SEC’s White May Be All Right, But Cordray’s CFPB Still A Constitutional Catastrophe
Today, President Obama will send to the Senate two nominations for two key financial regulatory posts. Noting that both of the nominees subject to Senate confirmation “are former prosecutors,” The New York Times declares that “the White House is sending a signal about the importance of holding Wall Street accountable for wrongdoing.”
But the signals are, to say the least mixed, and one of the nominations almost mocks the importance of holding government regulatory bureaucracies accountable to Main Street.
Obama will nominate Mary Jo White, U.S. attorney for New York under the Clinton administration, to replace Mary Schapiro as chairman of the Securities and Exchange Commission (SEC). And he will renominate Richard Cordray, the Democratic attorney general of Ohio until his defeat in 2010, as permanent head of the Consumer Financial Protection Bureau (CFPB) created by Dodd-Frank.
Obama appointed Cordray a year ago in an unconstitutional “recess” appointment while Congress was in pro forma session. This appointment and the structure of the CFPB and other edifices of Dodd-Frank is currently being challenged in a lawsuit by my organization the Competitive Enterprise Institute, the center-right seniors group 60 Plus Association, and the Texas community bank State National Bank of Big Spring.
Neither nomination is perfect — I expect to have major disagreements with anyone the president nominates — but White and Cordray, as well as the respective agencies they would lead, are night and day in terms of serving the interests of Main Street entrepreneurs, investors, and consumers.
White at least has an admirable record as a prosecutor and seems to be fair-minded. She led successful prosecutions of mob boss John Gotti and the terrorists responsible for the bombing of the World Trade Center in 1993. She has even prosecuted some union corruption, with Ken Boehm noting in the Capital Research Center’s Labor Watch that her case against the Teamsters and yielded some guilty pleas and “positive results,” though some of the “big fish” escaped punishment.
Over the past few years in private law practice, White has been involved with white-collar defense lawyer, and she seems to have a balanced perspective that is welcome. “You should be aggressive where there is a crime,” she said at a New York University School of Law event in February 2012 that was recently quoted by Bloomberg, but prosecutors must not “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.”
Hopefully, White will get the SEC to move on the bipartisan regulatory relief for small entrepreneurs from last year’s Jumpstart Our Business Startups Act that Schapiro was involved in slow-walking. She can also refocus the SEC in going after real fraud, rather that meritless actions such as the persecution of upstart credit rating agency Egan-Jones, after it became the first agency (beating Standard & Poors) to downgrade U.S. debt.
But even under Schapiro, the five-member SEC — set up to have two members of the opposing party of the president — did engage in bipartisan deliberations and was held accountable because of the fact it was subject to congressional appropriations. The CFPB, by contrast, is subject to no such constraints.
Dodd-Frank set up the CFPB so that it would not be accountable to Congress, because it would get its money elsewhere. By law, the CFPB gets its funds directly from the Federal Reserve, an agency itself that has problems with transparency and accountability. As we know from several rounds of “quantitative easing,” the Fed also has the power to create money at will, giving it the potential to increase the CFPB’s budget at will.
Some actions by Cordray during his year-long tenure at the CFPB have confirmed fears about accountability. For instance, he has refused to define the term “abusive” from the Dodd-Frank provision allowing the CFPB to ban any financial product it deems “abusive.” He is leaving that up to individual CFPB examiners, adding to the uncertainty that keeps banks and credit unions from lending.
And in a brand-new study, the Heritage Foundation’s Diane Katz finds that “a review of some of the bureau’s actions to date exposes alarming regulatory excess.” Among these are its new “mortgage simplification” rules. “The agency’s proposed requirements to implement the new forms and related rules run 1,099 pages” she writes.
And Cordray, who, as I have written previously, has been a longtime supporter of the Occupy-like Ohio community organizing group ESOP — famous for throwing plastic sharks at the homes and offices of its targets — may now be on his best behavior preceding the nomination. If confirmed now, he will serve a five-year term. And the next president — whomever he or she may be — will be severely restricted by Dodd-Frank from removing him.
As I wrote on OpenMarket last year upon Cordray’s “recess” appointment, “there can be no transparency and accountability in the financial system without transparency and accountability in the bureaucracies that control it.” The appointment of White — though she will no doubt take many postions that conservatives and libertarians object to — may result in an SEC that is transparent and somewhat accountable.
Cordray’s appointment — based on his record and the CFPB’s unaccountable structure — will do neither. His nomination should be rejected.