Blog on the Run: Reloaded

Monday, August 23, 2010 4:07 pm

Will Obama nominate Elizabeth Warren … or not?

Joseph Nocera of the NYT outlines the case for her:

How did a once-obscure Harvard Law professor become such a powerful touchstone?

Partly, it is because she really did come up with the idea [for the recently-created Consumer Financial Protection Bureau — Lex]. Ms. Warren’s views about banks and borrowers were largely formed early in her career when she and two colleagues, Teresa A. Sullivan, now the president of the University of Virginia, and Jay Lawrence Westbrook, a law professor at the University of Texas, conducted two seminal studies about people who file for bankruptcy.

In the late 1980s, when the first study was unveiled in a book the three of them wrote, “As We Forgive Our Debtors,” the root causes of bankruptcy weren’t well understood. The bank lobby routinely complained that Americans with the means to pay their debts were taking “the easy way out” by filing for bankruptcy. The empirical work done by the Warren-Sullivan-Westbrook team proved those claims false.

People who filed for bankruptcy were genuinely in over their heads, the researchers found. They had accumulated debt they couldn’t repay because they had lost their jobs or had some other life event that robbed them of their ability to earn a decent paycheck. They were often middle class, homeowners even. They filed for bankruptcy because they were desperate. Looking through thousands of bankruptcy filings, Mr. Westbrook said a few days ago, “you got a sense of human beings in real trouble.” He added, “All of us were very much affected by what we found in those files.”

In the [2007] article where she proposed the new agency — she called it the financial product safety commission — she began with an analogy to toasters. (Ms. Warren has a thing for toaster analogies.) “It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” she wrote. “But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street.” Her timing could not have been better, she wrote the article at the exact moment the subprime bubble was reaching its peak.

What struck me, when I reread that article recently, was the bluntness of her language. She used words like “tricks,” “fleece,” and “bribe” to describe the actions of mortgage and credit card lenders. And I think a lot of her appeal stems from that simple fact: she describes abuses — predatory lending, hidden fees, bewildering “disclosures” that hide more than they disclose — in precisely the way most Americans have experienced them. She conveys a powerful sense that she understands what we’ve been through this last decade.

Her critics have complained that in her quest to avenge the downtrodden consumer, she could endanger the safety and soundness of banks, by writing rules that would strip them of billions in profits. Her essential position is that if taking advantage of borrowers is necessary to save the banks, then there is something deeply wrong with the banking system in America. The American Bankers Association may not agree with that, but that is unquestionably what most Americans believe. And they are right.

I argued for years before I left newspapers that one reason newspapers have lost readership is that so many of them have done away with consumer-affairs reporting. (TV has been far slower to ditch it for a variety of reasons, some more flattering than others.) When you’re a consumer and you’re going up against a business, particularly a big business, with a legitimate complaint, you need help. And if the newspaper helps you get a refund you were owed, or a replacement for a faulty product, or if it even digs up enough information to result in a crook getting arrested because of what he did to you, you are going to stay loyal to that newspaper through an awful lot.

During my time at the N&R, I worked with two particularly good consumer-affairs reporters, Nancy Feigenbaum and, later, Nancy McLaughlin (who is still at the N&R as religion writer). Both of them frequently took their work beyond mundane refund requests all the way to front-page stories; both broke stories that eventually led to people going to jail. Nancy McLaughlin also worked with me on a three-month investigative project involving some places that were scamming consumers by selling state motor-vehicle inspection stickers while not performing some or all of the state-required inspections.

Stories like that build a bond between newspaper and reader. I can’t prove it, but I would argue that agencies like that can build a bond between government and the people who pay taxes to support it. And if there’s any transaction in which government has a role to play in alleviating the information asymmetry between business and consumer, it’s home mortgages, which represent the most significant purchase most consumers will ever make.

I posited in 2004, on the occasion of my 20th anniversary in the news biz, that the struggle between large corporations and the rest of us would be one of the two defining issues of the 21st century (the other being medievalist religion vs. liberal democratic values). This nomination is political in the sense that all presidential appointments are, but more than any other appointment President Obama has made, this appointment will show us whose side he is on. Democrats have made it quite clear they have 60 votes to break the inevitable Republican filibuster, so it’s really up to the president. He can choose to side with the banksters, or he can choose to side with the rest of us.

And, believe me, the rest of us will be watching.

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