In late 2008, after the crash, Harry Reid, the Democratic leader of the Senate, called Warren in Cambridge and asked her to serve on a new Congressional Oversight Panel, which was charged with monitoring how the federal government was spending the seven hundred billion dollars that was being used to bail out the financial sector. Jim Manley, Reid’s spokesman at the time, said, “Reid had heard her speak, and like everyone else was impressed by her ability to break complex issues down into sound bites that people can understand.” Reid told me, “She’d done a lot of writing on poor people. Nobody knew who she was, but she was great. Everybody liked her.” Warren temporarily gave up her teaching duties and moved to Washington.
Reid’s decision was not greeted warmly by the new Obama Administration. Treasury Secretary Geithner resented Warren’s use of the panel to question his policies in the middle of the crisis, and Warren complained that he denied many of her requests for information. “There was this feeling that Elizabeth Warren was pretty sophisticated,” a former Obama official said. “And when we’re getting hit everywhere she should be a little more sympathetic. She was somebody who was supposed to be on your side, and she carried more weight against you because she was a Democrat and was well regarded on these issues.”
Warren told me, “We were there to do oversight, and it made no difference to me whether there was a Democrat or a Republican in the White House. Our only consideration should be the American people, not whose feelings in government might get hurt or whose political careers might be advanced.” Warren said her work on the panel studying Treasury’s practices taught her that Obama’s economic advisers were even more beholden to the banks than she had understood. “The Treasury Department believed in saving those at the top, and didn’t worry much about the rest of America,” she said.
Warren was well known in liberal policy circles, but Geithner had never heard of her until she became his overseer and summoned him to testify. He felt that she was much better at complaining about what she was against than at articulating what she was for. In his recent memoir, “Stress Test,” Geithner calls Warren “one of our most ardent and eloquent liberal critics” but chastises her for not offering him more specific policy suggestions during the financial crisis.
Warren quickly realized that, although she could hold hearings and write reports, her panel had no more authority than her old blue-ribbon bankruptcy commission. Those writing the new rules for financial regulation had the real power. Warren thought she had a chance to get a Consumer Financial Protection Bureau into the emerging law, so she stopped excoriating Geithner, and met with Fine, the bank lobbyist. She knew that public opposition to the protection bureau on his part could kill it.
“The Wall Street crowd constantly tries to use my members almost like human shields to try to get their stuff through, because they know that Congress likes smaller banks,” Fine told me. Warren took the same approach. She doubted that she could persuade Fine to support the agency, but, if the community banks simply remained neutral, that would be a victory. “We had not totally developed our position yet,” Fine said. “But we were very, very skeptical and were making noise that we were going to oppose the creation of that agency.”
Fine viewed Warren as a left-wing activist, hostile to the interests of his member banks, most of which were run by Republicans. “In the financial industry, Professor Warren was regarded as a little loopy, way out there on the fringe, and was not taken all that seriously,” he said. “So I told my assistant, I’ll spend thirty minutes with this loopy woman and then come get me and just make an excuse that I’ve got a call or something.”
Instead, Fine and Warren spoke for two hours. Warren played on Fine’s fears of the Wall Street banks, explaining that under current law small community banks were subject to more intense regulatory scrutiny than the large financial institutions. She argued that even if Fine and his members hated the idea of any additional regulation, at least her agency would make the mega-banks face the same kinds of review. “You need to give this agency a chance,” Warren told him.
Fine got up from the table where we were sitting and retrieved a document from his desk drawer. “I debated about showing this to a reporter, but it’s historic,” he told me. It was an e-mail he’d sent to the members of his executive committee the day after his meeting with Warren. At the top of the memo, in bold caps, it said:
DESTROY BEFORE READING. CONFIDENTIAL IN THE EXTREME. DO NOT FORWARD OR DISCUSS OUTSIDE THIS GROUP. LOOSE LIPS SINK SHIPS. PLEASE DO NOT EVEN SHARE THIS WITHIN YOUR ORGANIZATIONS. THIS IS SENSITIVE MATERIAL AND ANY LEAK WHATSOEVER COULD CAUSE ICBA DAMAGE.
The e-mail recapped Fine’s meeting with Warren and laid out his group’s political strategy for the coming fight over Dodd-Frank, the bill that was to overhaul regulation of the financial industry. Warren “bluntly told us that she was meeting with I. C. B. A. instead of A. B. A.”—the American Bankers Association, which is dominated by the large Wall Street firms—“because she feels strongly that our understanding and support of her recommendation to create the new Consumer Financial Protection Agency is vital to its success,” Fine wrote. “She said that she wants community banks to get behind it. Her argument is that the big banks can afford to absorb continued and increasing regulatory burden, but that smaller banks cannot; and that if we don’t do something about the burden the big banks will crush us.”
Fine argued that Warren’s vision for the agency would not be so bad for community banks, but he did worry that her approach was too theoretical. “Dr. Warren is an academic, and thinks like an academic,” he wrote. “She has taught contract law,” and she “has never been out of academia. While I found her arguments compelling, they were terribly naïve. That said, if we are clever, I believe we can work with her and perhaps shape an agency that has little impact on community banks but a huge impact on the unregulated part of the financial-services industry.”
He said that, even if his group decided to publicly oppose the agency, it needed to work with Warren to shape the legislation. “Over all, it was a very good and enlightening meeting,” he concluded. “We might be able to turn lemons into lemonade yet.” Fine persuaded his trade group to remain neutral about Warren’s agency.
Warren effectively co-opted Fine and his members as allies against Wall Street. As the Dodd-Frank bill made its way through Congress, in 2010, Fine’s willingness to tolerate it was crucial. With Warren’s blessing, Barney Frank, who sponsored the bill in the House, negotiated a deal with Fine that allowed community banks to be examined by their current regulators rather than by Warren’s new agency. “They were the ones with the clout, and that’s why I had to make a deal with Cam,” Frank told me. Warren signed off on it. “She was willing to do what she had to do as long as it didn’t give away substance,” Frank said. “Every time we came to one of those things where, to save the great bulk of the bill, we had to make some kind of concession, she understood it and was very helpful in selling it.”