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Will Warren’s Bank Committee Appointment Slow the Economy?

Saturday, December 08, 2012

 

Senator-elect Elizabeth Warren was recently unofficially appointed to the Senate Banking Committee, and while most first-year senators are not expected to be showstoppers, local experts and political commentators are weighing in on Warren’s potential effect on the economy and Congress.

Freshman Senator on the Scene

Warren’s background positions her to take a commanding role in all things finance and banking-related. She was instrumental in the establishment of Consumer Financial Protection Bureau as part of the Dodd-Frank Act. But her nomination to head the agency was blocked, and some question whether her freshman standing will block her ability to get things done in Washington.

“Historically, senators have not been particularly active or visible in their first couple of years, but given Warren’s profile I think she will certainly have a chance to be more active than most,” said Clark professor of Political Science, Robert Boatright.

Professor Mark Miller of Clark’s Political Science department agreed she has a higher chance to make a change.

“Because of her expertise in this area, she will have a much shorter learning curve than other new appointees to the committee,” he said.

Boatright added that Warren’s appointment is symbolic, given her track record, but she may still face some disapproval from veteran Democrats.

“Some senior Democrats may not have wanted her there, but they didn’t want to take a public role in preventing her from being appointed,” he said. “I think the fact that the Democrats gained seats this year has made the party more willing to give Warren a prominent role.”

Despite this potential attitude, Boatright said that in the short run, it makes sense for Warren to have more visibility to advance the party’s agenda and raise funds for candidates in tough races in 2014, and so on. But, he added, she might not necessarily take a visible role in terms of shaping financial legislation over the coming couple of years.

An Economic Slow Down?

Despite this chance that Dems are taking with the newcomer’s appointment, some are still questioning how her “cop on the beat” attitude will affect the economy.

“The Senate Banking Committee has the mandate to effectively implement the Dodd-Frank Act. I believe she will be a strong advocate for financial regulation, but I also hope at the same time they don't turn on the screws so tightly that it leads to the slowing down of the economy,” said Clark professor Srinivasan Sitaraman.

Sitaraman added that Warren faces a tough challenge of balancing regulation. While she has expressed a desire to crack down on misleading practices by big banks, Sitaraman said she also has to consider the state of the economy. Sitaraman added that due to our country's lack of regulation, it creates "booms and busts" in various sectors -- the housing bubble, the .com bubble, ect. "...the Senate Banking Committee, as it should focus on financial regulation and on preventing misbehavior, especially criminal misbehavior, but it should also make sure -- along with other branches of the government -- that it does not stifle growth."

“The challenge for government regulation at this juncture is to make sure that economy keeps growing and reduce unemployment levels,” he said. “My hope is that Senator-Elect Warren will be able to strike the right balance.” He added that he is hopeful that she and President Obama will achieve this.

Oversight, Overlooked

Local small business owner, Brad Wyatt (Wyatt Development, LLC) is worried about oversight.

“My main concern is with oversight of the Federal Reserve Banking system. As a small business owner, before making long-term capital investment decisions, it's important to have trust, via transparency, in the banking and monetary system, which Congress has delegated its Constitutional authority to regulate the money supply to the Federal Reserve Banking System,” he said.

Wyatt says that partisan alliances and Washington influence have him concerned about Warren’s actions on the committee.

“It will be very interesting to see if Senator Warren on the Banking Committee demands complete transparency in the Federal Reserve Banking system, or just looks the other ways, and goes along with Harry Reid's stance and ignore addressing Federal Reserve issues such as bailouts with foreign countries,” he said.

Partisan Alliance

Wyatt went on to say that while Warren’s desire is to change the tune in Washington, things may play out differently for her when put to the test.

“I'm afraid Senator Warren will go along with a partisan alliance led by Senate Majority leader Harry Reid to prevent a vote on Senator Rand Paul's Bill to Audit the Federal Reserve, thus Senator Warren would be hindering financial transparency and encouraging crony capitalism between the Federal Reserve Bank and large financial firms like Goldman Sachs and others,” he said.

He added that Warren’s words will have to match her actions: “When she promised to go to Washington, she wanted to change the culture, but if she blindly follows her party’s leadership, we are quickly learning Washington is changing her.”

“She will be just another vote to represent Harry Reid, instead of what we were promised, a representative for the middle class working people of Massachusetts,” said Worcester Republican, Christopher Pinto.

“In a recent political cartoon, Senator-elect Warren was caricatured with Senator Harry Reid. She was depicted as Harry Reid's hand puppet. Below the image of Senator elect hand puppet were the words ‘Occupy Harry Reid’s Hand,’” he said. “That cartoon pretty much sums up what we get when elected Senator Hand Puppet.”

Still, despite these concerns, professors Miller and Sitaraman say that Warren is a perfect fit for the appointment, and time will tell the impact of Warren’s position on the committee. 

 

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