Finally somebody who has a clue how to handle this financial crisis.
Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School, where she teaches contract law, bankruptcy, and commercial law. In the wake of the 2008-9 financial crisis, she has also become the chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout, formally known as the Troubled Assets Relief Program. In May 2009, Warren was named one of Time Magazine’s 100 Most Influential People in the World.
For years Elizabeth Warren has been an outspoken critic of predatory lending and the manner in which credit card issuers have gone to great lengths to increase their profits such as use of Universal Default clauses and other tricks to slip changes to material terms of the credit contract to customers. She appeared in the documentary Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (2006) and was interviewed numerous times for the PBS documentary The Secret History of the Credit Card (2007). I screened the Secret History of the Credit Card in 2007 while teaching a class in Personal Financial Management and Introduction to Investing at Whitworth University and was amazed at how captivated the class of students were by what they learned. When I asked later the consensus was that they literally couldn’t believe that the industry had been permitted to victimize the public in that manner.
On November 14, 2008 Ms. Warren was appointed by United States Senate Majority Leader Harry Reid to chair the five-member Congressional Oversight Panel created to oversee the implementation of the Emergency Economic Stabilization Act. The reports of the Panel are available at http://cop.senate.gov. I would consider this one of the best choices possible for the position.
Take a moment and listen to the poised and informed way in which she talks about how Usury was disposed of in the US in an interview by Bill Maher on Real Time in May. In April she was on Jon Stewart’s The Daily Show.
Elizabeth Warren – The Daily Show Part 1 | Elizabeth Warren – The Daily Show Part 2
In my opinion for the first time since the concept of Usury in the US vanished in the 70’s, we consumers have somebody in a position of power in the regulatory structure of financial institutions. Somebody who is not afraid to say “The Emperor has no clothes!”
In 1792 we were a young country, George Washington is in his first term and we have a credit freeze, financial panic, every 10 –15 years there is a financial panic in our history … and there is a big collapse, big trouble, people lose their farms wiped out until we hit the Great Depression. We come out of the Great Depression and we say “we can do better than this, we don’t have to go back to this sort of boom and bust cycle. We come out of the Great Depression with three regulations; FDIC insurance – it’s safe to put your money into banks, Glass Stiegel, banks won’t do crazy things and some SEC regulations and we then go 50 years without any financial panic or crisis.
Then we say “regulation, it’s a pain, it’s expensive, we don’t need it.” so we tart[ed] pulling the threads out of the regulatory fabric and what’s the first thing we get: we get S+L crisis,” Warren said. “Seven hundred financial institutions fail. Ten years later what do we get? Long Term Capital Management, where we learn that when something collapses in one place in the world it collapses everywhere else. Early 2000s, we get Enron, which tells us the books are dirty. And what is our repeated response? We just keep pulling the threads out of the regulatory fabric.
So we have two choices — we are going to make a big decision, probably over about the next six months. And the big decision we are going to make is going to go one way or another. We are going decide, basically, “Hey, we don’t need regulation. You know, it is fine. Boom and bust, boom and bust, boom and bust, and good luck with your 401k.” Or alternatively we are going to say, you know, “We are going to out with some smart regulation that is going to adapt to the fact that we have new products and what we are going to have going forward is we are going to have some stability and real prosperity for ordinary folks.”
Does this sound like a person we need to have bang on the doors of the financial institutions and demand a common sense solution that attends to the needs of the every day consumer not just the ultra wealthy or financial institutions? It does to me. The particular talent Elizabeth Warren has which makes her particularly useful in this battle for the survival of the US middle class is her ability to convert complex financial theory and history into terms anyone can understand.
Which brings us to today. when president Obama announced his new financial regulatory scheme which includes plans to create a new agency to safeguard borrowers in our financial markets. A financial product safety commission in the same model as the very effective consumer product safety commission we already have. The idea is introduced by Sen. Dick Durbin and based upon the ideas of Elizabeth Warren. President Obama’snew financial regulatory system will:
• • Promote “concise and clear information for consumers” and protect “consumers from unfair and deceptive practices.”
• • Mandate more disclosure and provide information about costs, penalties and risks so consumers have a “clear disclosure regarding the consequences of their financial decisions.”
• • Make it harder for people to sign agreements for expensive mortgages, credit deals, etc. when cheaper “plain vanilla” products would meet their needs.
• • Revamp the mortgage industry so the subprime mess does not happen again — where borrowers were channeled to risky or more expensive mortgages when they qualified for cheaper, less risky products.
Mortgage brokers would be required “to determine the mortgages they sell are affordable to borrowers.”
• • Force lenders to hold on to at least 5 percent of their loans — rather than sell the entire debt to an investor — to have an incentive not to make risky loans.
It’s about time for some common sense regulation, the past 20 years or so of progressive republican de-regulation has brought us to this point, the only salvation will come from common sence, consumer based regulation and enforcement such as this.
I’ll close with a little Elizabeth Warren advice you can try at home.
While she monitors the massive bank bailout, Elizabeth Warren has several tips for the family budget. “It’s not the government’s role to save someone who is in debt because they went to the mall and charged thousands on their credit card,” she says. “When many people budget, they start by thinking how to reduce their lattes or cable TV service. What’s more critical is to focus on the big expenses you need to pay each month, with about 50 percent of your income going toward that.” Another 30 percent should go toward “flexible” costs including eating out, clothing, vacations and hobbies. Save the remaining 20 percent. That means consider housing needs above wants. Reshop your insurance to cut costs. Rein in credit card purchases. Finally, avoid taking out a second mortgage or other loans. “That takes debt that you may have been able to handle into something that can cost you your home.”
This is an easy one to try at home. Since she doesn’t mention taxes, take your monthly take-home pay (add back in health insurance and retirement savings), then see how close your expenditures hew to the 50-30-20 rule she outlines.
