One of the nation's leading experts on bankruptcy and†author of several best-selling books on personal finance and the struggles of the middle-class, Elizabeth Warren has taken leave from her†professorship at Harvard Law School to serve as chairwoman at†the Congressional Oversight Panel.†Congress created the panel during†the†economic crisis of 2008†to review the†state of financial markets and the regulatory system and to track how the money for†the bank bailouts was spent. Warren has been the leading advocate of the creation of the†Consumer Financial Protection Agency, one of the cornerstones of†the financial regulations bill†awaiting final Senate approval, which could come this week. The agency seeks to†protect consumers against†abusive, convoluted,†and opaque practices †of lenders.
Although Professor Warren declined to comment on whether she would be interested in being the first director of the agency, she has agreed to talk to us about details of the agency and other elements of the financial bill.
Q. When the conference committee met to reconcile the House and Senate versions of the financial regulations bill, pressure from lobbyists for car dealers and banks, among others, threatened to undercut plans to create the Consumer Financial Protection Agency, and you said any further weakening would render the agency a waste of time. Now that the bill is completed, and exemptions were made for some in the industry including car dealers on car loans, what's your verdict? A waste of time? An ironclad protector for borrowers? Something in between?
EW: The new agency has teeth and a lot of independence, with enough rule-writing and enforcement authority to begin to fix a broken consumer credit market. It isnít perfect, and the auto dealer exception is outrageous. But I kept waiting for an incoming missile that would mean the bank lobbyists had made good on their vow to kill the agency -- and that never happened.
Q. There were certain principles many supporters hoped the bill would provide to the agency, including independence from outside interference, the ability to shield its budget from congressional and corporate interference, and provisions giving it enough muscle to enforce its regulations. On which issues does the resulting bill hold up well? Where does it fall a little short?
EW: The new law guarantees the agency meaningful autonomy. It has a protected funding stream, an independent director appointed by the President, and strong rule-writing authority. The agency also has the power to enforce rules against the big banks and, for the first time, against the non-bank originators of mortgages and other credit products that have done so much harm. I had hoped that Congress would restore the rights of states to provide greater oversight and accountability with their own rules, especially because they can serve such an important early warning role, but that was a bridge too far.
Q. The overall bill provides a framework for regulations, not a detailed blueprint, and many contend that its strength, the connective tissue for the law, will only be determined when regulators actually write the specific rules. When this process begins, to which areas will you be paying particular attention concerning the consumer agency, to make sure the safeguards are as strong as intended?
EW: I want to see the agency push the consumer credit market toward easy-to-read credit agreements with no more tricks and traps. Families are tired of fine print. They should be able to make clear-eyed decisions about their credit and to see the real costs and risks upfront. Note that this isnít a partisan issue. According to a recent AARP survey, 96 percent of Americans support clear, transparent credit contracts they can understand.
Q. Give us an example or two of how the consumer agency will tangibly change how we get our mortgages, pay our credit cards or get a loan for our cars?
EW: The agency will set its own agenda, but I would like to see a world with two page mortgage disclosures, two page credit card agreements, and two page overdraft contracts. The consumer agency has the power to cut the legalese and make that a reality. It can put an end to a world where consumers discover whatís on page 16 of the fine print only after it bites them with a big fee or hiked interest rate. Families expect to be held to what they bargain for, but they are tired of getting caught by all the tricks and traps.
Q. What other parts of the legislation most encourage you? What parts most concern you?
EW: I understand why the government may need to act in the middle of a financial crisis to save the system, but I think it is wrong to provide government assistance without making the private parties bear the first costs Ė wiping out equity of the failing company, firing its top managers, and forcing its debt holders to shoulder some losses. Those steps prevent TARP-style bailouts and reduce moral hazard. The new resolution authority will help make sure that the banks steer a little bit further from the cliff in the future. I would like to see stronger provisions elsewhere, but Iím glad to see that virtually every provision moves in the right direction, even if they donít move far enough yet.
Q. In response to the Depression, Congress and President Roosevelt enacted a series of economic changes, not just a single bill. Is "one and done" sufficient to confront the systemic problems that led to the crisis of 2008? If not, what should be next for legislation or innovation to further safeguard our markets?
EW: The current package represents the strongest set of Wall Street reforms in three generations. It will go a long way toward preventing the kinds of abusive practices that brought our economy to its knees. But there is much more that we can do to modernize our regulatory system, increase transparency, and level the playing fields. Many of the rules put in place in this bill will need to be tightened. In addition, Fannie and Freddie pose huge problems that we canít avoid much longer. The accounting shenanigans that gave us off-book liabilities and inflated valuations are an affront to good market functioning. Executive compensation structures continue to encourage excessive risk taking. Corporate governance structures are still loaded to favor powerful management cabals. I could go on, but the point should be clear: there is more work to be done. And to increase the degree of difficulty, Wall Streetís army of lobbyists will fiercely resist the implementation of the new law and any efforts to move new legislation. It will be hard, but this is a fight we must be willing to have.
- GLOBE STAFF
About Political Intelligence
Glen Johnson is Politics Editor at boston.com and lead blogger for "Political Intelligence." He moved to Massachusetts in the fourth grade, and has covered local, state, and national politics for over 25 years. E-mail him at email@example.com. Follow him on Twitter @globeglen.