Starting consumer protection right

My worry isn't that the Obama administration will pass over Elizabeth Warren at the Consumer Financial Protection Bureau and appoint "some banker" instead. My worry is that they'll pass over Warren and choose some gray bureaucrat or friendly ex-congressman instead. A crusty banker who hates a lot of his former colleagues and has the cutthroat, ruthless personality of lots of bankers might be able to attract other ex-Wall Street types and create an interesting agency. Some former bureaucrat can't.

As I argued in this column, when you're creating a new institution, you need to think about creating path dependence among the staff. To simplify a bit, if you get good people in the first place, you'll keep getting good people after that. If not, not. The argument for Warren is that the best young lawyers and consumer advocates revere her and would walk across glass for the opportunity to work with her. There's no second choice with anything close to that allure.

I'm unsurprised that the administration is conflicted on appointing her, however. A lot of economists -- both inside and outside the administration -- think she's too dismissive of the benefits of financial innovation. Business would lose their minds over the appointment. It'd be a tough sell in the Senate. Of course, this was always what the CFPB was supposed to be about: An independent agency housed inside the Federal Reserve so there's a pro-consumer voice to battle it out with the Fed's -- and the rest of the regulatory system's -- natural bent toward banks and financial products.

The case against Warren, in other words, boils down to ambivalence toward the idea of the CFPB. Which makes sense, as it's her idea. That's fair enough, but I'd much rather start by making the CFPB strong and ratcheting it back if necessary than ratcheting it back at the start and pretending we can make it stronger if we need to do so in the future.

Photo credit: Andrew Harrer/Bloomberg.