Secret recordings reveal Elizabeth Warren would be Regulator-in-Chief


SLIM SHADY: Warren told NPR she wants regulators going beyond the law.

By Will Swaim |

Massachusetts Sen. Elizabeth Warren has played it cool, denying she’ll run for president in 2016 in a way that seems designed to boost expectations she will.

That has given especially liberal Democratic Party loyalists a case of the fantods. Disgusted with Barack Obama, terrified by the prospect of a President Hillary Clinton, they’re hopeful that Warren will bring a truly progressive impulse to the campaign – and ultimately paint the White House pink.

But responding to audio recordings of deliberations among Federal Reserve Bank of New York officials, Warren gave reason to doubt she’s competent to hold the nation’s top job: Despite the fact that she was a Harvard law professor, Warren doesn’t really believe in the rule of law.

Warren told NPR the recordings, made secretly by a former Fed bank examiner, reveal that government regulators are “too cozy” with the banks they’re supposed to regulate – so intimate with bankers that they can’t “provide the kind of tough oversight that’s really needed.”

Her evidence: The regulators caught on tape refused to slam Goldman Sachs executives for engaging in behavior that one of the regulators called “legal but shady.”

Many Americans might find Warren’s perspective puzzling. They would likely observe that what’s not specifically illegal is legal. You may not like what you call “shady” stuff, but it’s legal.

The problem, of course, is that shady is in the eye of the beholder. Telling regulators they’re off the leash – no longer bound to enforce the law but free to act on their own prejudices about what constitutes “shady” – is a one-way ticket to chaos. Imagine police, health inspectors, local planning commissioners and others no longer hemmed in by law; imagine them freed to pursue their own narrow vision of what’s right.

In the case of the alleged shadiness revealed on the leaked Fed tapes, even ProPublica and American Public Radio’s “This American Life,” the nonprofit news organization and radio show that partnered in publishing the tapes, emphasize that the banking deal in question “appeared to be perfectly legal.” But they quickly brushed aside the law. In the “This American Life” broadcast, ProPublica reporter Jake Bernstein tells listeners that the lead regulator on the deal wondered:

“Did they want banks doing these sorts of transactions in the future? If this kind of deal took off and became more popular, could it be a problem? And in a sense, this is what you’d hope a Fed manager would be doing in the aftermath of the financial crisis.”

But no, see, it’s not what I (if by “you” Bernstein means me) want regulators doing: I don’t want regulators predicting future crimes like cops in Philip K. Dick’s nightmarish “Minority Report.” I want regulators enforcing existing laws. If they think the laws are ineffective – don’t go far enough or go too far or regulate the wrong things – they certainly have the right (and probably the responsibility) to alert elected officials. In America, we – by which I mean “I” – expect that regulators will not simply make up regulations that suit their own preferences.

But the regulator on the secretly recorded tapes, a Federal Reserve employee named Mike Silva, reveals that he thinks that’s his job – that and also annoying the business people he regulates.

In a key meeting before a conference call with Goldman Sachs executives, Silva preps his team of Federal Reserve examiners by telling them that his “own personal thinking right now is that we’re looking at a transaction that’s legal but shady.”

Nevertheless, Silva tells his team, “I want to put a big shot across their (Goldman’s) bow on that. Poking at it (the deal), maybe we find something even shadier than we already know. So let’s poke at this thing. Let’s poke at it with our usual poker faces. I’d like these guys to come away from this meeting confused as to what we think about them. I want to keep them nervous. [LAUGHS] Does that make sense?”

It doesn’t make sense. And in fairness, the recording suggests that Silva probably didn’t confuse the bankers – didn’t attack them, or belittle or puzzle them. He was, in fact, polite and professional. He asked Goldman for documents related to the deal in question, and then he ended the telephone conference call.

The idea that regulators should either go beyond the law they’ve been empowered to entrust or should deliberately baffle the people they regulate ought to shock the ordinary listener. That it might not – that Warren, and ProPublica reporter Bernstein and others would listen to the same recording and determine that the regulators should have gone farther – is a glimpse into the psyche of Americans who believe that regulation make America great.

Reflecting on Silva’s performance for “This American Life,” ProPublica’s Bernstein blasted Silva. “That’s it? That’s him poking Goldman on this?” Bernstein asks. “I mean, I can’t imagine that making them very nervous.”

In her NPR interview regarding the ProPublica story, Warren went farther still, suggesting that Silva’s real error was that he didn’t skip the conference call and simply take Goldman Sachs to court – a government practice that is its own kind of deliberate torture.

“The fact that Goldman could mount a legal defense here is not really the point of these tapes,” Warren said. “The point of these tapes is that the regulators are backing off long before anyone’s in court making a legal argument about whether or not they came right up to the line or they crossed over the line.”

Some regulation is essential to modern life. But regulators have become a pestilence in America – a way of hiding government’s growing authority over otherwise voluntary, even mundane actions in everyday life. Before she was a U.S. senator, and after she was a Harvard law professor, Warren helped create and then, in 2011, run the Consumer Financial Protection Bureau. (which one critic rightly calls a “protection racket”) Her observations about bank regulation are hardly surprising, in other words: To the woman who has wielded a regulatory hammer, every problem looks like a nail that needs regulating.

My colleagues at every day document the rise of this new governing class of regulators. Want to run a funeral parlor in Pennsylvania? A commission of industry professionals gets to decide whether you’re good enough to join their fraternity; its critics have denounced that commission as a cartel. Kids who want to wear lip balm at schools in Augusta County, VA have been told they can’t – someone, somewhere might be allergic. If you report on politics in Texas, be prepared to have the state Ethics Commission sift through your stories for evidence that you’ve engaged in political speech. Want to breastfeed your baby? Don’t try it in Warrensburg, Missouri. Hoping to make brownies for a school fundraiser? That’s a non-starter in Vermont, where Laurie Colgan, the child nutrition program director at the Orwellian-sounding Agency of Education, gets to decide what you can sell. (Answer: “low-fat, leaner proteins, [and a] greater variety and larger portions of fruit and vegetables; the grains have to be 100 percent whole-grain rich.”) Let your kid play outside by herself? That might be a crime.

I could go on. But you get the picture. Under President Warren, an army of similar unelected officials would likely be liberated among the people. As well-intentioned as Warren herself, they would feel free, maybe even duty-bound, to go beyond the law, to become the law themselves – banning, taxing, limiting, curtailing, restricting and punishing – and, sure, just confusing – the people and things that simply strike them as “shady.”

And though it feels like wearing knickers, spats and a tri-corner hat to say so, an explosion of regulators is precisely what angered colonial Americans enough to start a long-shot war against one of the world’s great empires. Enumerating their complaints in the Declaration of Independence, they declared the king had simply gone nuts with the regulators.

“He has erected a multitude of New Offices,” they observed, “and sent hither swarms of Officers to harass our people, and eat out their substance.”

For the moment, at least one judge saw what was really going on among the Federal Reserve regulators recorded. When the Federal Reserve fired Carmen Segarra, the Fed bank examiner who made the secret recordings, Segarra sued. Among other complaints, she said she ought to be protected as a whistleblower. U.S. District Judge Ronnie Abrams threw out her lawsuit, arguing that she wasn’t a whistleblower – because she hadn’t identified illegal activity.

Warren’s response? Speaking with NPR, she agreed that expanding whistleblower statutes to include people who speak out against shady is “one of the things that ought to be on the table.”

Under a President Warren, the American people will be on the table. The regulators are dining. We, the American people, we’re what’s for dinner.