Elizabeth Warren Calls Out Wall Street

Although the Consumer Financial Protection Agency made it through the House more or less intact, the banking lobby is taking another, better shot at killing it in the Senate, and is planning to use the magic words: “big government” and “bureaucracy.” Elizabeth Warren wrote an op-ed for Tuesday’s Wall Street Journal that lays out the confrontation. For most of the past two decades, many Americans trusted the banking industry–not necessarily to be moral exemplars, but they trusted that the banks were basically doing what was right for customers and for the economy. Then in 2007-2008 that mood abruptly reversed, as it became apparent that unscrupulous mortgage lenders, the Wall Street banks that backed them, and the credit rating agencies had been ripping off mortgage borrowers on the one hand and investors on the other.

The big banks face a choice. They can agree to sensible reforms that protect consumers and rein in the excesses of the past decades. Or they can simply decide to screw customers, but do it openly this time, since they have so much market share it almost doesn’t matter what customers think. How else do you explain, say, Citigroup’s concocting a new credit card “feature” explicitly to get around a new requirement of the Credit CARD Act? Or Jamie Dimon saying that financial crises are something to be expected every five to seven years, so we should just get over it?

A year ago, it might have been possible to twist the banks’ arms hard enough to get them to agree to new ways of doing business (such as a CFPA), because they needed government support so badly. Now it’s too late. So the solution has to come from the other kind of arm-twisting–pressure from the president, the administration (that means you, Tim Geithner), and ordinary voters. If people feel screwed by the financial sector–and many of them should after the past decade–then they should want the CFPA.

But last month, Republican political consultant Frank Luntz wrote a memo laying out how Republicans could kill financial regulatory reform. “Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinary popular,” he wrote. “But these are not ordinary times. The American people are not just saying ‘no.’ They are saying ‘hell no’ to more government agencies, more bureaucrats, and more legislation crafted by special interests.” The goal is simple: to make Americans think that the CFPA is their enemy, because it’s part of the government, and that the banks are nice cuddly ewoks by comparison.

This is absurd.

We like to make fun of government in this country, but really, what are you and a few of your buddies going to do to fight JPMorgan Chase on your own? For all of our beloved rugged individualism (and our individual right to handguns), it doesn’t do much good when you’re up against your credit card issuer. There is no Chicago-school free market solution to an oligopoly that, on top of all its other advantages, has an implicit government guarantee that gives it a major funding cost advantage over its competitors. One of the purposes of government is to protect ordinary people from forces (hurricanes, terrorists, monopolies) against which free market forces do not provide adequate protection. This is why we need a Consumer Financial Protection Agency. And this is what Frank Luntz wants to trick people into forgetting.

By James Kwak

79 thoughts on “Elizabeth Warren Calls Out Wall Street

  1. I get emails from the Tea Bag Party crowd who will lap up the Frank Luntz strategy like ice cold beer. They will scream about government intervention and Fox News will talk about stifling markets and Glen Beck will scream about how this is another step towards the 100 year Progressive plan to slaughter people or whatever other dipsh-t thing this guy tends to say.

    But none of that really matters because there are also Democrats who waffle on this. Something as simple as the CFPA should be freaking cut and dry at this point…

    Conservatives don’t believe that the private industry and banks had much to do with the economic crisis, they think Fannie Mae was 50% of the problem and free-loaders were the other 50%. The banks were just innocents in this whole mess so why cram a bunch of regulation down their throats? Also, the Community Reinvestment Act was regulation and look where that got us {Conservative logic here, not mine}

    You can’t put forth corrective measures if you don’t properly diagnose the issue.

    The Democrats will NEVER come to a compromise with the Republicans on financial reform, or healthcare, or environmental policy… or ANYTHING that is important. This good faith routine is getting a bit tiresome and the longer it gets stretched out the less I think “these Republicans are obstructionists” {which I totally think is true} versus “there are too many Democrats without the courage to put forth meaningful reform and do whatever their big money donors say”

    This being one of the more glaring examples… what stifles markets is when bubbles burst or some of other large scale fraudulent activity is allowed to fester for long periods of time. If the oversight in place today isn’t enough to prevent these kinds of things from happening, as Dimon says “every 5 to 7 years” then put something forth that will do this.

  2. So, tell me again where all the fancy credit created (under the watchful eye of the Fed) by the big banks (CDO’s, CDS’s, MBS’s, etc.) has gone? To consumers to buy houses, cars, credit cards, etc. & fat bonuses to the big banksters. And why didn’t some or most of the credit & cheap money flow into businesses, large & small, to produce stuff (for export, tec) & create jobs?

    Simple. No quick profits & bonuses.

    To correct this state of affairs all we need to do is replace the Fed with a nonbank, independent money & credit creator. A group having a total economy perspective rather than a narrow financial perspective. All it takes is some guts. Like the people who settled this country had.

  3. South Dakota, baby. Let’s do with mortgages and credit cards and payday loans what we’re about to do with student loans: government origination.

    Cutting out the middleman one disembowledge banker at a time.

  4. There is no Chicago-school free market solution to an oligopoly that, on top of all its other advantages, has an implicit government guarantee that gives it a major funding cost advantage over its competitors.

    Will the CFPA do anything to eliminate that implicit government guarantee?

    If not, your statement seems like a non sequitur.

    I have to be honest: I personally do not care about the CFPA one way or the other. I do not do business with large banks, and I pay off my credit card in full every month. So the entire debate is just noise from where I am sitting.

    But I do care about the “oligopolies … with an implicit government guarantee” very, very much. And I agree that there is no free market solution. So, sside from Bernie Sanders, is anybody on either side of the aisle taking that problem seriously?

  5. “But last month, Republican political consultant Frank Luntz wrote a memo laying out how Republicans could kill financial regulatory reform.”

    Those that want financial reform need to keep this on the front burner and push as hard as possible this story into the mainstream media environment. Beat this story like a rented mule.

    As an aside, let me once again say, “I loves me some Elizabeth Warren!”

    Elizabeth I want you for treasury secretary!

  6. I read tonight that China’s Sovereign Wealth Fund is buying share of several of the “Too Big to Jail” banks. I’m also reading how health insurance companies are looking to merge to make a few really big companies, which I suppose would make them “too big to jail.” Drug companies have been gobbling each other up, but perhaps if more mergers meant…you guessed it, “too big to jail,” well you see the trend here.

  7. “One of the purposes of government is to protect ordinary people from forces (hurricanes, terrorists, monopolies) against which free market forces do not provide adequate protection.”

    Good point, and the argument between the republicans and democrats should be about whether the free market can provide a solution, and where it can’t government needs to step in.
    Instead the republicans constantly argue the free market can solve all problems, and I am sure at some point in history the democrats were arguing that free markets cause too many problems.

    Until people can agree that the free market is useful, but not perfect, and at that point government needs to step in and provide services that the private sector is unwilling or incapable of providing, then nothing productive will come out of Washington.

  8. CFPA is unlikely to be effective. The giant banks have already demonstrated their ability to control the existing regulators such as the Fed who already had the power to stop/prevent the bubble and associated predatory lending tactics.

    Rather, the focus should be to break up the giant banks and to restore the Glass-Steagall and other restrictions on the banks: proven, time tested methods.

    The Baseline Scenario and other critics should focus on documenting the huge dollar cost of the “hidden” subsidies to the banks. Who pays for this? Who pays taxes? Actually, it is mostly the small rich and upper middle class. Yes, Virginia, we have a progressive taxation system. These subsidies to the giant banks are contrary to the financial interests of the vast majority of Americans as well as people in the rest of the world.

    Conservative, libertarian, and business sources have a long history of blaming financial fiascoes that followed policies initially billed as “free market” or “deregulation” on the government. They perform an abrupt about-face and aggressively blame the government and often liberal activists as soon as the bubble bursts.

    This about-face scapegoating of the government has occurred with the Great Depression, the Savings and Loan Fiasco in the 1980’s, the Internet Bubble of the 1990s and George Gilder’s dubious investment advice, the energy market “deregulation” in California in 2000, and most recently with the housing bubble/crash.

    The three major government scapegoats for the housing bubble and associated crash are Alan Greenspan and the Federal Reserve, Fannie Mae and Freddie Mac, and the Community Reinvestment Act (CRA).

    This blame the government tactic needs to be recognized and aggressively confronted, including repeatedly documenting the long history of these abrupt about-faces.

    Framing the issue as one of government versus free enterprise needs to be avoided and attacked. That is not the situation. The actual issue is crony-capitalism and government intervention in the economy on behalf of the giant banks at the expense of the vast bulk of the population.

    In continuing and pursuing these policies, the US is setting itself up for a disaster when China decides to cease shipping goods and services to the US and retains them for its own population. Then, the United States will find itself without adequate productive capacity to maintain its already declining standard of living.



  9. Huh? Wall Street doesn’t really give a crap about the CFPA. It’s so far down their list of legislative priorities that they’re barely even lobbying on it. You really think Deutsche, Goldman, Barclays et al. care about the creation of an agency that won’t have anything to do with their markets? Trust me, they don’t.

    I notice that James conveniently forgot to mention the fact that BofA recently announced that they’re will not oppose the CFPA. Why am I not surprised that this didn’t make it into James’ post? Can’t let those pesky facts get in the way of a good story!

    It’s not “Wall Street” who’s attacking the CFPA on the Hill — it’s the community banks and thrifts. I have a hard time believing that James doesn’t know this. It’s not exactly a secret. But, of course, blaming community banks and thrifts doesn’t comform to the popular narrative, and is much less popular than blaming “Wall Street.”

    I suppose you probably think the ends justify the means, and that blaming Wall Street will somehow move the political debate. I guess we all have to be young once.

  10. ” unscrupulous mortgage lenders .. had been ripping off mortgage borrowers ”

    Oooh, you’re so funny. Oooh, you’re a funny guy, Kwak.

    So in your mind lenders who gave people loans they didn’t deserve were ripping them off? Oooh, that’s a good joke.
    I guess next time I give a begger a dollar I’m actually ripping him off?

  11. You might be clever enough not to be fooled by credit card companies. But if many people get suckered, end up being unable to pay and thus endanger large banks, you’ll have to participate in the bailout one way or another.

    Nobody lives in isolation. So, you might as well support the CFPA.

  12. When mortgage lenders are lieing about the product they are providing the public they are ripping the public off. When they tell a borrower they need not worry about their income, that they would be able to fit them into an “affordability product” that turns out to not be affordable they are ripping off the public. When they pretend that they believe that the borrower can actually pay for the mortgage they are putting the borrower into, they are ripping off the public. When they tell the borrower, no need to document your income, or your assets, or your future ability to pay, they are ripping off the public.

    Now there are a many borrowers out there that took advantage of the situation (flippers!), however there are many more that trusted the providers of mortgages to be honest business people. Sadly those providers of mortgages turned out to be dishonest, snake-oil salesman that only cared about getting another buck in there own pocket at the expense of the American consumer.

  13. Realitycheck, so who is the guilty one, the pusher, the junkie, or the importers of heroin from Afghanistan and cocaine from Columbia? (and we all know who those are, don’t we now.)

    Blaming the stupid for following the piper is absolutely absurd, and simply justifies the predatory lending practices our incredibly corrupt vampire financial system.

  14. “You really think Deutsche, Goldman, Barclays et al. care about the creation of an agency that won’t have anything to do with their markets? Trust me, they don’t.”

    Okay, I trust you:

    What do they care about?

  15. If somebody bought a house with no money down and a negatively-amortizing mortgage, they basically just rented a house for whatever time elapsed until they got foreclosed. Sure, their credit takes a hit but it probably wasn’t all that sterling to begin with anyway. So, why feel sorry for them? They came out not much worse than they went in, unlike the suckers who bought their securitized mortgages.

  16. Yeah, this was what I was thinking as well. I’m responsible with the small bit of credit I use (and I’m planning to stop using it by the end of this year) and I don’t need the protection, but there’s a lot of ignorant and/or stupid people out there. They outnumber me tremendously, and they’re the suckers banks will find. They’re what will cause collapses that affect me.

  17. The CFPA is a scam just like the public option was a scam.

    Just as the public option was misdirection to get people who wanted real reform to agree to forget about single-payer, so the CFPA notion was floated as misdirection to convince people we could have “reform” without breaking up the bank rackets.

    (That was also the intended purpose of the Swedish-style “nationalization” idea, if they’d ever felt politically pressed enough.)

    But the CFPA trajectory has followed the public option trajectory to the letter:

    1. Float the idea. Sounds good in theory.

    2. Make the proposal, already watered down from the original concept.

    3. Have it basically gutted in the House, though still there in name.

    4. Have the Senate throw it out completely.

    There’s the standard Democrat flight plan on these things.

    The CFPA mentality in itself, the we-can-regulate-so-we-don’t-need-to-smash-the-rackets mindset, is a failure in itself. In modern corporatist America, it has failed in every single instance.

    There are times and places where the reformist mentality is called for, but this is NOT one of them.

  18. You’re right. Where “everyone” is to blame, we can choose where to affix blame.

    Those who choose to blame the rank and file are choosing to let the criminal leadership off the hook.

    They’re doing it either because they’re flacks, or out of the teabagger side-with-the-oppressor mentality.

  19. re: “A year ago, it might have been possible to twist the banks’ arms hard enough to get them to agree to new ways of doing business…”

    All too true. They were looking at the prospect of their very own, fully realized, abject failure. TBTF and the Bernanke/Paulson/Geithner put prevented that self assessment from taking place and hence re-cast the regulatory capture framework, not just for CFPA but for all semblance of any financial reform, to one in which public capital/QE replaced private capital as a cushion against loss from risk exposure but private capital reaps the rewards for the “risk” taking.

  20. Just noise — except anytime you buy anything you are paying the “credit card tax” — the amount the credit card companies charge the seller. This amount is built in to the price, even if you pay cash.

  21. I was one of those suckers. At 21 years of age, an art school drop-out with no business knowledge and working as a waiter (not a very good one either) I took out loans for $30,000 to buy a bunch of gear to start a video production company. Suffice to say, with no business plan, no understanding of how to get customers and no connects to the industry I ended up defaulting on every loan, racking up credit card debt, overdraft fees and a decade later am still paying it all off.

    Yes, I was an idiot to think that was a smart thing to do. But what idiot decided to loan out that much money to a low paid, uneducated “dreamer” with no actual business plan? (It was Citibank). I literally made $35K a year and lived in NYC and the bank still gave me the loans.

    Never underestimate the power of stupid people with delusional dreams. I’m a perfect example and why anyone would loan me more then 20 bucks is beyond me.

  22. Dear John,

    In “Freefall”, his latest book, J.Stiglitz estimates the total cost at 11 trillion $ of government bail-outs, subsidies and backstops for the financial industry,including the GSEs… Whopping !
    A good read for Bam..Time for action

  23. Giving a beggar a dollar is a little different then loaning him a dollar at interest and allowing him to pay only the interest for a few weeks until you smack him for a quarter a day very suddenly down the road. Just sayin.

  24. You want leverage with the banks:

    1. Restrict their access to the discount window
    2. Return mark to market

    Then talk about reforms and consumer protection.

  25. Let me guess … it couldn’t be that it’s just that market entry for competiitors who would like to behave consumer-friendly is blocked due to over-regulation on one and under-regulation on another?

  26. “what are you and a few of your buddies going to do to fight JPMorgan Chase on your own?”

    A fraction of the middle class will stop doing business with the big consumer banks. (You have, after all.) I suppose the banks will then want another bailout.

    But eventually it will be out with the rifles. As you say, they can’t reach their real targets. But if people are angry enough, they won’t care. I’m surprised, really, we haven’t already seen anti-bank violence in the rural West, though arguably the Montana Fremeen were sort of that, as well as racist crazies.

    More food for corvids. Croak!

  27. There are banks out there that act only out of self interest????? OMG!!!!!!

    In other shocking news there are corporations that exist solely to make money! Money!

    Also, the military possesses weapons that are designed to kill people! Real People!

  28. I think the following presentient words are worth repeating. Might be time to change to credit unions.

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    Thomas Jefferson, (Attributed)
    3rd president of US (1743 – 1826)

  29. eventually it will be out with the rifles. As you say, they can’t reach their real targets. But if people are angry enough, they won’t care.

    They’ll just take aim at Latinos or gays or the local public library.

    Boy, those hicks sure do provide a lot of belly-laughs!

    [swirls brandy in snifter]

  30. The pro-plutocracy wingnuts will continue to pull every trick in the book to bamboozle the conservative middle class, a large portion of which is regrettably myopic and ignorant.

    The insightful and educated will just have to continue to pound away for reasonable reform. “It’s hard work” as ol’ Doublya would say (but he said it about Iraq, not reform).

    What really irks me is that the same people who are on board with financial reform in congress were too lacking in insight to see these problems developing in the first place…problems the average schmuck on the street like myself could see coming a mile away.

    When oh when are we going to get smart enough congressmen and women who can see the shit coming before we all have to step in it?

  31. Russ, that’s paranoid and harsh and not at all fair. I agree that more aggressive action is called for, but Elizabeth Warren is completely honest and genuine in her efforts. The CFPA may not be enough, but it is certainly no scam.

  32. Yes, and class warfare is alive and well. Notice how any objection about worker robbery is quickly labeled class warfare. There is class warfare, just practiced from the top down.

  33. believe me i live in the west and everybody’s action is just moving higher and further back!

  34. I think we forget, this is not a fight between democrats and republicans. This is a fight between those with money/power and those without.

  35. ep3 wrote:

    “This is a fight between those with money/power and those without.”

    From my perspective it appears to be a more fundamental struggle between knowledge and ignorance – a struggle that’s been going on for thousands of years.

  36. ” I get emails from the Tea Bag Party crowd who will lap up the Frank Luntz strategy like ice cold beer. ”

    Exactly. From James’ outraged response it appears he doesn’t realize Lutz is simply addressing what will *sell* to Tea Party fools, not the substance and reality of the issues.

    Part of the reason the US is crippled in dealing with its problems (which really aren’t very big in an historical context) is that many people can’t grasp that the Republican dog has been getting wagged by voting groups of fools like the chrisitan right and now the Tea Party idiots.

    This bambi frame of mind is just making it easy for the looter party.

  37. Some people trust the messenger more than the message. The goal of most politicians is to get elected and they would do many things to get re-elected. They will ask people to vote against their interest and the masses duely oblige.
    I cannot understand the populist mood against govt and regulation when we need safe work place; clean water; safer air travel; and the best defence in the universe.

  38. You shouldn’t personalize it. I didn’t. My attack is on the system. I wasn’t even thinking of Warren.

    As for Warren personally, I don’t know or particularly care whether or not she’s “genuine”. (Though she does support the Bailout, which is really more than enough for me.) It’s strange that you take offense on her behalf personally. The sooner people stop looking for celebrity “leaders” to get us out of this mess the better. Leave that to the teabaggers with their Palin. We need new leaders who come from the bottom up.

    And there’s nothing at all “paranoid” about what I wrote. The evidence supports no other construction.

    (I suppose you think Obama and Frank and Dodd et.al. really want a real CFPA, and those meanie Republicans are mysteriously thwarting them even though they have minorities in both houses.)

  39. It’s the same way Bush put through the tax cuts – he made it sounds like it was for the little guy, when in the long run it will be the little guys who pay. These guys are masters at manipulation. Time and time again they get people to vote against their own interests.

    I’m afraid democracy died with the advent of television…

  40. Yes, it is the people on the top who bring up “class” in arguments lately, not the people on the bottom.

    My attitude is I don’t care anymore. They made words and phrases like “socialism”, “class warfare”, “common good”, and “liberal” into epithets. Now they’re working on “populist”. They turned black into white and 2 + 2 into 5 and it’s time to just say “screw” – call me Marxist or whatever the hell you want, I’m just proud to not be selfish bastard like you.

  41. When they know they couldn’t pay them and the recipients didn’t, which in many cases they didn’t (because unfortunately they were too uneducated about finance to understand), yes, that is ripping them off.

    If nothing else, they certainly were unwitting dupes in a scam perpetrated on the market.

  42. Bah, M wrote:

    “Some people trust the messenger more than the message.”

    Lenin wrote:

    “A lie told often enough becomes the truth.”

    Russian Communist politician & revolutionary (1870 – 1924)

  43. Yes, but regrettably, the following quotation is also attributed to Jefferson:

    “Money, not morality, is the principle commerce
    of civilized nations.”

  44. I think there’s a bit of racism (or at least “class-ism”) built into this statement. I’m not saying it is intentional, but I think it’s there and I’ve smelled it in other Libertarian-ish exchanges.

    Basically there’s an assumption that anyone who has anything bad happen to them is probably some lazy ill-intentioned person of low class, moreover probably a minority. I mean it isn’t that they just made an honest mistake by believing the people that said they could afford the loan, no they understood fully up front that they would lose it and being people of such low character they planned to “scam” the system!

    I’m not saying that never happened, but from what I have seen most of the people we’re talking about here are people who, yes, were remiss in their due diligence in understanding of what they were getting into, but no, they did not buy with the intent to lose their houses.

    Similarly I hear the same thing about anyone on welfare or any other help program – they are lazy and trying to bilk the system. I mean if they weren’t, they would be successful wouldn’t they be? They’d be like “me” (the author of the particular diatribe skewing them), who has made it by the seat of my pants.

    The problem here is one of a lack of imagination and empathy. Not all people are as smart, as educated, and even if they want to be, as assertive. Not everyone can become successful and that’s not even simply an issue of education, intelligence, or skill. Many, many, many, Americans cannot get past the hurdles built into their own psyches. I know tons of people who are highly capable who should make well more than they do, but they are incapable of believing in themselves or advocating for themselves. In short, they are hampered by fear – fear that is so strong that they just cannot surmount it.

    Are they bad lazy people? No.

    Is it their responsibility ultimately? Yes.

    Can I stand back and watch them suffer and/or die? No.

    So, rather than assuming these people are all of low character intentionally bilking the system, I suggest you look more closely at who these people are, because I think you’re taking the exception and making it the rule.

    Moreover, perhaps we could turn this around toward something more positive. Like helping them get the tools needed to not fall into these traps.

    Are there some people in this boat who are hopeless? Undoubtedly. But the same is unfortunately true of people who ARE successful.

  45. Congress does too many things that insure government is inefficient. The Obama Administration has been in place for over a year and because of Congress, the appointment of government officials for the executive branch has yet to be completed (by a long shot)!!!! Republicans want our government to fail and have done many things to drive us into bankruptcy. Since Ronald Reagan, the Democrats have proven to be by far the most fiscally responsible party! Measures of deficit, debt, and government spending are definitively better under the Democrats (it’s not even close)!!!!!!!!!!!! In terms of banking the Republicans, support only large corporations…. Too many Democrats are enslaved by large corporations as well. We need quality Independent candidates to run for every seat in the House and Senate that is being voted on in the November elections (no tea party bigots please)!

  46. Elizabeth Warren has been her own worst enemy from day one. She should be calling out herself.

    You can always tell who her allies are. They’re the ones with one her knives stuck in their backs.

    And who is the bigger foe of the CFPA, Wall Street or Main Street? It’s likely Main Street.

  47. Right on Elizabeth. Keep on keeping on.

    These pompous, pretentious a$$holes ain’t playing tiddledywinks, they’re playing hard ball. They’re after our money. All of it, every last dime.

    And they ain’t going to stop until someone with some intelligence & some ball$ stops them. Like Bill Black or Dean Baker. Can you imagine Black in Summer’s job & Baker in Geithner’s job, or vice versa. Everyone in current congress & administration are both too stupid & too weak.

    Seems we should be blogging more on how to get some people with intelligence & ball$ in power, rather than trying to tell the current a$$holes in power (panjandrum) how to correct their mistakes. They ain’t going to listen. They’re too greedy.

  48. The word is not “manipulation,” the word is “propaganda.” These guys are masters of propaganda. Reread some Goebbels and get the real picture.

  49. I guess it’s still 3 strikes & you’re out.

    Strike three –

    “Seems we should be blogging more on how to get some people with intelligence & ball$ in power……….”

    Someone more concerned with the long term viability of our economy & our country rather than filling their pockets with OPM, other people’s money.

  50. Many in this crowd should be interested in a recent lecture E warren gave at UC, The coming collapse of the middle class.

    She does a terrific job of dispelling most of the myths that support the idea that this boom/bust was the result of profligate borrowing/spending by irrational americans.

    Instead, she demonstrates that since the 70s, the savings rate has declined from 10-11% to less thab 0 for just 2 reasons.

    Increased health care costs (less insurance/more self insurance)
    Increased housing costs. The main driver is housing premiums paid for access to good public education. Excacerbating the housing costs were speculative investing fueled by cheap funding that drove up the
    cost of this middle class “necessity”

    The speculator class is rightly demonized, but in my view, they were basically the pawns of the oligarchs and deserve to feel plenty of pain.

    The sadder, more significant insight to me is that it the middle class has been looted over the last 30 years trying to support their core value, educating their kids via their housing selection. This itself is a consequence of poor public policy regarding education.

    They now face destitution as a result of the caprices of predator class and their pawns, and the antipathy of a government that fails to acknowledge that the costs of education required in the current economy includes college which is unaffordable to all classes except the rich. A rational middle class is driven to unaffordable housing that comes with an educational advantage.

    Adding insult to injury, there’s no hope of help for them, since bailing them out of their underwater mortgages, bails out the banks and speculators as well.

    It wouldn’t be unreasonable or unfair in my mind if the govt instituted a tax credit for families with children, in whatever form they exist, (single, married HoH), who live in a house with an underwater mortgage that would cover the housing price differential between today and the preboom price level of that home. The credit could then be available to cover the costs of their inflated housing, inflation which was the direct result of failed govt policies that caused the bubble.

    Is that unfair to non families? Yes. Would that be unfair to speculators? Absolutely yes! Would that be unfair to lenders? Not really. At a mimimum it would put a bottom under the bankers losses (pre-boom valuations) and hold the line on plunging prices.

    The video is here:


  51. Nemo is part of the problem and surely not the solution. Because of the usury basis of cc’s and you never have a balance owing does not relieve you from not having a position. In fact more than 50% of cc bankruptcies in USA are from health care expenses. Stand up and be a citizen!!

  52. It is surprising how little you know about what really happened. The business was not to make money on the consumer it was to make money on the investor by selling off truly lousy but high interest rate mortgages packaged as triple-A securities meriting low interest rate expectations.

    Look at the figures!

    If you convince risky Joe to take a $300.000 mortgage at 11 percent for 30 years and then, with a little help from the credit rating agencies, resell that same mortgage in a securitized version to risk-adverse Fred in $510.000, which will yield him an expected return of six percent, you pocket a tidy profit of $210.000.money

  53. The gop and their lockstep partisans in redneck Amerika are the bane of America; obstructionist, unwilling to compromise on anything, fixed in their elitist, corporatist, racist, biggoted ideologies, and wildly misinformed. Middleclass gop supporters, no not what they seek, and are mesmerized by the gop information domination, perception management, disinformation warrior propaganda coven pimping naked lies and bruting false conceptions of nationalism, antibiggovernment jibberish, and a relentless chari vari of hate, division, and slime.

    Democrats are either complicit or so week and cowardly that they are unwilling to call the gop lies and falsehoods on the basics and truth, and continually allow the shaitans and thieves in the gop to thwart, or mangle any government policy that would benefit poor and middleclass Americans.

    There is no reaching across the isle, or comprise, or goodwill, or any hope for advancing the best interests of the American people with the gop in it’s current panjandrum. Obama is week and cowardly NOT to call the shaitans, thieves, propagandists, haters, biggots, wanton profiteers, and pathologicals in the gop on their naked LIES, and the truth.

    Get locked, cocked, and ready to rock, – because many of us will not tolerate, or abide the fascist policies of the current monster that is the gop. There will be blood.

  54. I suppose the flip side of your argument is what I learned in scuba diving training. If you’re on the surface and your partner is panicking, you put all your gear back in place, submerge, come up behind them and attempt to put them in a hold that keeps them afloat but keeps them from hurting you. If they continue to panic, thrash, and fight, you release them and submerge again. If they get a hand on you and refuse to release, you stay under until they release their hold or they drown.

    Repeat the process until your partner has calmed down or drowned. Do not allow yourself to be drowned.

    The bottom line of this exercise being simple math: two people alive is preferred. One person alive is the minimum outcome you should accept. Both people dead is unacceptable.

    The application to life is that it’s fine to help others to some degree, but if they’re going to continuously throw away your help or (worse) endanger YOU in their thrashing about and failing to survive, it’s better to let them go and take care of yourself.

  55. So basically you dream of fixing the current government. No chance in hell. Me, personally, I’m advocating voting for which ever candidates look the worst. I want to increase the speed of the slide so that the country completely self-destructs in class on class violence, the government collapses, and we get a chance to rebuild the whole thing from the ground up.

    It might not be perfect, it might not even get close to what we want in an acceptable time frame, but it sure beats trying to win against the oligarchy by playing with their rules of “Heads I win, tails you lose”.

  56. I agree, food for thought.

    Michael wrote:

    “Many in this crowd should be interested in a recent lecture E warren gave at UC, The coming collapse of the middle class.”

    The video is here:

  57. Yeah but see, I don’t WANT to bail out anyone that made a stupid choice. I want them to fail. I want the banks to fail. I want the investors to fail. I want the families to fail.

    Regulate and prevent the problem in the future, but stop trying to prop up the notion that we somehow ALL deserve a 5000 sq ft house, 2.5 children, and 5 full size SUVs without actually having the real income to support it. The longer we prop that fantasy up, the longer it will be until Americans do what they need to do: scale life back to fit REALITY.

  58. What we need is an agency called the Economic Proctological Bureau, which would repair out damaged economic anuses which have had so much political crap shoved up them as the banksters do the same. The good old Republicans are strictly in this fight for campaign contributions and soirees sponsored by the lobbyists they love. The CFPA is only one small item in a checklist of things to do that aren’t getting done. I will personally guarantee anyone who wants to listen that if a couple of the big guys fail, which will most likely happen, sooner, rather than later, if they are bailed out by any branch of government (only the Fed and Congress can really do it), the Capitol will be a deadly place to work, and few if any incumbents will ever have street cred again. Talk about a Tea Party subject, what’s Sarah talking about? She actually has yet to express any idea on how to repair out broken country, much less a good idea on anything at all, and she’s the most popular Republican of all — now tell me that party ain’t broken. Luntz is operating in lala land, if he things that rallying against consumer protection from the Bigs is any way to go. I hope that everyone becomes aware of just how much Congress cares about the people it represents (in theory).

  59. Some great ideas here. But the failure to be able to tell a story that resonates with the political center is the problem. You need some villains with public faces. And the top guys are not enough. You need some middle guys to roll up the top guys.

  60. “There is no Chicago-school free market solution to an oligopoly that, on top of all its other advantages, has an implicit government guarantee….”

    Of course there is. End the government guarantees! Then smaller, healthy banks will be able to compete and the big zombies living off taxpayer money will finally die.

    End the government-chartered ratings agency oligopoly so that the agencies are accountable to investors not big business.

    Adding another layer of regulation and bureaucracy first of all won’t work (banks are smarter than regulators, assuming they don’t already own them) and secondly makes us less competitive globally.

  61. No sane person would normally be against a Consumer Financial Protection Agency if supposing it was to act within an environment where it could be efficient… but, within a general context where for instance a tort reform does not get included in health-sector reform; or in this particular case, the basically fraudulent role the credit scores play in consumer financing is not even mentioned as an issue… that points to an environment where a CFPA would not only be useless but could be outright dangerous as it could end up as just another agency captured by special interests.

  62. People need to recognize that a public domain has been ratonalized into a private clubhouse economy. Control over “non-Rival” factors of subsistance are now being pushed into monetary constraints that convert them to “Rival” commodities. Financial domination is interpreted as economic dependency by the high priests of a neo-religious cult of political finance. The actual results of the “Chicago-School” “lawless” (please don’t call it “free”)monetary market is that a differential calibration of asymetrical inflation is redistributed over opportunistic Pricing machinations that inflate these revenue bubbles and fuel the finance bonus clubhouse.

    Competition can only be re-established during our era by creating a domestic alternative to the banking cartel. A Public Finance alternative or People’s Bank can be a co-operative model with a central government guarantee. Call it a nationalized central banking system if you will, but it is high time that an Domestic Monetary Fund (inversion of the IMF) and a National Public Finance Bank (domestic version of the World Bank) be placed on the table. I think people have been suckered into the rhetoric and fear mongering of cold war and class protectionism for too long now. Let’s start talking “public” market instead of Privitized and recipient “consumer” patronage.

  63. A public option for banking … I like that idea. The FDIC insures the deposits anyway. Lending programs can be plain vanilla.

    Private banks still would exist and we can all fight about what type of regulations should be compelled, but why not a public option?

    At least that would help with the whole to big to fail thing. If a public bank existed it would make it far easier to liquidate private banks in a crisis.

  64. My point is that you can’t save everyone, as much as you’d like to. Sometimes you have to just focus on keeping yourself alive.

  65. “Framing the issue as one of government versus free enterprise needs to be avoided and attacked. That is not the situation. The actual issue is crony-capitalism and government intervention in the economy on behalf of the giant banks at the expense of the vast bulk of the population.”

    Exactly right. I agree. The government is actively enabling a class of kleptocratic financial sector employees.

    “Elizabeth Warren wrote an op-ed for Tuesday’s Wall Street Journal that lays out the confrontation. For most of the past two decades, many Americans trusted the banking industry–not necessarily to be moral exemplars, but they trusted that the banks were basically doing what was right for customers and for the economy.”

    Elizabeth Warren is WRONG. We did not trust banks to do what was best for the economy, we DID more or less think they would not bankrupt their institutions in their single minded quest for personal gain.

    Nor did we think they would render themselves dependent on the Federal government, while continuing those kleptocratic practices.

    Why are we enabling this?

  66. Brilliant commentary BRUCE E. WOYCH , and intriguing suggestions. The only issue is government capture, and the realistic possibility of something like your model being instituted in Amerika. Like Health Care, the ruling predatorclass oligarchs own and control the government and will screech like Harpies in the purchased ears of our socalled leadership, and resist to the death, public option, or any change in the status quo, or their absurd and opulent compensation packages.

    That said, your suggestions are workable solutions to reigning in the illgotten gains, and kleptocratic machinations of the predator class finance oligarchs.


  67. The business was to make money by hiding risk in off-balance sheet companies secured by credit lines to TBTF entities. The taxpayer was left holding the bag. We could have done a lot better with that money than building McMansions in the ex-urbs.

Comments are closed.