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John Carney's Weak Defense of Elizabeth Warren

By Anonymous

Clusterstock's Joe Weisenthal wrote a post a few days ago highlighting the recent criticism?from Megan McArdle, Eric Falkenstein, and Thomas Cooley?of Congressional Oversight Panel (COP) chair Elizabeth Warren. I've been critical of Warren's attempt to use the COP to address issues well outside the panel's mandate, so I'm glad she's coming in for some criticism. The most prominent criticism came from NYU Stern School Dean Thomas Cooley, who wrote in Forbes that Warren's "self-righteous holy war" is "ideological in the worst way," and has thus left the COP "completely politicized" and "discredited." I'd add that the analysis in Warren's COP reports is almost cartoonishly superficial, which makes most of them pretty much useless.

Now John Carney has rushed to Warren's defense. But Carney's defense is unconvincing at best. He claims that the critics are wrong to suggest that Warren has overstepped her statutory mandate:

The panel was not charged with simply watching the TARP funds go and monitoring their effectiveness. It was charged, in a law duly passed by both houses of Congress and signed by the president, with reporting to Congress on "the current state of the financial markets and the regulatory system."

That's a very broad mandate.

Well, that's not actually the COP's mandate. The COP is charged with periodically reporting on 4 specific topics, none of which are "Elizabeth Warren's personal views on financial crises" or "other countries' approaches to financial crises." (Cooley criticized the COP for its broad report on regulatory reform, claiming that "[r]egulatory reform is not part of its mandate," but in fact the legislation specifically required the COP to submit a "special report on regulatory reform.") More broadly though, what part of "congressional oversight" is tripping Carney up? The COP has no policymaking function at all. Just oversight. It's supposed to be monitoring Treasury's various TARP programs?not the programs Warren wishes Treasury would implement, or the programs Sweden implemented in 1991-1992.

Carney makes a number of seemingly high-minded but ultimately confused arguments. To justify the breadth of Warren's COP reports, he suggests that the TARP itself might be "unconstitutionally broad," which is amusing because the overbreadth doctrine deals with freedom of speech issues. He also suggests that the TARP might violate the nondelegation doctrine, which is a ridiculous argument pushed by that bastion of honest and objective analysis known as FreedomWorks.

Perhaps Carney's most bizarre argument is this:

Is it beyond the pale for her to question the underlying assumptions of the TARP rather than simply critiquing its execution? Well, if she were doing that, it would be a problem. After all, the TARP was approved by both houses of Congress and signed into law by the president. She isn't questioning the availability of billions to rescue the financial system. Instead, her critique has been far narrower, confined to the programs developed by the administration to carry out this legal mandate. That is certainly within the legally mandated scope of her office.

Huh? Honestly, I'm not sure Carney has read either the TARP legislation or Warren's COP reports. Her latest report was all about the "alternative options" for dealing with financial crises:

To deal with a troubled financial system, three fundamentally different policy alternatives are possible: liquidation, receivership, or subsidization.

Right, and Congress and the president very clearly chose the option she (misleadingly) calls "subsidization." That's why the preamble to the TARP legislation, which sets out the TARP's "underlying assumptions," reads:

An Act

To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers.

Warren spends the entire report questioning whether purchasing and insuring toxic assets is the best approach to the financial crisis. How is that not "question[ing] the underlying assumptions of the TARP"?

It's a shame we didn't appoint a COP chair who actually knows something about finance, and whose main concern isn't appearing "tough" to the political class. Before the financial crisis, I had a favorable opinion of Elizabeth Warren. Not anymore.

Full post as published by Economics of Contempt on April 25, 2009 (boomark / email).