The Elizabeth Warren end run

September 16, 2010: 12:03 PM ET

Key Senators refused to sign off on Warren as even interim head of the Bureau of Consumer Financial Protection, so the Obama administration has bypassed them altogether

Soon after it was leaked last night to ABC News that Elizabeth Warren would set up the nascent Bureau of Consumer Financial Protection, it took Republican Senator Bob Corker only minutes to respond.

"It is a key responsibility of the U.S. Senate… to advise and consent and one that I believe was not mean to be abdicated by the Executive Branch's use of appointments," Corker wrote in a statement. "I strongly believe the intent of the Dodd-Frank legislation was to have the head of this bureau go through the nomination, vetting and confirmation process."

Corker hoped that the report would prove false, but it seems his twin fears have become reality: the president had bypassed a Senate in the throes of election-driven partisan warfare and had ensured that Warren, enemy of bank lobbyists, would have sway over a bureau she championed to create, with a mission to protect consumers.

The administration had toyed with the idea of making Warren, 61, an interim appointee, or pushing her into the agency via a recess appointment, but both options died when key Senators Olympia Snowe (R-ME), Susan Collins (R-ME) and Chris Dodd (D-CT)* opposed such plans this week. Dodd is the head of the influential Senate Banking Committee, while Collins and Snowe have played the role of key Republican swing voters, siding with Democrats in bruising battles over healthcare and financial reform.

So Obama found a third way. According to reports, Warren will be a presidential assistant and special adviser to Treasury Secretary Tim Geithner, rather than the head of the new bureau. The move allows the high-profile consumer advocate to set up the new agency, hire staff, and give it her imprimatur.

Banks cry foul

Naturally, this was an affront to the banking industry, which has spent the greater part of this year trying desperately to keep her away from the agency. Now the industry has a new complaint in its anti-Warren arsenal: process. As Consumer Bankers Association President Richard Hunt told Politico: "This agency must begin its mission with full credibility and confidence from our domestic and international markets and consumers. Circumventing this process is an ill-advised first step."

But administration officials have told the New York Times and other outlets that a months long appointment battle would stand in the way of establishing the agency, and that the stakes are too high to delay.

The move also allows Warren to prove that she has what it takes to lead a body dedicated to the protection of consumers. The banking industry, Republican senators, and financial services lobbyists have hit two themes hard when discussing the Harvard Law School professor: she doesn't have management experience and she's anti-business. The undercurrent of this message is that she's a rabble rouser who would use any influence or power to destroy the banking system and lead pitchforked mobs to destroy laissez faire capitalism

"We think this arrangement will give Warren the chance to clearly establish that she's both an effective manager and a strong but reasonable regulator," says Mike Calhoun, the president of the Center for Responsible Lending, an organization that was part of Americans for Financial Reform.

Warren's supporters say that she is pro-consumer, not anti-business, and argue that the financial meltdown has taught us that financial institutions that perpetuate unsustainable lending practices for short-term gains actually destabilize the system. The current recession and unemployment show that products that were better for consumers would have been better for business, too.

Whether she sets up the agency and leaves, or wins over critics and is eventually appointed, one thing is sure: she envisions creating a strong agency that robustly fights for the interests of consumers. This is the woman who once told The Huffington Post that she would rather have either a strong consumer agency or "no agency at all and plenty of blood and teeth left on the floor."

Even so, Warren may not control the bureau's philosophical DNA. Referring to Obama and Geithner as "slaves to the banks," analyst and financial services critic Christopher Whalen notes that Geithner retains control of the Consumer Financial Protection Bureau through the end of the president's first term. As head of the a body created to oversee the TARP program, Warren has sometimes been a thorn in the Treasury Secretary's side. And if there is no appointed head by the next presidential election, it's possible a new administration would have the opportunity to shape the bureau.

Although her work could be derailed by Washington's resistance to change, her appointment feels like a rare win to progressives, like Orson Aguilar, director of the Greelining Institute, a consumer advocacy group that works to make sure that all communities in the US have access to economic opportunities. "The fact is the banking industry didn't like the idea of the bureau to begin with, and they won't be happy with any decision about leadership," says Aguilar." Banking lobbyists may portend doom for future profits, but Aguilar says progressives believe Warren will, "create rules that are fair for consumers and will allow the financial services industry to be profitable."

The point, after all, for Aguilar and others like him, is not for Warren's bureau to destroy the banking industry. The point is to make it safe for banks to facilitate lending to the vast majority of Americans, who need the services of the financial industry now more than ever.

*An earlier version of this story incorrectly identified the state Senator Dodd represents as New York.

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About This Author
Katie Benner
Katie Benner
Writer, Fortune

Katie Benner joined Fortune in October 2006. As a writer for the magazine and the website, she focuses on Wall Street and the economy. Prior to joining Fortune, Benner worked at TheStreet.com, CNNMoney, and as a freelancer in Beijing for China International Business, the South China Morning Post, and as a columnist for Beijing Review. She has a B.A. in English from Bowdoin College.

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