By Simon Johnson

Ms. Warren is helping get the new Consumer Financial Protection Bureau (CFPB) off the ground and remains the leading contender to become its formal head (subject to Senate confirmation). She summarizes her substantive agenda this way,

We’re trying to make these markets transparent, which makes it easier for community banks to compete both with large financial institutions and with their nonbank competitors.”

She should now be nominated to the CFPB position. There will be strong Republican opposition and some Democrats who are close to the financial sector may be lukewarm. But a public hearing on her case represents our best opportunity to experience a modern version of the Pecora Hearings – the Senate Banking Committee hearings in the 1930s that laid bare the inner (and rotten) workings of the biggest financial firms (see Michael Perino’s book on Pecora for details).

These hearings would represent a major step forward towards forging a new consensus regarding how to really establish markets (as opposed to the crazy government subsidy schemes that predominate). In addition, the administration would win a big victory with Ms. Warren’s confirmation.

Elizabeth Warren has worked long and hard to build a working relationship with reasonable people in the banking community. These investments now seem to be paying off, with the president of the American Banker Association saying this week that his organization would support Professor Warren if she is nominated (although he later backtracked and said he meant they would be supportive “if she is appointed”). Community bankers have already expressed support in various ways.

Her arguments are very hard for Republicans on the Senate Banking Committee or more intransigent bankers to refute in any kind of public setting – because there is very little of the “market” in our currently predominant banking sector arrangements.

A proper Senate confirmation hearing would be the perfect platform for Ms. Warren to explain, (a) not only do “too big to fail” banks now constitute and hugely dangerous government subsidy scheme, but (b) based on these subsidies, they are becoming larger and acquiring more market power that can be – and has been – used to abuse consumers in a nontransparent fashion.

All attempts so far to construct some form of Pecora Hearings have failed – partly because the issues are complex and partly because of partisan fighting. The Financial Crisis Inquiry Commission made some progress but could reach no consensus (or bring anyone to justice). Senator Levin’s hearings into Goldman Sachs grabbed attention and were most helpful in the Dodd-Frank reform debate but again no one is going to jail – and few people even grasp what were the real issues at stake. And the Department of Justice has preferred to pursue insider trading cases, perhaps taking the view that these are easier to explain to juries.

But Elizabeth Warren cuts through the complexity and offers a message that – outside of Washington – plays well across the political spectrum.

Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.

Of course, there are many honest players – mostly in credit unions and smaller banks. But when the playing field has been unfairly tilted towards cheating, honest bank executives struggle to stay in business (or to keep their jobs).

If someone attempted to sell boxed cereal in the same fashion that many financial products are now sold, that person would be drummed out of the cereal business. The norms of that sector (and many other nonfinancial sectors in the United States) would not stand for this degree of deception and malpractice.

Some parts of financial services have moved too far towards become unscrupulous and abusing customers. This is bad for the people who are mistreated, it’s bad for the economy, and it’s bad for all honest people in the financial sector.

Elizabeth Warren is offering to allow proper markets to work again within at least part of finance. She has convinced many community bankers that her intentions are sincere and that her principles-based approach can work.

It’s time for the president to stand up to abusive financial practices facilitated by cynical and nontransparent subsidies.

If nominated, Elizabeth Warren’s confirmation hearing would become a defining moment for thinking about finance in America.

And reform would win. All the missed opportunities, botched bailouts, and kowtowing to megabanks would fade into the background. Every attempt at change must face many setbacks – and financial reform has really struggled to have any impact.

But at the end of the day, if Elizabeth Warren wins, we all win.