoxious as it is, does not in fact pose the threat to the economy that Warren seems to believe it does, then simply on a cost/benefit analysis shutting down the government to fix this is simply not worth it. 
3. If the budget deal is not agreed-to now, it will be brought up again in the next Congress when the GOP will have even more votes. What comes from that is likely to be much worse from a Democratic point of view. 

Thus, my beef with Warren is not really on policy grounds so much as it is on the politics. It is just possible that, having won control of the Senate, the GOP now feels some incentive to actually start caring about governing the country rather than simply trying to blow it up through obstruction as a political maneuver to gain power. In this new frame of mind, perhaps we can get back to normal political deal-making in which each party gets part of what they want, rather than on insisting upon everything or nothing, which is one of the most damaging characteristics of the Tea-Party Republicans.