Editor’s Note: Thanks to Allan again. If there is one person in a relatively high position who has understood the subprime crisis, acquired the information on securitization, named the villains and described their practices separating honest people from their money it is Elizabeth Warren, whose was barely heard over the din of back-slapping during the roaring mortgage meltdown. She understood the basics and the the long-term consequences but she was largely ignored because her message did not put a “happy face” on the ending.
As Chairman of the Congressional Oversight Committee for the TARP funds, she has steadfastly sought answers to questions that need to be answered before we can even think or consider ourselves past this crisis. She can’t get those answers. She needs your help. Write to your congressman and senators (yes, it DOES work when enough people do it) and tell them to support Elizabeth Warren’s efforts to give answers to the most basic of questions: where did the TARP money go? Did TARP cover losses on “troubled assets” or bets that the troubled assets would tank? Where is the rest of the money from the mortgage meltdown period? Were the losses proclaimed by the Bush Treasury Ex-Goldman CEO real (or was this another “weapon of mass destruction”)? Ms. warren wants answers so she can give Congress and the American people information they need, even if they don’t want to hear it.
All evidence points to some obvious conclusions. The TARP money was the cherry on top of a giant cake that Wall Street baked and ate. There were no losses because they had not advanced the money for the mortgage loans. And they rigged the system so that the hedge bets they made through credit default swaps went into their own pockets, instead of the investors who put up the money (i.e., the ones who parted with real cash). Their premise was simple —- why take the risk of trying to make good loans perform well when you can make a whole lot more money making bad loans, making sure they go into default and placing bets that the loans will fail? The proof of the pudding is in the results. Goldman now takes the position that they could have survived the credit squeeze without the TARP money because now it suits them to say it. One year ago they were screaming “fire!”
Now they are also taking advantage of a rigged system wherein the proceeds of foreclosure sales also go to the intermediary players and not to investors and they won’t let the homeowner bid on his own property when they have rigged the sale to go to a friend at a triple distressed discount, at a price set moments before the bidding commences.
2 years ago I said that the Wall Street Banks were going to declare fictitious losses to cover ill-gotten gains leaving the investors and homeowners as the stooges in their virtual money game of synthetic derivatives and related instruments. The stock market would crash for many reasons, the housing market would dissolve into quicksand, and in the end, the Wall Street Banks would start declaring a portion of the trillions of dollars they made —seemingly out of nowhere. Despite the decrease in the movement of money from which Wall Street earns its “fees”, they would declare higher profits.
Each year they will declare a little more and bring it back on shore unless there is more money in keeping it off shore. Each year their stock will appear to rise in value because of profits they made years before but hid from everyone with “off-balance sheet” (read that as unreported, because they were allowed to do it) transactions that will gradually be reunited with the main company when and if it suits them to do so. When they want their stock to go up, they will release good earnings news — made possible by absurd changes in the rules of generally accepted accounting principles.
Most of the business world and therefore the people in government who are run by the business world don’t want to think about these things and refuse to speak about them out loud (Marcy Kaptur D-Ohio, a notable exception). The facts point to a single conclusion that leaves a crater in our American idealism: an act of domestic and international terrorism was spawned and directed from Wall Street killing the futures, the lives and the hopes of millions of people. These were people on pensions, where their pension fund manager invested in these crazy exotic toxic securities. And they were people with homes that were paid for, or new home buyers who invested their life savings and their home into a scheme they knew nothing about. The losers are the investors and the homeowners. Restore them and you restore confidence. Restore them and the ability of the economy to recover is enhanced.
The correction is simple: take it back from Wall Street and give back the losses to those who were defrauded. As long as millions of people are living in homes they will never be able to pay for (because of inflated appraisals that were false on the day of closing) we can never recover. So one of two things needs to happen: either the principal and payments are reduced, or the people simply walk from their homes and rent the house next door for a fraction of their former payments. Either way, the fair market value of the homes can never be pumped up to the false levels of 2001-2008. The difference is whether the inside club will be allowed to trade in these houses for pennies on the dollar because they have no money in the deal or if the courts (and the media) start demanding the truth, case by case. They will discover that the real creditor, the investor is not making a claim for collection on the obligation, the note or foreclosure of the mortgage. Why? And if the the investor is the real creditor, then who are these people who are pushing through millions of foreclosure sales?
BOSTONIAN OF THE YEAR: Boston Globe
The Watchdog: Elizabeth Warren
It seemed as if the banks and other firms got a $700 billion bonanza and the American taxpayer got the shaft. But along came this straight-shooting Harvard professor to oversee the bailout, someone who pledged to look out for the middle class and brought a sense of sanity to the economic crisis. For this we give her our top honors this year.
By Charles P. Pierce | December 20, 2009 A.D.
There are many ways to become our Bostonian of the Year. You could be one of the nation’s preeminent bankruptcy scholars, and a tenured professor of law at Harvard University, and a talking head for Frontline specials and Michael Moore’s latest documentary, and a leading voice decrying the human cost of the current economic morass, and the chairwoman of the Congressional Oversight Panel monitoring the Troubled Assets Relief Program, the TARP that covers a multitude of financial sins. The panel keeps an eye on how the nation’s banks have spent the taxpayer money shoveled into them in the fall of 2008, as well as the destination of the rest of the $700 billion allocated by the government when the economy seemed on the verge of swallowing itself whole. This can set you at odds with secretaries of the Treasury, various ambitious legislators, and laissez-faire economic fundamentalists. Elizabeth Warren has done all that, and has done as much to earn the title Bostonian of the Year as has anyone who was born and raised in Oklahoma. But she has one even more essentially Bostonian accomplishment on her considerable resume — she once shut up basketball fans in Philadelphia.
One night about two decades ago, she and her husband, Bruce Mann, who also teaches at Harvard Law, were attending a game between the 76ers and Warren’s beloved Houston Rockets. (Warren taught at the University of Houston when Hakeem Olajuwon played for a Cougars team memorably dubbed “Phi Slama Jama” for its dunking prowess.) “So Elizabeth is up, cheering, yelling at the ref,” Mann recalls. “And the crowd around is getting kind of, well, restive. They’re saying, ‘Hey, lady, you’re not from around here, are you?’ ” Finally, one of the burlier gentlemen in Warren’s section inquired why she was so passionate about the Rockets. Warren explained her background in Houston. He then determined to quiz her on her bona fides.
Who was the coach of that team, he asked her.
Guy V. Lewis, she answered.
What was his trademark, he asked her.
He carried around a checkered towel, she answered.
(Warren was being kind here. Lewis’s most conspicuous trademark was his staggering incompetence in big games.)
Satisfied, the man sat down and Warren went back to being loud. Gradually, the crowd began to get audibly impatient with her again. Suddenly, the large gentleman stood up and addressed his colleagues.
“Leave the lady alone,” he told them. “She’s got history.”
You can understand that moment when Warren, 60, talks about the political heat inherent in the position she now holds. The great cause of her life has been defending middle-class Americans against what she calls the “tricks and traps” the nation’s financial institutions devise to separate those citizens from their money. She was talking about the dangers of the subprime mortgage binge long before the bubble finally popped. She is equally scornful of how the credit card companies bury their real brigandage under a blizzard of sub-paragraphs and dependent clauses. And ever since last November, when Senate majority leader Harry Reid persuaded her to take charge of the Congressional Oversight Panel, and even though she is aware that the panel does not have any real enforcement powers, Warren has become a burr under the saddle of official Washington — plain-spoken, invariably polite, intolerant of business-school persiflage (“That’s a word we don’t use enough!” she exclaims), and utterly contemptuous of conventional wisdom. These are not qualities that endear you to the courtier set inside the Beltway. Warren got in the face of then Treasury secretary Henry Paulson and stayed there to the point where Paulson’s staff began sniping at her in the newspapers. She gently — but relentlessly — prodded Paulson’s successor, Timothy Geithner, until Geithner dragged himself before the panel to testify.
“We are an experiment here,” she says. “The secretary of the Treasury raced in and said the economy’s on fire. Congress was in the position of having to react rapidly and without much specificity. At the same time, they didn’t want to write a blank check to Treasury, so they hooked oversight to it. The secretary of the Treasury has enormous discretion, but there will be a group appointed to keep evaluating what Treasury is doing, and that group will be required to put out a report every 30 days. We’re supposed to keep planting flags in the ground. You have to prove what you said. I don’t want happy-face conclusions. I want the truth.”
They also are not qualities guaranteed to make you friends among the Masters of the Universe in the financial services industry or among the legislators whom they may have sublet. Her advocacy of a financial product safety commission, a federal watchdog agency to regulate predatory lending, drew howls from small-government conservatives. “That agency is the game-changer,” she argues. “This is the chance to level the playing field between middle-class families and huge financial institutions by making those products work again, by making them as simple as toasters.”
In short, she has been accused of exceeding her mandate, mostly by people who would rather she not have a mandate at all. She has been called an ideologue — mostly, it should be said, by other ideologues. Warren, simply, could not care less. “They were tired of me before I started,” Warren says with a laugh. “I am not looking for jobs with these guys. My job is not to get out there and kowtow to these guys so they’ll be nice to me. I figure this is the one time I will have a true public-service job. I’m going to do everything I can to execute this job the way it ought to be done. If there’s some politician, Republican or Democrat, who has a problem with that, I just don’t care.
“I have no future in this, and I have lifetime tenure [at the Harvard Law School]. What are you going to do to me?”
Perhaps the most dissonant criticism leveled against Warren is that she simply is another Harvard elitist come down from the mount to lecture the rest of us on the way the country should be run. On the wall of her office, framed, is a Pennsylvania newspaper advertisement from August 23, 1882, announcing that Sheriff Joseph Frankenfield would be auctioning off a farm that day, a property owned by folks on whom the bank had foreclosed a mortgage. Gradually, almost imperceptibly, a gentle twang enters Warren’s voice when she talks about this ad. “If you don’t talk about families,” she says, “then it’s easy to disembody subprime mortgages and asset securitization and unemployment rates without remembering that every one of those numbers is a million families.” This is what the guy meant in the basketball arena some 20 years back. The lady has history.
In Norman, Oklahoma, it was the last house on the last road on the far edge of town. Behind it were wheat fields that extended to Texas, or to the Pacific, or to Oz, as best as you could tell from standing in the yard. Elizabeth Warren grew up there, a caboose of a child with three much older brothers. “One was huge and the other two were mean,” she recalls. “I was 30 before I realized, you know, that I probably was an accident. These things just suddenly hit you one day.” Eventually, her father wound up as a maintenance man in an apartment building and her mother did catalog sales for Sears.
Warren was something of a local prodigy, a state champion debater who graduated from high school at 16. One day, having saved up her baby-sitting money, she went to the local convenience store and took out money orders totaling $50 to apply to two colleges — George Washington University and Northwestern — to which she thought she was most likely to get a debate scholarship. She enrolled in the former but left after two years, when, at 19, she married Jim Warren, an engineer with NASA whom she’d been dating since she was 13. He was in Houston, working on the Apollo program, and Elizabeth transferred to the University of Houston to finish her degree. Eventually Jim’s work took them to New Jersey, where he was working on the country’s antiballistic missile program. Spurred by some of the people who had been on the debating team with her, Elizabeth enrolled in law school at Rutgers University. In 1976, she had a JD and new baby and few prospects.
“I graduated law school nine months pregnant and didn’t take a job,” she says. “This was 1976, and I’m thinking that I stepped off the track. So I’m at home, and I thought, ‘I’ll just take the bar exam. What’s the worst that can happen?’ So I took the bar exam and thought, ‘Well, shoot, I’ll just hang out a shingle.’ ” (In this, Warren is being quite literal. The shingle now hangs in her Harvard office, beneath the foreclosure notice from 1882.) She did real estate closings and lawsuits arising from automobile accidents. (Her talent for drawing up a will has yet to be fully tested, because, as far as she knows, nobody for whom she drew up a will has died.) In time, Rutgers asked her to teach a class part time, and Warren found herself a calling. By then, her husband’s job had vanished because the United States had bargained away the ABM system by treaty with the Soviet Union. They moved back to Houston and divorced in 1978. (She met Mann a year later.)
She taught in the law school at the University of Houston and, subsequently, at the universities of Texas and Pennsylvania before landing at Harvard in 1995. But Warren stumbled upon her specialty at her first full-time teaching job in Houston. In 1979, a new code of bankruptcy law went into effect, and Warren shared its details with the students in her first bankruptcy class the next year. Her interest was piqued. “I taught it like a Final Jeopardy question,” she recalls. “If this is the answer, what must have been the problem that people thought this fixed?” She teamed up with another law professor and a sociologist, and the three of them went into the field to study what was happening in the nation’s bankruptcy courts.
“I get this clever idea,” she says. “I’m going to expose these sleazy debtors who are exploiting the bankruptcy system and their poor, hapless creditors and enriching themselves as far as the law allows by going through bankruptcy court. I go out with these other two folks and we start collecting data about the families who are filing for bankruptcy. We end up doing this big study, and it ends up as a book [AS WE FORGIVE OUR DEBTORS]. And it completely turns me around. I knew what I was going to find before I went out there, and I discovered that it doesn’t work that way.”
Warren continued her study of the effect of the macroeconomic financial system on American families. Another book, THE FRAGILE MIDDLE CLASS, examined why most families in bankruptcy would be considered to be middle class by any conventional social indicator, and reported that most of them ended up in dire financial straits due to medical problems, job loss, or the breakup of the family. This led to THE TWO-INCOME TRAP, which she coauthored with her daughter, Amelia. (She also has a son, Alexander.) “It really was about what happened to the middle class over a generation,” she explains. “From the 1970s to the early 2000s, there was a hollowing out of the middle class.”
Over the past two years, in its near-collapse, the financial services industry began to smack not a little of the rigged wheel, and its impact on the lives of American families — particularly as seen through the prism of the subprime mortgage fiasco — appeared to be dire. The issues on which Warren made her career exploded into the national consciousness. She became a sought-after expert, debuting as a pundit — a word that makes her roll her eyes and moan — on the Dr. Phil show. And she minced no words.
“More and more middle-class families realized that what they were experiencing was not unique to themselves, that there were larger social trends,” she says. “And I also think there comes a point where people get tired of hearing the same old stuff from the kind of media machine the financial services industry has been pumping out.
“The thing about the Masters of the Universe syndrome is that it plays on ‘What I’m doing is so obscure that you’ll never get it. You’re too dumb.’ This really became relevant when we hit the financial crisis a year ago.”
Then, one day, while Warren was barbecuing with students, Harry Reid called and asked her to take on the TARP oversight job. “I’ve really been talking about the same set of issues for a long time, but I was under the radar, and that was OK with me,” she says, the twang thickening just a bit, as though her voice had been aged in oak. “I don’t know, but I think part of it was that the world changed. What was a boring and obscure issue suddenly moved front and center.” And, when it did, she was there, with her history and all that, looking faceless forces squarely in the eye, speaking plainly to persiflage, and, in her own amiable way, drowning out the faint, distant voice of Sheriff Frankenfield’s auctioneer.
Charles P. Pierce is a staff writer for The Globe Magazine. E-mail him at cpierce@globe.com.
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