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OBAMA AVOIDS SENATE FIGHT


Professor would head consumer bureau


BY BRADY DENNIS President Obama this week


plans to name Harvard law Pro- fessor ElizabethWarren as a spe- cial adviser so that she can over- see a new consumer financial protection bureau while avoiding a potentially vicious Senate con- firmation fight, according to peo- ple with direct knowledge of the decision. The appointment would place


Warren — adored by liberals and consumer advocates, viewed with suspicion by many bankers and congressional Republicans — in charge of the new regulator that she proposed three years ago to protect Americans against lend- ing abuses. Warren is expected to take on a


dual role as assistant to the presi- dent and special adviser to Trea- sury Secretary Timothy F. Geith- ner, giving her primary responsi- bility for shaping the consumer watchdog in the coming months. The financial overhaul bill


signed into law in July gives the new bureau and its leader broad


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autonomy to write and enforce rules governing credit cards, mortgages and other such loans. Under the law, the Treasury maintains responsibility for set- ting up the new regulator until the president nominates a direc- tor, subject to approval by the Senate. By appointingWarren to a post


within the administration — much as the White House did with “car czar” Steven Rattner and “compensation czar” Ken- neth Feinberg — Obama would free her to act as the bureau’s director beginning immediately while avoiding a confirmation battle. The move also will thrill the consumer groups, labor unions, academics and liberal lawmakers that have lobbied re- lentlessly for her to lead the new regulator. The administration’s plan to


appoint Warren was first report- ed by ABCNews. The decision on one of the


most anticipated appointments of the Obama presidency emerged after numerous conver- sations withWarren and weeks of hand-wringing over which ap- proach to take. Scores of Obama nominations


far less polarizing than Warren’s have languished in the divided Senate for months. Warren her- self has told allies on Capitol Hill that she would prefer to avoid a prolonged confirmation process. In addition, Senate nominees traditionally have maintained a


low public profile while awaiting confirmation.WhiteHouse advis- ers decided that it would be un- wise to sidelineWarren, given her capacity as an outspoken con- sumer advocate and the immedi- ate demands of starting a federal agency from scratch. They also decided against plac-


ing Warren in the director’s post through a recess appointment, which would have allowed her to serve at least a year without con- firmation. Still, the choice to bypass the


Senate promises to infuriate law- makers of all stripes. “This is clearly a disingenuous


effort to circumvent the Senate confirmation process and I op- pose it,” said Sen. Susan Collins (R-Maine). “The last thing we need is another ‘czar’ that is unac- countable to Congress and the American people. This is certain- ly not what Congress intended when it created this important position.” Senate Banking Committee


Chairman Christopher J. Dodd (D-Conn.), who shepherded the landmark financial legislation through the upper chamber, said this week that such a move could jeopardize the credibility of the fledgling consumer bureau. Others, such as Sen. Bernie


Sanders (I-Vt.), applauded the president’s decision. “The Ameri- can people are tired of being ripped off by large banks and financial institutions,”hesaid ina statement. “In Professor Warren,


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Warren expected to be adviser


they finally will have someone in a position of power who can protect their interests.” Many Republicans and mem-


bers of the financial industry have questioned her qualifica- tions to manage a large bureau- cracyandexpressed fears that she is an ideologue bent on punishing the banking industry. At the same time, multiple


financial industry representa- tives — including executives at the Financial Services Roundta- ble, the Independent Community Bankers of America and the Con- sumer Bankers Association — have sought out meetings with Warren, trying to lay the founda- tions of a working relationship. Warren, 61, is expected to up-


root from Cambridge, Mass., where she recently pulled out of teaching this fall, and live in Washington full time. Her hus- band, fellow law professor Bruce Mann, is expected to continue teaching atHarvard. The new position won’t be her


first role in Washington. Warren served as a senior adviser to the National Bankruptcy Review Commission in the 1990s, and during the past two years she has led the five-member Congressio- nal Oversight Panel. dennisb@washpost.com


Staff writer Zach Goldfarb contributed to this report.


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THURSDAY, SEPTEMBER 16, 2010


10-YEAR TREASURY DOWN$3.30 PER $1,000, 2.72%


CURRENCIES $1=85.70 YEN; EURO=$1.301


DIGEST POLLONHOMELOANS


To many, ditching mortgage is acceptable More than one-third of Ameri-


cans say it’s acceptable under some circumstances to stop pay- ing a mortgage and walk away from the home, a survey by the PewResearch Center found. While 59 percent of those sur-


veyed said it’s “unacceptable” to abandon a home loan, 19 percent said it was “acceptable” and an- other 17 percent said it depends on the circumstances, an answer that wasn’t on the survey, said Rich Morin, a Pew Research se- nior editor. Of the respondents, 63 percent own homes and 31 percent are renters. Homeowners are struggling


with their mortgages amid job losses and the worst housing crash since the Depression.About 14.4 percent of home loans were


ONLINEBANKING


Chase Web site’s glitches continue Chase’s online banking service


was still having problems Wednesday, extending an outage that has lasted for two days and affected millions of customers. Chase’s online service went


down around 8 p.m.Monday and was down all day Tuesday. Its service for mobile phones was also down, butChase’s network of ATMs and telephone banking ser- vices were functioning normally.


Tough choices taking shape for Bernanke, Fed


On the table next week: Whether to step in, and if so, how to do it


BY NEIL IRWIN Chairman Ben S. Bernanke


and his colleagues at the Federal Reserve are facing their biggest decision since the end of the financial crisis, confronting a fateful choice this fall whether to take new, exceptional steps to boost the flagging economic re- covery. Thesemeasures are likely to be


the focus of a vigorous debate at a Fed policy meeting next week, setting the stage for a definitive decision in November or Decem- ber on whether to purchase hun- dreds of billions of dollars of bonds in an effort to strengthen the economy. No action is likely at the policy meeting scheduled for Tuesday, which means mone- tary policy could remain in a holding pattern until the Fed committee reconvenes later in the fall. Fed policymakers face twoma-


jor questions: Will the weak eco- nomic recovery of the past few months persist through 2011? And would pumping vast new sums ofmoney into the economy pack enough punch to be worth the risks? Top Fed officials will be pre-


paring formal forecasts for the economy over the coming years in advance of their meeting Nov. 2 and 3. If their consensus is that growth will be too slow next year to bring down the unemploy- ment rate significantly, they will be more inclined to take action, even if the exact economic im- pact is modest and hard to pre- dict, according to analysts who study the Fed. The sluggishness of the recov-


ery was underscored Wednesday as the Fed reported that industri- al production rose only 0.2 per- cent in August. After the U.S. economy recorded a weak 1.6 percent growth rate inthe second


BRENDAN SMIALOWSKI/GETTY IMAGES


If Federal Reserve Chairman Ben Bernanke and his colleagues opted to resume bond purchases in an effort to bolster the recovery, that course would carry risks, including potentially stoking inflation.


quarter, forecasters say they ex- pect a similar result in the third quarter, which ends Sept. 30. If the Fed resumes bond pur-


chases—or as economists call it, “quantitative easing” — it would support the economy by lowering long-term interest rates, such as for mortgage loans and business loans to finance investment. But this course carries risks — for instance, stoking inflation and giving investors the dangerous perception that the Fedwill read- ily print money to fund U.S. budget deficits. As the debate over further


bond purchases has ripened within the central bank and among outside economists,many Fed watchers expect action be- fore the end of the year unless economic data improve signifi- cantly. “At some point, they’re proba-


bly going to be looking at a forecast in which they’re not making substantial progress bringing down the unemploy- ment rate,” said Michael Feroli, senior economist at J.P. Morgan Chase. “It’s far from a done deal, but more easing seems more likely thannot at some point later this year.”


Economists at the central bank


are undertaking a new round of analysis on the likely impact of such moves and confronting questions for which the answers are anything but obvious. For example, Fed analysts are


exploringwhethernewbondpur- chases can do much to lower interest rates, because they are already extremely low. Fed officials are also weighing


whether lower rates would spur business investment. Businesses, especially larger ones, already have access to very cheap credit withwhich to invest and hire, but few are taking the opportunity. Among the possible benefits of


unconventional steps are reduc- ing inflation-adjusted interest rates, making U.S. exporters more competitive by lowering the value of the dollar in foreign exchange markets, and giving private investors greater incen- tive to move money into corpo- rate bonds or the stockmarket as government bonds become scarce. Fed officials are also looking


for unintended consequences of new measures. For example, would the Fed crowd out private bond buyers and thus damage


the ability of financialmarkets to function in the longer term?How would buyers of Treasury bonds, whether pension funds or the Chinese government, react? And even if Bernanke and his


colleagues decide to pull the trig- ger, the question remains how to do it. There is the “big bang” approach, in which the Fed an- nounces in one fell swoop plans to buy, say, $1 trillion in bonds over the comingmonths. There is also the “dribs and drabs” ap- proach in which the central bank announces smaller purchases at every policy meeting, calibrating them with the most recent eco- nomic data. The weight of the decision


adds additional importance to economic data coming between now and Nov. 2. “If we’re notmaking any prog-


ress on reducing unemployment over the year ahead, I would expect the arguments in favor of actionto carry the day,” said Peter Hooper, chief economist for Deutsche Bank. “If that is the situation, I would expect themto use all the ammunition they have available.”


irwinn@washpost.com ALSOINBUSINESS


UPS launches ocean service: UPS is launching a new ocean freight service in an effort to capture more of the international freight market it serves by air. The move announcedWednesday underscores the importance the shipping company places on im- ports from Asia, which have been key to its sales growth while U.S. business remains weak. The new service is now available between the United States and Japan and will be extended to other parts of Asia over the next six months.


Two Democrats back tax-report- ing change in health-care law: Sen. Ben Nelson (D-Neb.) is co- sponsoring a measure by Sen. Mark Begich (D-Alaska) that would repeal a tax-reporting measure included in the health- care overhaul. Nelson’s move comes after a similar amendment


Chase, the second-largest U.S. bank, said the problem had been fixed earlyWednesday, but people who tried to log in could not get into the site and Chase acknowl- edged that problems were per- sisting. Chase said software from a


third-party database company corrupted information in its sys- tems and kept users from logging on. The bank said that “at no time was customer data at risk,” and it apologized for the inconvenience. —Associated Press


delinquent or in foreclosure at the end of June, the Mortgage Bankers Association reported Aug. 26. Home prices in 20 cities are down 28 percent from their 2006 peak, says the Standard & Poor’s/Case-Shiller index of prop- erty values. About 21 percent of the 2,967


people surveyed by PewResearch owed more than their homes were worth. That’s close to the 23 percent estimate in August by CoreLogic, a real estate informa- tion company in Santa Ana, Calif. “Negative equity is clearly a


huge anchor weighing down on the economy,” said Sam Khater, chief economist for CoreLogic. “People are trapped.” —Bloomberg News


BenNelson Mark Begich


by Sen. Mike Johanns (R-Neb.) failed on a 52 to 46 vote. Nelson voted for that amendment. He said it was hampered by language repealingsome$11 billion in well- ness-program funds that many businesses support. The measure Nelson is now supporting would preserve those funds but would repeal a requirement for busi- nesses to issue 1099 tax forms to people or companies that sell them more than $600 worth of goods or services a year. From news services


Ezra Klein ECONOMIC AND DOMESTIC POLICY Excerpt from voices.washingtonpost.com/ezra-klein


Some perspective on tax cuts More needs to be done to put the numbers involved in extending


the Bush tax cuts in context, so consider this: There is no policy that President Obama has passed or proposed that added as much to the deficit as the Republican Party’s $3.9 trillion extension of the Bush tax cuts. In fact, if you put aside Obama’s plan to extend most, but not all, of the Bush tax cuts, there is no policy he has passed or proposed that would do half as much damage to the deficit. There is not even a policy that would do a quarter as much damage to the deficit. The stimulus bill, at $787 billion, would do about a fifth as much


damage. But that’s actually misleading: The stimulus bill was a temporary expense (not to mention a response to an unexpected emergency). Once it’s done, it’s done. An indefinite extension of the Bush tax cuts is, well, indefinite. It will cost $3.9 trillion in the first 10 years. And then it will cost more than that in the second 10 years. Call that number Y. And then it will cost more than Y in the third 10 years. And so on and on into eternity. Comparatively, the stimulus bill is a tiny fraction of that. The bank bailouts, which were passed by George W. Bush and the Democrats in 2006, will end up costing the government only $66 billion. The health-care bill improves the deficit outlook.


Republicans and tea party candidates are both running campaigns


based around concern for the deficit. But both, tomy knowledge, support the single-largest increase in the deficit that anyone of either party has proposed in memory.


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