Consumer 10.0: Potential help from a true D.C. outsider

Barely past Labor Day in a midterm-election year, and the amped-up rhetoric is already frying the meter.

President Obama is a socialist! No, he's a Kenyan anticolonialist! Christine O'Donnell, the newly minted Republican nominee for Delaware's open Senate seat, is against masturbation - she said so on MTV in 1996! Chris Coons, her Democratic opponent, is a Marxist - he said so in Amherst College's newspaper in 1985!

Of course, a young O'Donnell was voicing a view she considered consistent with her Catholic faith. And Coons was a 21-year-old exploring ideas, just back from an eye-opening semester abroad in Kenya, and was echoing friends' jokes about his shocking conversion from college Republican to college Democrat. (Aha, the Kenya nexus!)

Will anything help dial down our nation's dangerously charged rhetoric? Here's one unexpected possibility: Elizabeth Warren, named Friday as an assistant to the president and to the treasury secretary, and charged with setting up one of the cornerstones of the recently enacted financial reform, the new Consumer Financial Protection Bureau.

How will Warren help return a little calm and common sense to Washington? Though it surely helps, it's not just because she speaks the language of her Oklahoma upbringing - a period she echoed Friday when she wrote that it was time "to pull up our socks and get to work," a favorite phrase of a grandmother who drove a wagon in the Oklahoma land rush and told stories of coping with life's ups and downs.

Nor is it because of some overarching and foreign ideology, though I fully expect Glenn Beck and the right-wing blogosphere to find one hidden somewhere in the tea leaves.

Warren can help for two big reasons, starting with the fact that, unlike most politicians who claim to be outsiders, she really is one. She's not wedded to Washington ways, or a prisoner of expectations that lobbyists rule and nothing can change.

In a conference call Friday, Warren stressed that she'd had Obama's full support in establishing the new agency - an idea she first proposed when he was a senator. And she said Obama's support didn't waver even as other presumed allies - such as Barney Frank, chair of the House Financial Services Committee - voiced doubts.

"Everyone told me a year and a half ago that this idea of getting a consumer agency was a pipe dream," Warren says. "I would like to underline that. Those were exactly Barney Frank's words."

The other big reason that Warren is a breath of fresh air - and I know this will disappoint my libertarian friends - is that she's the anti-Ayn Rand. Warren is a public intellectual of great talent and insight who understands that the real world doesn't operate like some libertarian fantasyland divided between virtuous "producers" and the rest of us ne'er-do-wells.

As a legal scholar, Warren began to study consumer bankruptcy in the years of bipartisan deregulatory fervor. She came to see that what began as a valuable insight - that too many or poorly designed rules can undermine the vitality of a market - was carried to a dangerous extreme by a succession of presidents and Congresses.

To some, the connection may not seem obvious between consumer abuses and financial calamities that climaxed with the September 2008 collapse of Lehman Bros. But as well as anyone, Warren can make the case that they were.

Warren has simply followed the evidence. Digging into court files that told the stories of families' own financial collapses, she found that the majority of personal bankruptcies were related to a crisis such as a major illness, job loss, or divorce.

But she was also struck by something else: evidence that many families started out in a hole, or dug a new one, without having anything to show for it. Taking on debt had become as easy as reaching for a Visa card - a change she said reflected a "profound shift in how Americans deal with money."

"In 1980," Warren told me nearly a decade ago, "anyone who wanted to borrow $25,000 had to go to a bank and explain why. . . . Fast-forward to 2001, when some people add up $25,000 in credit card debts without a single purchase larger than $60. In other words, they went $25,000 into debt one pizza and one pair of tennis shoes at a time."

In the years that followed, Warren focused increasingly on the finance industry's growing tendency, unrestrained by regulation, to build up borrowers' balances with complex contracts laden with "tricks and traps." Overnight, even cardholders who never missed a payment could see a $5,000 balance borrowed at an affordable 4.9 percent morph into a death spiral of debt growing at 30 percent.

Warren tried to encourage market-based solutions, such as a "safe credit card" that would come with something like the Underwriters Lab seal of approval.

But as that effort stalled, and as evidence grew that the bubble in housing prices was being fueled by similarly out-of-control practices in the home-loan business, Warren came to a different conclusion: Washington needed a new cop on the beat, an agency that could protect consumers from financial products that might blow up on them, much as the Consumer Product Safety Commission protects us from exploding toasters.

Sadly, it took the financial collapse of 2008 to convince enough lawmakers that laissez faire and market fundamentalism weren't sufficient to protect consumers and the larger economy. After November, we may face a resurgent belief that new rules, however well-crafted, can only hurt.

But that's less likely to happen if Americans heed the plainspoken wisdom of Elizabeth Warren, champion of the middle class and scourge of financial predators.

"This is about rebuilding America's families," she said Friday, "because that's what gives us a sustainable economy."