Lawmakers say more work is needed to reform Wall Street. (Flickr: Pamhule)

Soon after Rep. Brad Miller (D-N.C.) came to Washington in 2002, a fellow member of the House Financial Services Committee told him to pick an arcane financial issue — any issue — and to make it his pet topic. Miller chose mortgage finance. He knew little about it. Banking lobbyists peppered him with data, but he had difficulty getting much information from independent sources.

[Economy1] “I was even reduced to reading blogs,” he quipped to a crowd of bankers, community organizers, financial reform experts, hedge fund managers and government aides at the Roosevelt Institute’s conference, “Financial Reform: Will It Work? How Will We Know?” on Monday. But Miller educated himself on the topic and became a leader in pushing for stronger regulation of mortgage products. By 2008, as the financial system collapsed, all of his colleagues in Congress had joined him in reading up on everything from liar loans to naked credit-default swaps.

That period of intense interest is over following the passage of financial regulatory reform legislation this summer, Miller and others said on Monday. But that does not mean that reform is done. In fact, because political attention has flowed from Wall Street to immigration, unemployment and myriad other topics, reform is imperiled. The regulatory law gave guidelines for fixing the financial sector, but the rule-writing process has fallen to dozens of agencies and government bureaucrats currently hammering out the details. That means the real work of reform is just beginning and the country is only incrementally closer to a safer financial system.

“It has become quite clear in recent years that the servant’s servant has become the master’s master,” argued Rob Johnson, a former hedge fund manager and current director at the Roosevelt Institute. Banks, he said, which should help companies merge, access credit and grow, instead ended up leeching off of them, piling on fees and unnecessary products. Ultimately, average Americans suffered. “We do not yet have a balance between society, the real economy and the financial sector.”

A few visiting investors noted that the sector has become more concentrated — due to a number of banks failing, and the others picking up their business — and therefore more dangerous. Each one of the systemically risky banks, like Goldman Sachs, has become more systemically important and therefore more likely to receive government backing if financial troubles re-emerge. (It will take years for Washington to put capital requirements and other safeguards in place.) Moreover, the long process of rule-writing allows banks ample time and opportunity to lobby bureaucrats working on legislation.

And that rule-writing is ongoing among dozens of agencies, including the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Treasury Department and the Federal Reserve. The government is also in the process of organizing and hiring workers for the new $500 million Consumer Financial Protection Bureau. And the massive legislation is drawing major lobbying interest. This campaign cycle, the American Bankers Association has pledged $13.6 million on lobbying and $2.1 million to campaigns, pushing for looser rules on banks. J.P. Morgan Chase alone has contributed nearly a million to campaigns this year.

So how will those interested in reform know if it is working in the meantime? The question posed to the gathering of 40 or so met with many answers. “[Reform] would be working if the banks were making a lot less money,” Miller argued. “The reality is for it to be successful it has to be a win-lose-win,” with markets and consumers winning, and banks losing. The Wall Street Journal reported yesterday that financial-sector corporate profits are near their all-time highs.

Sen. Jeff Merkley (D-Ore.) was more optimistic. He praised the reform process, citing the creation of the Consumer Financial Protection Bureau, derivatives reform and proprietary trading regulations as big wins. (Elizabeth Warren, the White House and Treasury advisor helping to build the new bureau, attended the conference but did not speak.)

Still, Merkley conceded, “There is more to do.” He noted that ratings agencies — which stamped triple-A ratings on hundreds of billions of dollars of worthless mortgage-backed products in the run-up to the recession — remained unfixed. (“They’re almost useless,” sighed Jerome Fons of Kroll Bond Ratings agency.)

Others pointed to problems with the derivatives clearinghouses, which might now be the new “too big to fail” institutions. (If banks post insufficient capital to cover their derivatives trades, and another credit crunch hits Wall Street, with investors pulling cash out, the government might be forced to bail them out to calm the markets.) Some criticized the new Treasury Department Office of Financial Research, tasked with understanding Wall Street’s new innovations. Dozens of such niche issues arose.

“There are the tools there to do this,” Mike Konczal, a Roosevelt fellow, said. “Now it’s an issue of political will. [The financial regulatory law] doesn’t presuppose that [reform] will happen. But it does have the tools to do it.”

He concluded: “Those tools sit there, and there’s going to be a lot of pressure not to use them.”

Elizabeth Warren will help set up the Consumer Financial Protection Bureau. (Flickr/david_shankbone)

This morning, President Barack Obama plans to officially announce that Elizabeth Warren — Harvard Law professor and the current head of the Congressional Oversight Panel over the Troubled Asset Relief Program — will head the Consumer Financial Protection Bureau.

[Congress1] Well, sort of. After months of will-he-or-won’t-he speculation by journalists, bankers, lobbyists  and consumer-protection advocates, this week, it leaked that Obama plans to name Warren to an advisory role helping the administration build the new agency, the much-touted agency created in the financial-regulation reform law to protect the everyday purchasers of small financial products. Today, Obama plans to confirm the leak. Warren will not, as progressives wanted, lead the bureau. She will instead act as its midwife or architect, helping to set it up before perhaps staying to run it or perhaps leaving that work to someone else.

This decision, first reported by Jake Tapper of ABC News on Wednesday night, lead not to applause from the left and condemnation from the right, as expected — but to a kind of collective “huh?” Within 24 hours of the leak, various heavyweights in the financial and political press had declared the appointment: “creative,” “strange,” “confusing,” “curious,” “made-up,” “incomplete” and “tenuous.”

Even the key senators who crafted the CFPB reacted with baffled surprise. On Thursday, Talking Points Memo tracked them down and asked them whether they had any idea what the appointment meant. Sen. Chris Dodd (D-Conn.) responded, simply, “No.” Sen. Bernie Sanders (I-Vt.) said, “The answer is no. And that is not insignificant.” And Sen. Bob Corker (R-Tenn.) responded, “We ought to see. It appears to me that exactly the things that many of us thought were going to happen have happened. We’ll see. Maybe there are some details here that we’re missing” — really, a long-winded way of saying “no.”

Consensus became that the news leaked prematurely, before the White House had time to set out a standard description of the position and before it had time to update members on the Hill about the news. The title, for instance, seemed like a bureaucratic parody, an appellation designed to confuse. Rather than becoming CFPB administrator, a straightforward name for a straightforward job, Warren will be “Assistant to the President and Special Assistant to the Treasury Secretary on the Consumer Financial Protection Bureau” (putative acronym: APSASTCFPB). What responsibilities does that job hold? Will Warren really be calling the shots?

As of now, no one seems to know. Jonathan Cohn in The New Republic openly admitted he had little idea what to make of it: “Honestly, I’m still trying to figure out what’s about to happen — and whether those of us who like Warren for the job should be happy.” (He later reported that the job seemed to have real heft.)

The Wall Street Journal authoritatively laid out a job description: “Ms. Warren’s powers will be broad, despite her unusual title. She will recruit staff for the agency, set the policy mission and serve as the recognizable public face for a new agency the administration wants to promote,” one story said.

But the paper also ran an article called “Sidelining Liz,” arguing that she will hardly have the import once presumed, and arguing, “[This] might be good politics, but it isn’t good leadership by the Obama administration. The president who lobbied so hard for financial reform seems to be weaseling when it comes to implementing it.”

And how did the base react? Most organizations that had lobbied hard for Warren seemed understanding of the decision this week. MoveOn, for instance, got behind the Warren appointment immediately.

But other groups offered a little skepticism. The Progressive Change Campaign Committee, for instance, gave only golf claps. “This news shows that consumers have momentum and are on the verge of winning,” Stephanie Taylor, its cofounder, said in a statement. “If Elizabeth Warren is given full power to run the new consumer protection bureau and hold Wall Street accountable, it will mean real change — and voters will know that going into November’s election. If this appointment is window dressing and Tim Geithner controls the show, it would be a big disappointment and a victory for Wall Street.”

So why did Obama do it — naming Warren to a confusing new role, rather than the one that seemed her inheritance, given that the idea for the CFPB is hers? Why not make her the CFPB’s J. Edgar Hoover, as many hoped and presumed? The answer is the Senate confirmation process. This year, the upper chamber has delayed the confirmation of even non-controversial nominees. If the ambassador to Bulgaria has a 13-month wait to get her position, Warren — whose confirmation was a fight that Republicans wanted to pick — might have been held up for eons before ultimately not being confirmed.

Rep. Barney Frank (D-Mass.), one of the authors of the Dodd-Frank law, said yesterday that Warren did not want to go through that process. “She always said she didn’t want to be there as a permanent director. Some of the liberals are worried about it. It’s almost an insult to Elizabeth. She wouldn’t take this if there was the slightest impediment to her doing the job.”

Today, the administration has its first major chance to clear the air. Already, this morning, Warren has put up a post on the White House blog making the decision sound crystal clear and, frankly, sensible. “Over the past several weeks, the President and I have had extensive conversations about the vital importance of consumer financial protection,” she writes. “The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. He has also asked me to take on the job to get the new CFPB started — right now. The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done.“

That leaves just one big question: Will she stay to run it? You might already have guessed the answer: Nobody really knows.

Data released on Wednesday morning by the good government group Public Campaign shows that Cantor received more than $460,000 from the financial sector during the second quarter of 2010. That total represents a “32 percent increase from the average of the previous five quarters,” the group found. And the donors included some of the biggest names on the Street as well as those they pay to lobby on their behalf in Washington.

Donors from Goldman Sachs gave $15,600 to Cantor in the second quarter of this year. Donors from Bank of America offered checks totaling $6,000. Equity Group Investments officials forked over $10,800 and American Express employees donated $7,500. “In the second quarter of 2010,” Public Campaign reports, Rep. Cantor received $18,250 in donations from registered lobbyists and firms that have Wall Street clients.

Perhaps it’s Wall Street’s way of saying “thank you” for all of Cantor’s outspoken opposition to the Obama Administration’s financial regulatory reform bill.

The nation’s three dominant credit-ratings providers have made an urgent new request of their clients: Please don’t use our credit ratings. The odd plea is emerging as the first consequence of the financial overhaul that is to be signed into law by President Obama on Wednesday. And it already is creating havoc in the bond markets, parts of which are shutting down in response to the request.

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law. The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.

This is bad news if it is impacting the bond market, but should be easy enough for Congress or the ratings agencies’ regulator to fix. The bill instructs the government to study ratings agencies for two years before deciding how to re-regulate them. This change should be delayed until that point — and regulators should work with ratings agencies to help them prepare new practices and therefore avoid seizing the markets when the new changes come into effect.

Still, this highlights a fault of the bill — the tremendous uncertainty of it all. Stephen Spruiell notes: “Sen. Chris Dodd said shortly after the bill was finalized: ‘No one will know until this is actually in place how it works.’ Precisely.”

The final bill, more than 2,300 pages in length, directs regulators to create 533 new rules — applying to everything from debit cards to hedge funds to mortgage underwriting. It contains three central provisions. First, it provides the government with new powers to identify risky banking institutions and to shutter them, via a new systemic regulator. Democrats say this provision ends “too big to fail.” Second, the Dodd-Frank bill makes banks less dangerous, forcing them to keep more capital on hand, banning them from making risky trades on their own behalf and keeping them from investing heavily in vehicles like hedge funds. Finally, it creates a new consumer financial protection bureau, which will have the power to create and enforce new rules regarding financial products like home-equity loans and credit cards.

The White House pre-released only a short excerpt of Obama’s speech, indicating he plans to focus on consumer protections. “These reforms represent the strongest consumer financial protections in history,” he will say. “And these protections will be enforced by a new consumer watchdog with just one job: looking out for people — not big banks, not lenders, not investment houses — in the financial system. Now, that’s not just good for consumers; that’s good for the economy.”

Republicans argue that the bill will stifle the economy, reduce credit and overtax the banking system. Sen. Mitch McConnell (R-Ky.) remarked on the Senate floor this morning: “It’s almost as if it’s a prerequisite for any Democrat legislation: If it leads to more job loss, they’ll pass it. Americans are tired of this kind of ‘reform.’ Job stifling taxes, regulations, government intrusion. These appear to be the three pillars of every Democratic legislative effort.  They’re also the three things lawmakers can do that are guaranteed to kill more jobs.”

Several media outlets have noted that Wall Street’s biggest banking titans — including Lloyd Blankfein, the head of Goldman Sachs, and Jamie Dimon, the head of J.P. Morgan Chase — were not invited to the signing.

The discussion kicked off after the final passage of the Dodd-Frank financial regulatory reform bill, which will become law when President Obama signs it tomorrow. And it heated up when a Huffington Post story, citing unnamed sources and pushed back on by the White House, said that Treasury Secretary Timothy Geithner opposes the much-lauded Warren — a Harvard Law professor, expert on consumer finance and the current head of the Congressional Oversight Panel over the Troubled Asset Relief Program. (The idea for the CFPB is hers, to boot.)

Since then, the White House and legislators have rushed to offer praise, if not outright support, for her. Rep. Carolyn Maloney (D-N.Y.) circulated a letter asking legislators to get behind her. Dozens did so. And the White House signaled its possible support too. “While there are a number of strong choices under consideration for this position, Elizabeth Warren is a champion for consumers and middle-class families, and we are confident she is confirmable,” Jen Psaki, a White House spokesperson, said.

At The Washington Post, Brady Dennis confirms that Warren is a short-list candidate, along with Assistant Treasury Secretary Michael Barr and Eugene Kimmelman, a deputy attorney general and former consumer advocate. (The White House will name the head of the CFPB, and Congress has to confirm him or her.) And WaPo’s Neil Irwin details the concern that she does not have the executive experience necessary to run a bureaucracy.

Still, her advocates are coalescing on the left. Yesterday, Americans for Financial Reform endorsed her. Today, the SEIU and the AFL-CIO, the powerful labor unions, also threw their weight behind her. Of course, the question will be whether she can draw a Republican or two to vote for confirmation in the Senate. Thus far, none have come out publicly in support.

One of those is the Emergency Homeowners’ Relief Fund, a $1 billion fund to help unemployed workers stay in their homes. The brainchild of Rep. Chaka Fattah (D-Pa.), ushered into the bill by Rep. Maxine Waters (D-Calif.), the EHRF should be in place by Oct. 1. It will offer qualified unemployed homeowners low-interest loans up to $50,000 to help them keep up with their mortgage payments and remain in their homes.

Legislators modeled the program after Pennsylvania’s successful Homeowners’ Emergency Mortgage Assistance Program, or HEMAP. Since its creation in 1984, HEMAP has helped 41,500 homeowners with $433 million in loans. About half of HEMAP loan-takers have repaid in full to date. And 90 percent of HEMAP participants have avoided foreclosure.

“Millions of American homeowners, through no fault of their own, have lost their jobs in the current economic downturn and have faced the loss of their piece of the American dream,” Fattah said in a statement. “[HEMAP] — which the Emergency Homeowners’ Relief Fund is patterned after — is a proven success in Pennsylvania and it will work nationally. It will keep families in their homes, providing emergency relief from foreclosure for those with a proven history of working and paying their mortgage.” He added: “[F]inancial reform isn’t just about saving banks and markets from failure. It has a message for distressed and unemployed homeowners: We won’t allow you to fail either.”

And EHRF is not the only fund to help the unemployed stay in their homes. On July 1, the Treasury Department started up the Home Affordable Unemployment Program. Through the program, banks and lenders will let unemployed homeowners stop paying their mortgages for set periods of time while they look for work, or will reduce payments to less than 31 percent of the homeowner’s gross monthly income for a set amount of time. (That means that if the homeowner’s income is zero, the payment will be zero. If he or she is taking severance or receiving unemployment insurance, it will be about a third of that.)

Of course, these programs might all be too little, too late for the millions of people left unemployed by the downturn and underwater due to the housing bust.