What Is Spencer Bachus’s Game?

By Simon Johnson
Representative Spencer Bachus, Republican chair of the House Financial Services Committee, famously remarked in December,
“in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
With regard to the Consumer Financial Protection Bureau (CFPB), this apparently now implies that Mr. Bachus will use any means possible to change the topic away from substance – how banks treat their customers – to imagined procedural issues.
Specifically, Mr. Bachus is wrongly accusing Elizabeth Warren of misleading Congress with regard to the role of the CFPB in the negotiations over how to settle allegations that mortgage foreclosure practices have been abusive (see also this news coverage).
On March 16, 2011, Ms. Warren told the House subcommittee on Financial Institutions and Consumer Credit that the CFPB provided advice in these negotiations.  Mr. Bachus and his colleagues have just discovered some specific slides that were apparently used as part of this advice.
Impressed by the lucidity of these seven (7) slides, Mr. Bachus and Ms. Shelley Moore Capito (chair of that subcommittee) have jumped to the conclusion that the CFPB must be the primary architect of the government’s position.
This is patently ludicrous.
First, there is no settlement agreement yet firmly on the table. 
Second, there is obviously no unified federal government position on this issue – in fact, the Office of the Comptroller of the Currency (OCC) is most definitely not taking advice from Ms. Warren or anyone sensible.
Third, the CFPB is very far from being any kind of decision maker in this process; that power rests with Attorney Generals, the Department of Justice, the OCC, and other federal agencies.  Either you have the legal power to offer a settlement or you don’t.  The CFPB does not.
Fourth, a close look at Ms. Warren’s calendar (by Ben Protess of the NYT) suggests she is not the prime architect of the settlement agreement – not unless she can mastermind a complex legal document while spending very little time on it.
Fifth, although the Bachus-Moore letter cites the Protess NYT article, it does so in a way that is selective and misleading.  Specifically, Representatives Bachus and Moore quote Iowa Attorney General Tom Miller – to whom the CFPB slides are apparently addressed – as saying that Ms. Warren has been a “very active participant’.  But here is the full quote from the article in context (see the final paragraphs):
“In a recent interview, Mr. Miller said Ms. Warren’s involvement was “appropriate” given the consumer bureau’s “expertise” in mortgage servicing. “It would be strange to say, ‘We’re going to quarantine you.’”
“He acknowledged that Ms. Warren has been a “very active participant” in talks about the servicing settlement, but he said the proposal ultimately was the creation of the state attorneys general – not Ms. Warren.”
“We form our own opinions and make our own decisions about the foreclosure and servicing case,” he said.”
Sixth, read the transcript of the March 16 hearing (which follows the Bachus-Capito letter in the same pdf, as posted on the committee’s website) and determine for yourself who is misrepresenting what.  This is how the exchange between Representative Bachus and Ms. Warren actually reads (pp.34-35):
“Chairman BACHUS.  You have engaged in – you have given input and advice into these [mortgage servicing standards].  Is that correct?”
“Ms. WARREN: When we have been asked by the Secretary, by the Department of Justice and others, we have given advice about mortgage servicing.  Yes, sir.”
And here is her exchange with Representative McHenry directly on the question at hand (pp.53-54).
“Mr. MCHENRY: I am reclaiming my time.  Are you engaged in these discussions on the settlement?”
“Ms. WARREN: The negotiations with private parties are entirely directed by the Department of Justice, by the State Attorneys General, by other Federal agencies.”
“Mr. MCHENRY: So you are not engaged in these discussions?”
“Ms. WARREN: We do not negotiate with private parties.  We have been asked for advice, Congressman.  And wherever we can be helpful, we are not only glad to be helpful, we are proud to be helpful.”
On top of all this, the first paragraph of the Bachus-Capito letter is beyond bizarre.  The Representatives argue that “political appointees” should not be involved in the “regulatory enforcement process.”  But surely all the people responsible for the financial sector, inside and outside Treasury – e.g., heads of the OCC, FDIC, SEC, Chair of the Federal Reserve Board and of course the Treasury Secretary – are political appointees and therefore subject to congressional confirmation and scrutiny (which is, generally speaking, a good thing).
Representatives Bachus and Capito claim to be concerned that “When political appointees involve themselves in enforcement matters, they may pressure regulatory officials to take actions benefitting a particular political constituency or advancing a particular agenda at the expense of sound policy.”
But the real issue here is how a powerful politician – proudly holding the explicit view that “Washington and the regulators are there to serve the banks” – is pressuring regulatory officials of all kinds to take actions that benefit his particular political constituency.