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Elizabeth Warren, from the inside out

Book Review: Memoir/manifesto puts CFPB’s inventor in perspective

A Fighting Chance. By Elizabeth Warren. Metropolitan Books. 384 pp. A Fighting Chance. By Elizabeth Warren. Metropolitan Books. 384 pp.

“Today, the game is rigged—rigged to work for those who have money and power. Big corporations hire armies of lobbyists to get billion-dollar loopholes into the tax system and persuade their friends in Congress to support laws that keep the playing field titled in their favor. Meanwhile, hardworking families are told that they’ll just have to live with smaller dreams for their children. . . . It doesn’t have to be this way.” 

This is how Elizabeth Warren’s A Fighting Chance begins right on p. 3. It’s also how the text ends, on p. 271, but with a riposte of her own:

“Some say the rich and powerful now control Washington and always will. I say this battle isn’t over yet. True, the playing field isn’t level and the system is rigged. But we’re putting up a heck of a fight and we intend to keep on fighting.”

CFPB creator’s deep consumerist roots

Elizabeth Warren achieved national attention during the process of overhauling the bankruptcy law by the U. S. Congress from the late 1990s through the early 2000s. Her experience as a Harvard Law professor specializing in the arcana of bankruptcy gave her access to this process. She soon became a vigorous advocate for the interests of those individuals forced into bankruptcy due to issues of illness, unemployment, or divorce.

She concluded that big credit card issuers and consumer lenders had enticed consumers into assuming large amounts of debt. This was done by a variety of means, she charged, including unsolicited granting of credit; diminished credit eligibility requirements; and obscure to outright misleading disclosures of fees and penalties.

The latter, she believed, were designed to assure that the lenders profited from either consumer success in handling their credit properly or from their distress if they were unable to meet the contractual terms of their debt. Evidence, to Warren, of how things are rigged.

During this process she made political allies with powerful legislators including Senators Ted Kennedy and Dick Durbin. She speaks regretfully of her inability to hold back many of the “reforms” that President George W. Bush ultimately signed into law. But she writes with considerable satisfaction that she and her likeminded advocates restrained or eliminated many of the proposals that the banking industry had attempted to include in the legislation.

Her expanding public profile as a consumer advocate brought her to the attention of  Harry Reid, Senate majority leader. In November 2008 Reid appointed her as one of three Democratic representatives on the newly created five-member TARP (Troubled Asset Repurchase Program) Oversight Commission.

Her efforts as chairman of that group are one of the most interesting aspects of the book. This section also reinforces the convictions of many Americans that the political system is in drastic need of repair and reform. During that commission’s short life, Warren insisted on a bi-partisan approach and was largely successful in this effort.

Warren in Dodd-Frank’s deliberations

By 2009, Warren was enmeshed in the political controversy generated by her idea that the Dodd-Frank Act should provide for an ombudsman to represent banking consumers in disputes with large financial institutions.

The issues were negotiated against the backdrop of both alleged and proven lapses in lender behaviors relating to mortgage foreclosures. Simultaneously, the alleged misdeeds of lenders in disclosures of rates and fees in consumer lending contracts —and a general revulsion of the public at the level of fees and charges levied by the banking industry—ensured that all of these issues would be dragged through political debate and controversy.

Warren’s idea was that an ombudsman process would provide a transparent way of assuring that the institutional lenders were dealing openly and fairly with their customers. That way, she reasoned, any shady or questionable practices could be rooted out, with a resulting increase in the confidence of the banking public with the integrity of the business practices of the lenders.

Warren’s cumulative experiences in bankruptcy reform a few years earlier hardened her longstanding opinion that “Wall Street institutions” were capable of exerting an unhealthy influence on legislative outcomes impacting consumers of banking services.

While she makes a plausible case for these conclusions, bankers are also convinced that the provisions of Dodd-Frank, taken as a whole, are much more punitive than corrective. They point out that Dodd-Frank was signed into law within two weeks of the first meeting of President Obama’s commission investigating the causes of the financial crisis.

“So much for an independent and thoughtful approach to reform,” was the inevitable conclusion of most commercial bankers.

From CFPB’s inventor to its godmother

The scorching criticisms of the banking industry levied by Warren and her reform-minded allies made her the leading candidate as the first director of the ombudsman agency, the Consumer Financial Protection Bureau.

However, the intense political controversy she drew, like a lightning rod, rendered it politically impossible for her to achieve Senate confirmation. Absent that notoriety,  though, President Obama seemed otherwise prepared to nominate her for the position.

The political storms, directly and indirectly, around CFPB have ultimately led to the politicization of the bureau and its mission. Many if not most bankers see the agency as a center of anti-business activity and regulation going far beyond the legitimate needs or benefits of consumer protection and transparency.

What seems unfortunate is the likelihood that this will ultimately create a political backlash by the industry and its allies toward banking supervision. This will be to the detriment of an evenhanded oversight of legitimate public policy issues and the safety and soundness of the banking system.

We seem to have forgotten that President George H. W. Bush’s nominee as Comptroller of the Currency, Robert Clarke, failed to achieve Senate confirmation in the late 1980s due to political lobbying of their congressional delegations by the banking industry due to the perception of the excessively heavy hand of bank supervisory activity. As a Reagan appointee to the same post, Clarke had picked up the handle, “The Regulator from Hell,” especially for OCC’s supervision during the crisis in the oil patch.

I was at that time the manager of a large regional bank’s problem asset workout effort and had a first-hand look at this issue, now largely forgotten, and believed that the activity of the examiners was both justified and reasonable.

Elizabeth Warren, the person

To the degree they know her beyond being the symbol of an agency that many dislike, bankers typically think of Warren more or less as a specialized policy wonk. Yet Warren came to government relatively late in her career.

Born into relatively poor circumstances in rural Oklahoma, as she recounts in the book, Warren grew to professional maturity through a determined effort to achieve an education and carve out a career as a law school faculty member.

Warren’s first marriage failed and left her with two small children to care for. But with the help of her extended family, she was able to support herself and care for her children and continue her teaching career, moving through a series of opportunities that brought her increasing professional satisfaction and experience.

She met her current husband of 30 years while teaching in Houston and they began their lives together in parallel teaching careers. Though finding two teaching jobs in a single city (let alone at the same university) was a daunting challenge, they both ultimately ended up as faculty members at Harvard Law School.

Hers is an interesting story—some would say an amazing one—and she tells it well.

We learn about her husband, children, her grandchildren, and her big dog Otis as well as her appreciation for fried clams and beer. If I lived in Cambridge and she were my next-door neighbor, I think I’d really like her.

Her rise to prominence through a series of important assignments and opportunities are a testament to both her intelligence and her ability to, in the words of former Secretary of the Treasury Timothy Geithner, “explain things.”

She is not a particularly understated person in presenting her personal views. Perhaps this tendency arise from growing accustomed to the bully pulpit of the tenured professor post in her Harvard Law School classroom.

Elizabeth Warren the politico

In 2012, Warren challenged Massachusetts Senator Scott Brown, the Tea Party favorite, for the Senate seat that had been held by Ted Kennedy until his death.

She won that election with an impressive 54% (to 46%) of the popular vote and a voter turnout of 73%. She also financially outraised and outspent Senator Brown by 20% in what was that year the most expensive Senate race in the country. Her campaign cost $42 million to wage and win—hardly what one would consider “populist” sort of spending and fundraising.

In recent months she has been increasingly mentioned as a presidential candidate in 2016. What makes this particularly interesting in the current election season is the fact that her liberal, progressive inclinations seem born of genuine conviction rather than the product of focus group activity or opinion polls. Should her candidacy achieve considerable backing nationally, she would be a formidable candidate, especially one who has the clear facility of “explaining things.”

I was interested in learning her views about Secretary Geithner, with whom she was in frequent work contact and with whom she occasionally clashed. I was frankly surprised at her relatively muted comments, especially in view of the contemporaneous news reports in her capacity as acting head of the Consumer Financial Protection Bureau.

For his part, Secretary Geithner was somewhat subdued in his comments of Warren in his recent book Stress Test. But his frustrations with her were also evident in his version of the events surrounding Warren’s chairing of the public oversight hearings on TARP. After observing that the hearings were better for generating YouTube “moments,” he said, “[She] worried about the right things but was better at impugning our choices.”

[Read Ed O’Leary’s reviews of Geithner’s book, Stress Test: Reflections on Financial Crises, and his review of former FDIC Chair Sheila Bair’s Bull By The Horns.]

Warren on lack of personal accountability

Senator Warren is a strong and consistent advocate of accountability and transparency in government and the regulation of banks. Many will agree with her view that too few individuals at “Wall Street firms” faced prosecution and legal sanctions for their behaviors in contributing to the financial crisis.

Unfortunately, for the objectives of accountability and deterrence of malfeasance, the statutes of limitations have largely tolled on the events of the last decade.

Yet the very success of the federal government and its several agencies in assessing and collecting huge financial sanctions against the very largest banks and institutions contributes to the idea that many individual perpetrators of financial misdeeds have gone unpunished.

Speaking of accountability…

There were several instances in my reading where I found Warren cavalier with facts, at least as I understand or remember them.

One was her description of the savings and loan crisis of the late 1980s, which she blithely ascribed to the illegal acts of managements of many thrift institutions. Having lived through those days as a banker, I am of the opinion that the deregulation of interest rates was the principal cause of the S&L crisis.

She also took a gratuitous swipe at JP Morgan CEO Jamie Dimon, describing his actions during the period of the London Whale problem as “reckless.”  My impression is that Dimon was blindsided by the revelations of risk-taking within the bank, and that he did not participate in nor encourage them.

Warren’s characterizations of the purposes of the TARP program were considerably one-sided and shaded to fit the portfolio of opinions proffered by a populist politician.

TARP was not envisioned to be bailout money for banks. Initially it was seen as a way of stabilizing the banking system and funding the purchase of problematic and difficult to value mortgage assets out of the banks.

Treasury officials quickly recognized that a much more efficient way of utilizing the funding was to inject temporary capital into individual banks through the purchase of preferred equity. TARP was never meant to be available to banks that were considered too impaired to survive, though Warren inferred that over 300 banks collapsed in the two years following the depth of the financial crisis for want of TARP funding.

These convenient lapses of accuracy certainly make Warren’s version of reality simpler in the telling. However she demeans the seriousness of the body of her work taken as a whole by taking such liberties and diversions, as trivial as they may seem to some.

But it may in fact give us an insight into what to expect of her as a liberal, pragmatic, populist member of the Senate Banking Committee, and potential presidential candidate. I suspect that many of us bankers do not like what we have already seen—nor what’s likely to come.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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