FORTUNE -- Whether Elizabeth Warren heads the nascent Bureau of Consumer Financial Protection has become the first pitched battle in how the recently passed financial reform laws are put into practice. If the episode so far is any indicator, the battle between interests and reformers is far from over.
Detractors say that Warren lacks experience, that she's not impartial, and that she could make it so expensive to extend credit that only the richest Americans and biggest businesses could get a mortgage, a credit card, or a loan. But these knocks against Warren obscure the likely impact that she would have on the bureau. And mostly, they are straw men.
Concern over her experience includes both management and industry chops, and it's true that Warren is neither a longtime beltway operator nor a seasoned businesswoman. She's a lifelong academic who teaches law at Harvard. But our government has of late been long on credentials and short on results, a reality made quite stark in the years following the meltdown of the credit markets.
Take for example the Financial Crisis Inquiry Commission. The FCIC is helmed by lifelong public servants chairman Phil Angelides and vice chairman Bill Thomas; and it includes business people like John Thompson, former chairman of the board at Symantec, and Wall Street insider Brooksley Born, who was head of the Commodity Futures Trading Commission. Not only has the FCIC been famously "hobbled" by infighting, and a lack of focus, it has now requested more money, but refuses to account for the$8 million in taxpayer funds it was already given. To top it all off, the commission has yet to produce a narrative that explains just what led to the disastrous 2008 collapse. (Note: A spokesman from the FCIC has responded to note the commission statutorily does not have to file a report until December 15, 2010.)
The COP's impressive body of work
Compare the FCIC with the Congressional Oversight Panel, which Warren left her ivory tower to lead in 2008. The COP has published 22 detailed, thorough reports with little dissent from panel members and staffers, despite the many differences of opinion regarding economics and politics held by staff members. As recently noted by Ken Troske, the economist (a Chicago school free-marketer no less) appointed to work on the COP, Warren is known as a consensus builder. He told the New Republic, "I'm in awe of the work they turn in to meet that schedule, because it's a demanding schedule."
While the mission of the COP -- to evaluate TARP deployments and oversee the Treasury -- is very different from that of the FCIC, its scope is certainly as wide. Just how does one evaluate whether deploying $700 billion to rescue the financial system has "worked?"* (See editor's note.)
Warren's panel, rather than the FCIC, has become intellectual hub at the center of D.C.'s effort to understand the relationship between Wall Street and the government; and the COP's report on the AIG rescue and its impact on markets was clearer, more in depth, and more conclusive than any other.
The outcry over Warren's impartiality is a through-the-looking-glass twist on the current state of our regulatory affairs. It bears repeating that it's a good thing for the head of an agency designed to protect consumers to actually put the interests of consumers first.
For the past few years, as was made imminently clear by the implosion of 2008, Wall Street regulators were doing anything but regulating. John Dugan, the head of the Office of the Comptroller of the Currency, is a long time bank industry lobbyist, and now he oversees banks. For the bubble years between 2004 and 2008, investment banks participated in voluntary regulation by the SEC, which gave the commission no power force changes at these institutions. And the porous hiring wall between banks and Capitol Hill has made regulatory capture the new normal, with former bank executives making rules for banks, while former politicians work as door openers at private equity and hedge funds.
A shock to the system
Someone like Warren is a shock to that system. She unabashedly sides with consumers. She hates fine print and contracts with "gotcha" clauses. She wants to eliminate predatory loans. And she thinks that it's okay for bank profits to be crimped in service of a level playing field between borrowers and their lenders. In other words, she is Jamie Dimon's nightmare.
As for the argument that Warren's Bureau of Consumer Financial Protection will restrict credit, well that's true. By mandate, the BCFP will inspect, question, and curb things like payday loans, subprime mortgages, and predatory student loans. And those products are all forms of credit. It's frustrating to hear the "restrict credit" line used as an argument against the bureau. First, it implies that credit only helps people with no money by giving them a lifeline, when it sometimes locks people with no money into a situation where every dollar they earn belongs to someone else. That maxed out Visa card doesn't pay itself back. And it implies that easy credit is always good, when it was the excessive use of credit and the inability to payback the loans that caused the financial crisis.
But it's highly doubtful that Warren, or the bureau, will bring about the end of lending, as some fear. Like all government agencies, the consumer protection agency has to follow the Administrative Procedures Act, which requires a comment and review period before rules are enacted. And the consumer protection bureau needs to consult with small business owners before making decisions, too. Anyone who thinks Warren can outshout all lobbyists, industry employees, and politicians who depend on financial service dollars hasn't been to K Street lately. When it comes to consumers versus banks, she is outnumbered.
Warren is one among three strong candidates for a job that will sometimes mean limiting access to the credit that hurts us, fighting for consumer rights while others fight for the rights of bankers, and building a functioning agency amid the fraught and compromised world of Washington. The most popular arguments against her are nothing more than the credentials that any serious contestant should bring to the job.
In this regard, it's an even money fight between Warren, Michael Barr, and Gene Kimmelman. But do not overlook the importance of Warren's high profile, which sets her apart from the group. She draws media attention (notice how few editorials there are about whether Kimmelman will kill the economy), she makes herself understood, and she has charisma more often associated with young politicians than with gray-haired academics. Her presence will keep light shining on the cause of financial reform, at a time when the special interests and lobbies who helped cause our economic crisis still seem to prefer the shadows.