This is wildly inappropriate. Elizabeth Warren knows a lot about bankruptcy--but just because it has the word "bank" in it, doesn't make her an expert in banking. Her specialty isn't even in corporate liquidations; she mostly writes about consumer bankruptcy. The highly specialized world of bank resolution is not one where she has, as far as I can tell, very much expertise.
Moreover, this isn't her job. Her job is to watch where the TARP funds go and monitor their effectiveness, not lecture Congress on how hard to punish wayward bank executives. This Forbes column is scathing:
There are indeed very good lessons to be drawn. There has to be a process to decide which institutions are solvent. One needs an orderly process for dealing with those that are insolvent, particularly if they pose systemic risk. It is unproductive to prop up "zombie" banks. And so on. Most important is to understand why certain policies worked as well or as poorly as they did and what the long-term consequences were. This kind of analysis is largely lacking in the panel's reports.
But the Congressional Oversight Panel Report seems to have come to a more controversial conclusion. The COP argued that historical lessons show that the most effective response to banking crises has involved a combination of ousting "failed management" and liquidating banks. The April report takes on the Treasury's responses in these areas and questions how effectively it has implemented its goals in dealing with the crisis.
The report essentially argues for nationalization on the grounds that, under government reorganization, bad assets can be removed, failed managers can be ousted or replaced and business segments can be spun off from the institutions. "Depositors and some bondholders are protected, and institutions can emerge from government control with the same corporate identity but healthier balance sheets," the report argues, parroting a position that has been staked out by many prominent economic pundits.
Clearly, this is Elizabeth Warren's particular crusade against the banks, since a majority of panel members dissented from the direction the report took and two refused to sign off on it at all. Her letters to Secretary Geithner and Chairman Bernanke stop just short of attacking them for trying to restart the market for asset-backed securities. These markets have been an important part of the financial intermediation system for decades, funding student loans, consumer credit and small businesses. But Professor Warren has had a long-standing antipathy to consumer credit markets.
The sad thing is that the COP now seems completely politicized and fractured at a time when there are important questions to be asked. There is plenty of room for thoughtful analysis of the stress tests. For example, how do accounting rules and the evolving economic contraction affect their validity?
We seem to have lost an oversight panel, and gained another voice shouting slogans at congress.
Thank you for this. On the Daily Show, Prof Warren described her mandate as "transparency, accountability and clarity". The discussions of Sweden and the Great Depression in the latest oversight report have nothing to do with any of those missions. It reads like a white paper from a think tank, prhaps with the assistance of student interns. Professor Warren's academic work shows a consistent antipathy, almost Calvinistic, to capital and profit. She is simply taking advantage of a public platform to spread her long-held views, however irrelevant to her official function. Note also how she puts forward those views only in media where she is unlikely to get any pushback.
She was awful on the Daily Show.
She's a law professor. Since law professors are omnicompetent, just ask one, they'll tell you, and should be in charge of everything, given that they know everything, Ms. Warren's behavior perfectly explainable and if we are concerned with the public good, we should do everything she says.
ousting "failed management" and liquidating banks.
Isn't that the conservative solution? Or is that only for the automakers?
The conservative solution is to let private companies live or die on their own merits.
That's probably why most of the republicans in congress voted against the bailouts (of banks and automakers).
Does there happen to be video of the complete Geithner hearing?
She was recently on the Daily Show, and her performance there tends to support Megan's take. She came across as not really on top of the programs her committee is supervising (which Stweart softballed as "oh this is so confusing that even the experts can't understand it"), but spoke enthusiastically at the end about reform ideas far outside the committee's pervue.
This is the prescription for good banking health.
Has it happened without "government reorganization?" When banks were looking at their losses, say last summer, did they do this on their own?
Right now, most of those banks are like cheating spouses, saying "I'll never do it again, honey," while eyeing the hottie next door. That's why Wall St. was so skeptical of profit statements; it's a cheap promise made get back into our good graces.
Substantial change needs to happen. Bad managers do need to be ousted. Defaulted loans do need to be separated from performing loans. Business segments do need to be spun off until banks are no longer "too big to fail." I don't care how we get there. But we damned well better get there.
The banks were never "too big to fail;" that's a myth dreamed up by bailout fiends.
Exactly - instead of the first bailout we should have had a managed bankruptcy template that could quickly be applied to failing banks to moderate their effect on the economy. That would have restored the capitalist impulse to replace failing managers in the future.
Elizabeth Warren knows a lot about bankruptcy...
Since when? Here's what one blogger had to say about Dr. Warren and bankruptcy:
Brian,
LMAO!
Yancey,
I've enjoyed reading your posts. I'm glad that I could return the favor.
Brian is right. That study argued that, because some people go bankrupt if they have to take time off from work to care for sick relatives or if some relative they get money from dies, or they have a baby, therefore we need universal health insurance (as if people with health insurance don't have babies, and don't have relatives who sick or die). See:
http://rightcoast.typepad.com/rightcoast/2007/07/junk-social-sci.html
In addition, here is an excellent post on the shortcoming in the analysis in the Two Income Trap: http://www.cafehayek.com/hayek/2008/04/frankly-zywicki.html
Mark,
Thanks for doing the heavy lifting.
Generally speaking, what qualifications and experience, particularly the real world bare knuckles complexity-embracing kind, does a law professor have to lead such a multi-dimensional job as TARP czar? Kids, albeit exceptionally bright ones but typically a narrow sense, right out of law school can join the law school faculty.
What about lecturing to callow youths before a chalkboard, propound[itry] from behind a heavy desk, or authoring popular books with catchy titles suggests leadership, competence, and public confidence in final outcomes? Oh wait ... I guess I've dated myself.
Warren is no expert on personal bankruptcy either. Her most famous piece of work, (Available on Harvard's website) which I have read attributes gambling and cocaine usage to medical reasons for bankruptcy. In her model, if you had 2 successive years where you paid more than $500 out of pocket for unreimbursed medical expense, you were counted as a medically-drive BK. Imagine, you could have $30,000 of credit card debt, but if you shell out $550 each of the two proceeding years of your BK filing, you were counted as a casualty of health care run amok.
She is a fraud and charlatan. I was appalled that Congress appointed her to oversee anything. Once Obama & Co have nationalized the banking and mortgage businesses in this country, god only know what kind of political commisars will oversee things.
"Her job is to watch where the TARP funds go and monitor their effectiveness ..."
You're either extremely naive, or you're receiving these talking points from the Obama Administration.
Ms. Warren's job is to provide political cover for whatever the Obama Administration wants to do to our banks. She allows Obama to be quoted by the NY Times saying there is a watchdog in place preventing the criminalization of the enterprise.
In fact, Ms. Warren's attempts to discern where the TARP funds are going and to monitor their effectiveness are being systematically blocked by the criminals running our Treasury Department - chiefly noted felony tax evader Timothy Geithner.
Criminals have taken over your government; and Ms. Warren won't be allowed near the cooked books sweetheart.
If the banks are taken over, it will not be because of Ms Warren and her allies but because of the bank executives own shortcomings. The system is broke. Credit is moving but not enough to restore the economy to its previous capacity. Nor can we expect credit flows to increase. People with good credit who have been burned (upsidedown in their home mortgage for example) are going to use funds to pay down loans instead taking out more loans. Then there's the remaining businesses and consumers who need money but whose credit isn't perfect so they won't get any. They will lay off people, reduce spending or declare bankruptcy adding to our economic woes.
Bank executives seem to have little interest in actually fixing the system, only in finding ways to make quick billions off of this mess, hence the scheme to use taxpayer dollars to buy each others toxic assets instead of working with government to identify and dispose them as cheaply as possible for taxpayers. I think we're owed that consideration given the billions being given out keep the big banks standing. Why are taxpayer billions being allowed to provide a return to other investment bankers who were counterparties in the toxic transactions when the rest of us are starved for credit or are $100,000 upside down in a residence. As a financial friend put it, this government help is good for the big banks, government isn't interesting in making money...meaning that the big bank certainly are but screw everyone else.
These executives are like unruly vampires who can't keep from draining their victims dry instead of leaving the victim alive so they can come back for more later. They have collapsed the financial system and their excessive greed could eventually collapse government and main street(devaluation of the dollar as we keep sending billions into bank oblivion). Then where will they suck their money?
The "Two-Income Trap" was a great book and had some policy conclusions that aren't exactly DNC talking-points (school choice, for one.) Personally, avoiding the "trap" allowed my partner and me to weather a year-plus of unemployment without any drastic consequences.
I didn't see the Daily Show interview, but from listening to her on Fresh Air, she talks like she's addressing second-graders, which is irritating enough, but I think also reveals what she thinks of the average American. We are all children, eating twinkies when we should be having nutritious meals. Or something like that.
TARP is a handy lever and I don't doubt she'll make use of it.
The bailout bill says:
That is a pretty broad mandate. Questioning Treasury about the overall strategy is fits within this oversight framework, especially because very little TARP authority has been put towards buying mortgage-related troubled assets as originally planned, and instead TARP has been primarily used to buy "other financial instruments."
"If the banks are taken over, it will not be because of Ms Warren and her allies but because of the bank executives own shortcomings. The system is broke."
The system is "broke" largely because Obama and Co. vehemently refused to accept any kind of fiscal restraint (and the resultant economic downturn) on their watch.
No, rather than upset and alarm voters . . . er . . . citizens, I mean - at the one main opportunity that "the system" had to take assets sitting at an artificial zero value - a value that made trade impossible - and reprice those assets at a level that would certainly have been painful to all and ruinous to some, but would have at least started up the then-paralyzed bidding process and allowed for an equilibrium that we've yet to see today, they instead cemented those zeros into place and then bought the stores.
Mistake? Well, let's see:
- the United States government now owns near-control over the one industry that had the power to put brakes on idiotic fiscal governance;
- a huge proportion of all of the dollars that will be spent in this country for quite some time will now pass through the hands of, and be spent at the whim of, people who think of government as Big Mama;
- the entitlement class will now expand such that it can easily control any national election or policy decision;
- Big Government can now handle its regulatory challenges by entering the pertinent markets as a participant, changing the rules for its competition and confiscating their assets, and then offering that industry's version of the EPA Dream Car - 60mpg, 40 mph tops, and $130k each, to keep them in the hands of the "right" people, who "need" to get around. As they "serve" us, the public.
I was truly afraid that, if Obama was elected, he could do damage in four years that would take decades to undo. Darned of he didn't manage to exceed all of my fears in his first 100 days. This guy is good.