"You should refund this overpayment of $105,240.00 within 30 days."
Elizabeth Warren, the government’s watchdog on the massive bank bailout, is a hero to critics of the financial industry. A professor at Harvard Law School and an expert on bankruptcy, she chairs the Congressional Oversight Panel, which oversees the $700 billion Troubled Asset Relief Program.Many people on Wall Street despise her. One bank lobbyist denounced her panel because in its early findings it brought up outlandish ideas like nationalizing or liquidating the banks.
As a scholar, a member of the commission that criticized the 2005 bankruptcy bill, and an author of popular books, Warren has been speaking out for ordinary Americans’ financial interests in her academic work, as well as on Dr. Phil and The Daily Show with Jon Stewart. In her 2003 book, The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke, co-authored with her daughter Amelia Warren Tyagi, Warren presciently warned about the systemic dangers of predatory lenders. Rebutting what she called “the myth of the immoral debtor,” she placed blame squarely on the bankers.
Warren is an expert on the complex investment practices that led to the recent financial collapse. But she also speaks clearly and forcefully on this simple truth: The banks are not our friends. She points to high interest rates, hidden fees, and other nasty surprises lurking in the fine print of consumers’ mortgage agreements and credit card contracts.
Warren is also an unusual figure in Washington because, as one colleague put it, “she doesn’t want anything.” As an outsider who prefers to remain in academia, she has no ambition to win appointments or elections or join the permanent power structure. So, she is uniquely positioned to stand up to Wall Street and to critique the Obama Administration, Congress, and the Treasury.
Recently, the President and Democrats in Congress have taken up Warren’s big idea: a Consumer Financial Protection Agency.
On the morning we speak, a front-page article in The New York Times detailed a new bank scheme: pay-in-advance debit cards. Banks offer these cards specifically to low-income people and those who don’t have bank accounts as an easy way to access money without carrying around wads of cash. The only catch is that the banks charge huge fees and penalties, eating up much of the cash consumers put on the cards.
Does this sort of thing make Warren angry, I ask, or is she used to it by now?
“I will never get used to it,” she says. “Every single day that goes by I read another news report about why we need a consumer agency with real teeth. There is not a single day that goes by that I don’t read at least one story somewhere—in The New York Times, in The Boston Globe, in The Wall Street Journal, online—about how large financial institutions have figured out ways to lie to people, to squeeze them for money, to make profits by tricking and trapping people rather than by offering a better product. So yeah, that’s exactly how I feel.”
Q: Where are we with the bailout? Has it done anything to help the economy and save jobs?
Elizabeth Warren: Let’s look at where we are. A year ago, we were talking about how there was too much concentration in the financial services industry. Remember too big to fail? Now the big banks are bigger. Instead of having implicit government guarantees, they have, in effect, explicit government guarantees. And the number of smaller financial institutions has shrunk. So there is more concentration.
A year ago, we were talking about toxic assets on the books of the banks. They still have toxic assets on books. We are talking about pulling some of those toxic assets off their balance sheets with a program that, at best, is going to be modest.
In February, we talked about the stress tests. All of the banks passed their stress tests. The Congressional Oversight Panel had real concerns about those stress tests—whether they were stressful enough. If you remember, the stress tests had a worst-case set of metrics. One of them had to do with jobs data. The worst-case scenario was 8.9 percent unemployment—far below our current level. So, we’ve been calling to repeat those stress tests.
We’ve pumped a lot of money into the top of the financial structure. The stock market has recovered. There has been some recovery, especially in financial services, but that hasn’t had the trickle-down effect that Henry Paulson said it would.
We have used our taxpayer dollars not only to subsidize these banks but also to subsidize the creditors of those banks and the equity holders in those banks. We could have talked about forcing those investors to take some serious hits on their risky dealings. The idea that taxpayer dollars go in first rather than last—after the equity has been used up—is shocking.
We have also disproportionately put money into the behemoths. We didn’t put enough into the smaller institutions. It is primarily the regional and community banks that provide small-business lending. And it’s small businesses that are the engine of job creation. But a lot of smaller institutions have cut way back on their lending or have shut down.
So, one might argue that we are not putting our money into the place that would be most effective for job creation.
Q: Do you worry that complacency is setting in about the crisis? Fed chair Ben Bernanke says the recession is over, and as you say, the stock market is up. What do you think the prospects are for real reform?
Warren: There may be complacency among the elite, but I don’t think middle class Americans are very complacent right now. One in seven Americans is either unemployed or has given up looking for work. Every month, 250,000 new families face foreclosure. Bankruptcy filings, despite the banks’ efforts to lock the doors to the courthouse, will reach a million and a half this year. My view is that middle class America is acutely aware of how bad this economy is, and it is going to demand changes. I don’t think politicians can afford to be complacent.
Q: I just saw the new Michael Moore movie, in which you make a cameo. One of the lasting impressions from that film is the footage of Wall Street chieftains in the White House appearing to write the legislation regulating their old industry. You get this sick feeling that they have completely taken control of the government. Do you think that’s a fair depiction?
Warren: When he couldn’t get through mortgage foreclosure legislation last spring, Senator Dick Durbin loudly declared that the bankers owned Congress. I’m not sure if it’s time to say that yet. But it is clear to me that the question about who will run our government is up for grabs.
The banks lobbied Washington so they could write the rules that got us into this crisis. They then lobbied Washington to get the money to bail them out. And now they are lobbying Washington to write the rules so they can get us into the next crisis. It’s perfect circularity. I look at it more as a question than an answer: Who owns this process?
I hope the answer is the American people. But that’s what we are going to find out over the next few months.
Many people point out to me that the banks have a lot of power. They have always had a lot of power, and Congress never has stopped the banks in any significant way. So the betting money is on the banks to get what they want. But that is what people said a decade ago about the tobacco companies—that no laws could be written that would limit their ability to sell their products, or that would limit the use of their products in public places. But we’ve seen the shift. In fact, the shift has been so great that many members of Congress won’t even take money from tobacco lobbyists. I don’t know if that’s where we’ll go with the banks. But I’m not prepared to give up yet.
Q: You have an amazing anecdote in The Two-Income Trap about Hillary Clinton and the bankruptcy bill, which she called “that awful bill” and opposed when her husband was President but voted for in 2001, though it didn’t pass then.
Warren: I give Hillary Clinton a lot of credit. When she was First Lady, I sat down with her in a hotel in Boston. I had all these graphs and charts, and she was crunching through a hamburger, listening, and asking a lot of questions, and she really got it. At first, she was resistant. After all, the White House was quietly supporting the banks’ bankruptcy bill. But boy, by about the third or fourth slide she was starting to say, “Oh,” and she could jump ahead. She got it.
Someone later told me there were skid marks on the floor in the White House from people reversing position on that bankruptcy bill when Hillary Clinton got back from Boston.
Q: And then those skid marks turned the other way again when she went to the Senate and soon thereafter voted for a similar bill.
Warren: That was the interesting thing. She stayed in the same place so long as she was in the White House. I believe that Mrs. Clinton was responsible for President Clinton’s veto of that bankruptcy bill. Ultimately, Congress passed the bill again in 2005 and George Bush signed it into law. But in that five-year period in between, eight million families went through the bankruptcy system, while the law was still intact. So the veto was important, and I believe she was the cause. And that’s what’s so disheartening. She changed her vote in the Senate. If Hillary Clinton, one of the strongest, most independent politicians of her generation, felt that she needed to conform her voting to the desires of the banking industry once she held elective office, what hope is there for the rest of the politicians?
Q: Do you have any similar stories about Obama or Geithner or Robert Rubin?
Warren: No. I have never spoken with Robert Rubin, and I have never spoken with Geithner about consumer issues. But I will say this: The President gets it. He has now done something no other President has done, taking on the banks to back the Consumer Financial Protection Agency.
Ten years ago, I was fighting tooth and nail, trying to hang onto bankruptcy protection for a million and a half families that were clinging to the middle class. Now President Obama has embraced a consumer agency that will affect the economic lives of 100 million people. We are not now talking about just bankruptcy, or about what to do when the impact of lousy mortgages and terrible credit cards and predatory banking practices drives families into economic chaos. We are talking about preventing the problems up front.
Q: You have written how women, and mothers in particular, are the most vulnerable to financial collapse and how they might be a force for change.
Warren: Women tend to vote the economic interests of their families and to speak out on family economic issues. For men, there’s often much more focus on the idea of personal failure: “If I’m not winning this great economic game, it must be my fault.”
Women are more likely to look around and say, “No, the whole system is broken.” I don’t want to overstate the gender difference. But women are more sensitized to the way that larger issues affect their pocketbooks, like pay equality or cost of living changes.
There’s a lot of research on the shift in who deals with money when families get in trouble. In good times, husbands handle the family’s finances about 80 percent of the time. But when times turn sour and families start dealing with creditors and managing unpayable bills, women take more active roles.
Q: So women are less likely to believe in what you call the “myth of the immoral debtor”?
Warren I think that’s right. And that makes women a critical force for changing the rules. If power is going to be shifted back to families and away from these multibillion-dollar institutions, women are the ones who are going to lead the charge.
Q: Well, certainly you have.
Warren: I started as a researcher; I didn’t start out to be a crusader. It’s funny. I didn’t start out to take any public role. But in 1995, Mike Synar, the former Congressman from Oklahoma, called me and said that a new bankruptcy commission was being formed. “You’re an academic,” he told me, “I want you to help me with some good ideas.” I said, “No, I’m not getting involved in politics.” I didn’t want anything to do with it. I wanted to stay in my office and focus on my academic research. I wanted to keep studying what happens to middle class families and let politicians use that research however they wanted. I thought that the research would speak for itself.
Mike promised that if I worked with the commission he would insulate me from any of the political parts to it. So I agreed on those terms to come work with him. He promptly developed brain cancer and died. Brady Williamson of Madison, Wisconsin, became the new chair of the commission. When he asked me to stay, I said no. And he basically said, “Look around. Who is going to fight on behalf of these families? Without you, the banks have this locked up.” So he persuaded me to stay. And I never looked back. I waded in, and I got involved in the commission, helped draft the commission’s report, then testified before Congress.
In a way, I feel like this is what women everywhere do—they do what needs to be done. I just happen to have the particular set of tools to do it in this public forum. But that’s what happens to a lot of people. They say, “I’ve had it. I’m standing up on this on behalf of myself and of other families who have been cheated in thousands of ways.” It has to stop. We cannot have a country whose principal business model for certain large financial institutions is tricking and trapping their customers. That can’t be right.
If you liked this article by Ruth Conniff, the political editor of The Progressive, check out her story "Back to School During Budget Cuts."
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