Elizabeth Warren: Fixing the Banks, Lifting the Middle Class

[Music] you know I I want to say a little bit about my own journey into public service I was not a little girl who thought some day I want to be President or someday I want to be senator I was actually a little girl who did have aspirations ambitions I wanted to be a school teacher and I was and the journey that took me here is the most improbable of journeys um I was someone I married at 19 I had my first baby at 21 I started law school on Amelia's second birthday it was a big event I kept explaining to her about how mommy was going to go to school and she was going to go to school and potty training was the thing that stood between us and success and we got there together um and so I all this ended up I went from being a public schoolteacher to going to law school with with one little one spent a summer on Wall Street my second summer of law school taking the train I felt I remember how serious I felt I would get on the train with all these men to ride into into into into Wall Street we were living out in New Jersey and I got pregnant my third year in law school graduated from law school enormous and didn't take a job because you couldn't get a job if you were pregnant um and I thought that the three years I'd spent in law school were gone I'd stepped off the career track a career track that was really not open to women and I thought I'd given it all up because I was now going to be home with two babies and I went ahead took the bar exam I was the first nursing mother to take a bar exam in the state of New Jersey try explaining that a thousand times to the proctors ah but we made it through and I actually went into solo law practice I still have a shingle that says black with white letters on it Elizabeth Warren and then I died in italics attorney-at-law it still hangs on my wall because I'm it meant about you pull yourself up and you do what you can um my law school Rutgers uh called me back to teach so I really was going to get to be a schoolteacher again one thing led to another and I ended up with a permanent teaching job down in Houston where my husband had been transferred and there I was I was a young mother I had two little kids I was struggling with daycare trying to figure out I was one of those people who lived out in the suburbs and I passed I was teaching at the University of Houston when people would ask me if I worked I would always say yes I teach and they'd say what and I'd say first years so much people would say others so cute at that age and I'd always just smile they are it's true and there I was in a an all-male environment it's an all it was then an all-male profession uh and I had picked out an all-male area that I like to work in which is commercial and business law where the money is and so here I am struggling to teach I'm reading the stuff trying to stay just about a half a step ahead of my students uh and I knew that I had to do research I'd be perfectly honest not having grown up in a very fancy law school or a very fancy undergraduate school I wasn't entirely sure what it was all about other than I'd seen a little of it when I've been on Law Review a little of what you needed to piece together so I thought you need a question to look at and to start doing some research on how it works and there was a new law in place the new bankruptcy laws and I thought I know what I'll look into who files for bankruptcy and why there was a lot of conversation just starting remember this is the early 1980s late 70s early 1980s that it was unscrupulous people who were taking advantage running up bills and then dashing into bankruptcy and discharging them and that's how I got started in my first bit of research and my first empirical studies and it turned out to be a very sobering journal a journey because where I ended up was in a world in which let's just start right there when I was at the beginning getting started bankruptcy filings over the next 20 years doubled and doubled again and went up again um we reached a point where women in that period of time over a 20-year period the increase in the number of women filing for bankruptcy went up six hundred and sixty two percent um by the early 2000s an adult woman was more likely to file for bankruptcy than she was to graduate from college um for many people and I should point out about this and women with children about four times more likely to file for bankruptcy than those without children than married couples than men so what did that mean chronic poverty issues is that what we're talking about no actually we weren't in the mix of women of married couples of single men who filed for bankruptcy by and large it was a profoundly middle class group as a group compared with the rest of the population folks in bankruptcy had gone to college they gotten decent jobs they'd bought homes many of them had started families and yet something had gone terribly wrong in their lives so wrong that we reached a point that now more than a million families every year find themselves in bankruptcy so this led me I started my studies with bankruptcy and then just kept working backwards how much it's happening to whom it's happening America's middle class what has gone so profoundly wrong that would cause so many families to file for bankruptcy and keep in mind for every family in bankruptcy there are many more tottering right on the edge not having filed put it off as more than more than one family who ended up in one of our studies committing suicide rather than taking that step so bankruptcy bankruptcy becomes a little like the like a medicine the notion we will dissect the bodies to discover where illness is in the population generally and that's basically what I did with the bankruptcy data just kept backing it up on who's there and basically here was the story that unfolded it's a pretty straightforward story the American middle class has been hit by a one-two-three punch the first one rising core expenses you know every time someone does adjust it for inflation unpack those numbers and look at the parts that are like cymbal spending the kind of things have been cut back on if somebody loses a job or you're a little tight this month and look at the part that's relentless the big core fixed expenses that happen month after month mortgage healthcare transportation expenses child care if you have young children are trying to work these were the expenses that went up for families while families cut back on everything else on food on clothing on appliances on furniture it was not the picture of overconsumption that you read about in books like luxury fever or the overspent American it was a picture of families who did everything they could to cut back on expenses but over time what was happening is the core fixed expenses the kind of expenses that make us middle class health insurance that you can count on if someone gets sick a mortgage on a home and let me point out for those of you who are sitting there saying ah but homes got bigger got fancier spa bathrooms and and granite countertops we're talking about median families here for the median family in the United States in this same time period houses got about 10 percent bigger and they got 25 years older the typical family over one gener this one generation periods 20 year period 25 year period picked up either a second second bathroom or a third bedroom but not both so at the median what we're talking about our families who paid much more just to hang on to what was the typical place in the middle class that's number one number two is they just got hit with flat wages you know if we drew a picture of what wages look like in the United States and we mapped it against GDP if I don't we had a great screen I actually would have brought my slides on this and then you all could have rested um I know what students are like uh so you start post-world War two and basically what happens is GDP and inflation adjusted wages just move together in other words what's happening is every year that goes by the pie is getting bigger and so the slice that goes to wages the part that we get to eat that you know buys our houses and pays for our health insurance is bigger because it's it's a proportionate piece of an ever bigger pie and you start somewhere around the mid to late 70s and the two curves start to diverge and GDP takes a sharper upward trajectory and a fully employed male flatlines so that today a fully employed male in the United States median earner adjusted for inflation makes less than his father made a generation ago that's what happened on the wage front families responded by doing the typical things they quit saving they sent a second earner if they had a second earner into the workforce so they became two income families wherever they could and now who comes to the real third punch they turn to debt it just happens that in 1980 basically we can go through the details we deregulated the credit industry so if you think of consumer credit right whether it's mortgages credit cards short-term cash loans car loans whatever you're talking about let me just explain it this way there are three time periods in America in the world on consumer credit the first time period goes from the 14th century BC Code of Hammurabi really losery there shall be no usery right and we put us recaps in place if you think about the very first consumer protection that I know if in the history of humankind so Ussery laws that period extends to 1980 yep in 1980 with no public debate and I'm glad to do the details but effectively we we pretty much repealed the usery laws we kind of did it in two bites and no real debate over got rid of them and that started the period from 1980 to 2010 and that was the period in effect of the Wild West and what happened during that period is that we ended up with families at the very moment that they were turning to debt in order to pay for college education something that had another one I should have mentioned in terms of costs rising significantly at the same moment that they turned to debt to deal with medical problems that they couldn't pay for at the same moment that they turned to debt to deal with unemployment at the same moment that they turned to debt just to try to make it to the end of the month the debt industry became far more dangerous than it had ever been in our history so here's what happened um it used to be the case that creditors effectively scream their borrowers they looked at them to see if they thought there was a pretty good likelihood they would repay um and they said in fact we'll figure out our business model based on that we'll screen the borrowers carefully we charge a premium for risk we charge something for the time value of money we put something in for the risk of inflation we put a little something in for our profits and we're done that's what the business is about and people who are good at screaming will do well in this business and people who are bad at it in either direction will be washed out of the industry it was really a very virtuous cycle in terms of reinforcing itself but there were lenders who figured out a very different model and that was a model that said wait a minute we think there's a better way to make the profits we can make profits on penalty rates we can make profits on repricing we can make profits on fees and we can make such extraordinary profits if we set this up right that we actually can make a profit even if you end up defaulting on the loan we can make so much money in the up front particularly at a time over the last few years when the cost of funds was very low we could make so much money that we will be repaid on extraordinarily risky loans we'll make our money back after a few months and shoot the rest is just an annuity just count on raking in the money so what happened after a while was that we ended up with a credit industry that fundamentally changed and it changed in the following way in the same way that I described a fairly virtuous circle that was pretty easy to understand it switched over to a market in which it was all about upfront marketing is pretending to sell at a low low price knowing that if I can get you in the door I will be able to extract incredible fees and repricing on the interest rates so that I will make all my money on the back end so it becomes a front end back end game to get people in the door and that meant obscuring costs for the customer making these ever more complicated arrangements so that it's very difficult to compare one product to another what happened credit cards led the way a credit card agreement Bank of America's credit card agreement in 1980 was just a little under a page and a half long that was the whole deal the entire contract um that ballooned to an average of about 30 pages a couple of years ago 30 pages of what the industry refers to as mice type words that are designed not to be read um no I mean that's the point let's just be serious look at it what does it scream do not read me you could die if you read this um we will kill brain cells anyone who enters here right it's it's written obscurely it's written in small language it's written in long sentences everything to obscure what the arrangement is about and I want to make a real point about a little point off to the side about all of the fine print as we've come to call it it's been put in these contracts great place to hide things right it's like shrubbery for the muggers uh you just who knows what's back there most of it's probably perfectly benign but it can't tell and that's really the point slip in a clause here add a little penalty fee over there and extra expense over here and it's all lost in a sea of words words words credit-card companies weren't the only ones though others began to follow the idea of a teaser rate credit card we will give it away for free right or almost free two point nine nine percent you've seen these over and over gave way after a few years to a teaser rate mortgage the idea that we will lend you a mortgage that we know based on the financial information you have given us will at the end of two years cost you your home if you are unable to refinance this mortgage and pay additional thousands of dollars of fees and that was a business model that was enormously profitable now I want to be clear as we go through this when we talk about what went wrong in this industry and what's gone wrong in the last decade there's plenty of room to talk about borrower irresponsibility as well borrowers took on too much credit there's no doubt about that and in some cases it was people who were heedless it was people who said you know I'm going to the mall I got plastic as long as they'll give it to me I'm gonna go spend it but we have to keep in mind that this was an an era in which ordinary market competition simply did not work credit card tricks and traps generated mmm generated billions of dollars for the issuer's and risky mortgages injected so much risk into the economy it merely brought us to our knees there was an industry that profited beyond all dreams in selling people on borrowing money and so were we fallible yes we were fallible but there were people who made billions from taking advantage of our FAL ability so this is where we were a few years ago I looked around and I have to tell you I was terrified um the 2003 I wrote the to income trap 2004 I wrote a book on financial advice all your worth I was starting to do blogs about the coming crisis the collapse what was going to happen and I thought you know this is no good my only tool I really felt this way about it I felt like someone who raged at the wind and I thought this this is this is crazy if I'm gonna expend as much energy I need to find a way to make it have a difference yelling is not working here so back up and find something else to do and I came up with an idea god I thought this was a good idea um not the agency there's something else um it was called clean cards in a cool name so what clean cards was about here was it was the idea behind it my theory was we'd start with credit cards it was the most obvious place it was the product people were using on a regular basis you didn't have to wait to clock people happen to be buying homes you didn't have all the the complications that said this one this will be the tip on the spear and the way to think about this and what we'll do with clean carts this will set up a group that will be sort of the people of integrity people who might be recognizable to other people who will say collectively we will certify that this is a clean credit card and here's what clean credit card meets like a Good Housekeeping Seal of Approval or underwriters laboratory long before this was done in government right the idea that someone would say we looked at this and it's safe and here's all I was looking for for safe is that the costs and risks were clear upfront there was no icky creepy stuff hidden in the fine print that was basically all you had to commit to you could charge whatever you wanted and get a clean card if you would simply do upfront pricing where somebody could see it you made the price clear in advance and then agreed that you wouldn't put junk in the back and we would read it to make sure you didn't put junk in the back and so as long as you were holding the clean card designation on your credit card um you you you could go ahead and you would charge anything you want so um I talked to some various folks about this a Pew Charitable Trusts said they thought this was a great idea and they put up a lot of money um that was well spent and here's how it was well spent this is true they hired um one of the fanciest bank consulting companies basically to sit down with me and a few other folks they gotten together to walk through how credit card profitability worked walked through the terms walked through what had been put in how they changed showing us the competitiveness of the industry and so on so that we could frame it right and this really wants you know getting to go back to college right going to college on credit cards 101 on someone else's nickel so we got this all together and they hired someone who was very well respected who'd recently retired from the industry who's now in the witness protection program and and we went out and we paid calls on all I can say is thanks to the confidentiality agreements on executives and companies whose names you would recognize um so we go ahead and I want to tell you how these win we had exactly the same experience repeated so the first one would be would show up and kind of explain clean cards and listen competitive industry everybody wanted those credit card customers understand it was complete tentative in the sense that they were desperate to get you to use their card instead of someone else's card because they've figured out how to make these cards so incredibly profitable on the backend so I learned things like you know getting it to top of wallet and cross-selling and all these things so getting customers in enormous ly valuable to these companies so we said in effect you can have the clean part seal to put on your cart and think of it this way will be the one you'll be on America's Finest Bank your CEO will have his and they were always his picture up on the cover of Businessweek at a minimum Newsweek if you're lucky um and you could see them this was cool right so people are in how this might work might have to take a little trim here blah blah blah so it work we could invite it back for the second one and we've moved up the food chain to fancier people at the company second visit goes very well oh they actually generally served refreshments I measure by these things um and people are getting enthusiastic they're asking more details will could we still keep our brass knuckles yeah you could still keep your brass knuckles you know and we'd have back and couldn't we still do the real I'm not sure you could do that so we talk back and forth about what you couldn't couldn't do I mean I'm starting to get serious at least about the basic outline of how this thing works some real enthusiasm we want to talk to you go back for the third visit and the third visit no refreshments was always we're not interested we're not going to do this and I I was walking out with the guy who put his arm around my shoulder and he said he said you know he said I get that what we're doing is unsustainable over the long haul we can't keep this up um Americans can't keep borrowing more money but he said you're clean cards isn't gonna work and I said why not you know it'll have some advantage this drives the market you got some competition out there you identify the good guys and he said you've got to understand if we had to tell him how much these things cost nobody would use them and I sat on the plane on the way back and I thought it's true no one can jump in a market in which the game is all about pretend to give it away for free knowing you're going to hit them on the back end nobody who can be the first one to say this thing actually costs seventeen percent and put that right up front and no matter how many other good people say at least kudos to you you explained how much it costs they're not going to pick up any business when everybody else is doing it at two point nine percent or so it seems on the front end and left that lesson not be driven home hard enough for me I'll just tell you two quick stories in succession the first one was when we were debating the card act back and forth about three or four years ago there was a big issue back and forth about universal default and that was something was ultimately not that was something that's ultimately outlawed in the card Act universal default just says if you get into trouble on anything the entry that the credit card company can raise your fees even if you've been making those payments on time in full under your contract and a lot of people thought that was fundamentally unfair so there's a lot of bad press around it one very large credit issuer stood up and made a huge public declaration we hereby renounce universal default and Congress people stood up with executives from that card company and said this is the way it should go this is the market repairing itself this shows you that markets can dis themselves that markets can heal themselves great you couldn't ask for more press around it was more than I was ever going to be able to give with clean cards what happened within a matter of months that same company had to push some poor hapless vice-president out the door to announce as quietly as humanly possible the company has resumed using universal default and the interesting part about the fly is the explanation that followed this is a paraphrase but what it basically said is these damn things have become so complicated that when we made ours a little bit cleaner nobody could tell the difference so all we're doing is just giving up revenue a competitive market causes us to continue to issue the dirtiest possible product so I figure we got to do something else and that means there's something else we got to do my suggestion was that we go to the consumer agency the idea here is that you've got one agency in Washington that's really just pushing for a kind of basic principle and that is that the same set of rules apply to all issuers who issue a particular consumer credit product and you get them all in one place so that means if you've got a mortgage the rules are going to be the same if you've got to get take out a mortgage the rules governing that mortgage will be the same whether it was issued by a state chartered bank a federally chartered bank or no bank at all a mortgage broker it's going to be the same in terms of the kind of disclosure we do whether you're borrowing money on a credit card whether you're doing it by a check overdraft whether you're doing it by payday lending if you're borrowing money there ought to be some similarity in terms of the information that's given to the borrower and some comparability so that people can understand the price understand the risk and be able to compare those products and figure out which ones are cheaper which ones are more dangerous and which ones they want to use do business with so what this is really about is this new agency is to say I actually still believe in markets I do believe in markets but I believe that the role of government is very important the role of government in markets is to make sure that the competition is the visible competition the competition that's out front in other words make the price clear make the risk clear make it so the products are easy enough to compare one tuna and then knock yourself out on competition um talk a bit on price I do it on customer service we are the bank where you can reach a live human being do it on do it on services do it on cool iPhone apps the point is with competition not into the bank what's one more trick you can hide in the shrubbery which is where competition was - what is it that will attract consumers and add value for them because it is the role of government to make sure the competition is not occurring back in the hidden spaces um so what are we gonna do with this agency what are we planning to do here basic principle make the price clear make the risk clear make it easy to compare products and when I say clear I knew real clarity I do not mean a giant Where's Waldo puzzle I I mean simple easy to read straightforward terms make this competition work for families not against them so that's the first part of the insight about what this agency is about and about what role government should play in markets it it should push markets in the direction of saying compete you know I know I've used the toaster analogy once or twice before but it really is worth noting here on appliances on drugs on any other thing that we taste feel touch smell the parts that are hidden the wiring down in the toaster the safety switches what the quality of the wire is and the likelihood it will burst into flames that's the part the government watches out for you that's the part whereas a people we engaged collectively and say yeah we're gonna designate somebody the government to make sure that everybody's following the same set of rules on that stuff that nobody figured out let's boost the profits by taking out the safety switches nobody said let's boost the profits by using the cheaper wiring that's gonna burst into flames and then where does competition go just like it has with testers you know you can get orange wins you can get silver ones you can get ones that you know do lots of pieces you can get ones that only do two pieces you can get high-priced ones you can get low-priced wins competition works but it works against a background that make sure that we are safe in that sense so that's the first part but I want to say a second part about the role of government because it's become so clear to me as we've worked through this idea of an agency rules are not enough they need careful and consistent enforcement so I want to give you a a small piece of this is to remind you we have seven federal agencies um who have a piece of the consumer credit market for none of those agencies is the consumer the primary focus or primary responsibility it's always the redheaded stepchild at the picnic nobody actually wants to claim it people talk about yeah yeah we're gonna do a little consumer but the truth is we're what we're here to watch out for the profitability of the banks we're here to watch out for monetary policy we are not here to watch out for consumers and so the one of the central parts of what this this consumer agency does is it not only talks about the same treatment between banks and non-banks it also talks about the same treatment by pulling out of seven different agencies and putting it in one agency that actually cares about this and that is directly accountable to the American people for it I think this is a real critical part of what happens in building a that what we will be doing by building a consumer agency it's that we actually get an enforcement force a central issue is how do these products look from the point of view of the consumer what are the rules and if the rules aren't being followed to come in and provide some real enforcement on that we need a real commitment to consumer protection it can't be half-hearted banks cannot be in a position if you all knew this to pick their own regulators which has been the system up to now and that the regulators among the the banking regulators the OTS and the OCC they get their budgets based on how many banks choose them ask yourself why consumer protection was not at the top of their lists over the last couple of decades that was the structure so so part of what I'm trying to say about this you can actually do one more the notion of what fragmented oversight means from another direction and that is think about this mortgage servicing scandal that we have just gone through you know as scandals go this was like the dumbest scandal out there right this was not a Ponzi scheme where somebody said we're gonna pay you from the profits and you know somebody could look at and say well it kind of looked okay up until somebody did the accounting and dug into the books much of this is there were companies that just decided it was cheaper not to follow the law and they didn't follow the law this is not we needed fancier laws this was not if you dug deeper you would have seen they did not follow the law four years ago there were academics you are looking at one of them who was talking who were talking about the fact that there were troubles in mortgage servicing they were not following the rules before you foreclose on Katie Porter one of my former students of whom I am very proud got interested in whole question and did a big study on it she was the bankruptcy data in bankruptcy did her fabulous she could look at all kinds of things and discovered kind of through that lens that mortgage servicers just weren't they weren't filing and creating the basic paperwork that they were supposed to create in terms of showing the chain of title showing who owed you know just kind of checking off the boxes on this there were people who were waving their arms about this and yeah not one agency in Washington that gave anyone the time of day that had the slightest interest in it until the problem got bigger and bigger and bigger finally hit the front pages it's everywhere and again threatens the entire system starts to rock the entire system before we could catch anyone's attention on it when there's fragmented oversight when everybody's supposed to be watching a little bit nobody's really watching and I think that's part of what broke in this financial system and that's part of what we're going to fix with a new Consumer Financial Protection Bureau so I'm just I'm gonna stop there I could talk about this bureau all night long um and I could do it for the same reasons that Joanne alter could talk all night long ah we believe in making changes in my case I'm gonna keep driving for an agency driving for an informed consumer driving for someone who is going to say no matter how powerful the institution or not powerful how much it figures out how to hide on the corner and nobody can find her or on the internet all the different tricks no this is not going to work anymore we're gonna make these markets work better and make them work better for families we are not going to have a repeat of the most recent financial crisis at least in the division of bringing down the American families we are not going to do this anymore we are going to wind down the financial stress on middle-class America America's middle class is in deep peril I chose public service at this moment because I believe that Americans deserve better well deserve a financial system that works not one that's stacked against hard-working families and it puts so much risk into the larger economy when aid rules that work for all of us the recent financial crisis was a reckoning a profound moral testing our security is a country rests on whether we can design a suitable set of laws that works not just for the powerful few but for all of us whenever our country has faced economic reckonings in the past government has played a vital role in course-correcting actions providing a way forward that serves the common good one that gives us our national identity and that makes us stronger collectively women have historically provided key guidance at these junctures with Joann alter representing an inspiring example women are needed now more than ever with a new consumer Bureau we have a chance to make an enduring and significant contribution so I follow Joann in saying I'm ready to do my part you managed to make bankruptcy a credit cards sexy and that's not easy we've got a lot of wonderful questions from the audience and the most substantive questions but I wanted to kind of start out with one from Gwen that I think goes at some of what's going on in people's minds when they hear somebody as dynamic as you talk the question is with government so stamped in bureaucracy how can one person try to make a difference how do you break all of the obstacles to get your voice heard you know I wish I had an answer I I just speak for the people who speak to me I we are having such fun building this agency um I really do I feel like Bob the Builder uh we get to put pieces together there are so many people who want to work on something larger than themselves who want to make a contribution to something that's bigger and right now what we're doing at this agency is just offering that opportunity we keep in mind a vision what it is that we're working on we keep in mind two things every day who it is we work for we reinforce this every single morning among the little group that gets to be the bigger group that gets to be the bigger group that's building this agency we are here for the American people that's who we work for we don't work for the bank's we don't work for Wall Street we don't work for anybody else in government we work for the American people that's our job that's our charge read our statute how long before we're all set up so we'll always be in the business of building but but we are supposed to go live on July 21st of this year that will be exactly one year to the day after President Obama signed us into law and at that moment we take over for the other seven agencies and we we now have the responsibility to do the rural writing and to enforce the laws that are already out there in the in the federal scheme a lot of people want to know whether you'll be the first chair of the consumer Bureau so do I some people in Chicago have a little influence with certain gentlemen but this really goes to a deeper question about President Obama that dovetails with John's question here yes Dan for the midst of a class war in the u.s. a war on the middle class by the top one percent of wealthy Americans and I think if I can John asked a slightly more vague version of that question less pointed with the financial sector in a collaborative adversarial process [Music] miscreants and not try to pretend that you know you gotta call out the miscreants there's just there's no doubt in my mind about this but I really want to make a slightly different point that doesn't mean it's war between the financial services industry in the middle class we've got a real problem here and that is the financial services industry itself is quite fractured now we give you a couple of examples of that community banks are by and large they're not perfect there there have been some problems but I got to tell you about community banks by and large they can't do front end back in pricing games tell you they're selling it to you for one price and then plan to beat you with a 2x4 after they've gotten you to take the product because they have real value in staying in the same community and they deal with the fact that people tell them they mention it at the you know the softball games and the PTA meetings and they tell everyone else in the community so community bakers and I don't should after that credit unions have had to build a model around being long-term partners with the families they serve and there are a number of larger financial institutions who really want to do that one of the one of the most interesting parts about this job has been meeting with the CEOs of the biggest financial institutions and meeting with boards and CEOs from some of the tiniest financial institutions even among the largest financial institutions there are some who talk in terms of repairing their relationship with the American people remember the point I made about competition when the game is afoot you could not be the one who started the game but once the game is afoot and everybody else is offering it for free you're no longer in a place where you can say I'm gonna make my cost to clear up front indeed I talk I've talked to two CEOs and I can think of who said I've put products out there that I know for a fact were cheaper than their closest competitors bite by a measurable number of points and I couldn't get anybody to pick them up because I made my price on the front end instead of making my price on the back end you are going to be my new best friend you get out there and clean this market up then competition starts to work and there are other industries where actually this this kind of notion has been out there think about it this way who's gonna invest in doing it the right way if you can't make it clear because of everything else that you're competing against so I actually don't see this as war in that sense I see this as you have to call out bad practices for what they are you have to say here's the new rules going forward and and there I'm gonna Sam - I'm blue in the face it's about making the price clear it's about making the risk clearer it's about making these products short enough and simple enough that people can make direct comparisons you do that on your friend you don't do that and I will fight you in the streets so if Jamie if China diamond who was a banker here in Chicago for a while it's JP Morgan Chase if he says in USA Today as he did last week that Oh with the new crackdown in debit cards we're gonna have to raise fees you know to make up for that I guess to keep the profit margins at a certain point you're saying as long as you have this transparency and these requirements that you laid out it's not really up to the government to tell them when they can or can't raise fees it is not the job of this new consumer agency to come in and say to a bank lower that fear raise that fee or you're allowed to go to this point it's not our job and it shouldn't be our job our job is to say you've got to make these costs clear upfront and then let's see what the market does you tell me what you're gonna charge for this let me see if somebody else thinks they can do it cheaper we'll find out but the truth is we're all better off if we pay for it if we see what it is we're paying for you know because at the end of the day nobody was giving this stuff away free they were never giving it away free they were always just doing it on the back end where nobody could see it this is a broader question from Tony that I think a lot of people are wondering about why should banks that don't make loans get federal support in other words should there be more strings attached to in the past with with tarp and in the future with you know various favors that they get from the government shuttlebay explain required to start lending more to small business instead of sitting on their cash so I'm just gonna make a statement to the side about tark not in my role as part of now the doing consumer financial protection because I think there's a deeper question hidden in there and that is the question about what we should have done in the fall of 2008 when the world it looked like was about to go over the abyss I I think Congress did exactly the right thing when they passed tarp and they said they made the very clear statement to the world we will not stand by on our ideology about free markets and let this economy plunge back into the Stone Age I think they were exactly right in my view where the mistake was made is when the money was handed over to secretary Paulson I understand it was done under emergency circumstances and he decided to start shoveling it out the door on a no-strings-attached basis you know I'll just tell you I come from a world of bankruptcy and bankruptcy really is about coming in in emergency situations and saying look sometimes it's better to rescue things than it is to kill things off yeah you owed the money better to get 80 cents on the dollar than to get 0 cents on the dollar by throwing this thing out but what I also understood in a world of bankruptcy is you wipe out the shareholders that's the point of being a shareholder I you get rid of top management because somebody has to be held responsible and and you say you need a new business plan even look even if it's only a scratch down in one page the importance of what's called distressed financing or post-petition financier financing once somebody's in financial trouble of hitting all those that you wipe out the investors that you replace the top management and you say there's got to be a new business plan is part of saying the old way of running the world doesn't work anymore this financial crisis was not a natural disaster it was not an extraordinary snowstorm or a tsunami or an earthquake it was people who set up financial institutions and followed financial practices that were risky and that put the rest of this country at risk and that can't happen anymore and we needed to say that from the beginning so it's so I'm at little toys on and I have a Congress which if it came up today tarp wouldn't get through the house it's just it composed of different membership and will also have some different economic policymakers in the White House Austin growls Boehner was University of Chicago professor of economics is now the chair of the Council of Economic Advisors Louis Summers is going been replaced by John Sperling Donna changes whether in Congress or in the White House materially impact what you're trying to do on the consumer agency implementation of what you're working with the Treasury which I think everybody knows but you know an available basis as you're trying to implement this get the the appropriations that you need and and have the access to policymakers inside the White House that you need to implement it there's been some changes and how do they stack up so the answer is there's one change that hasn't been made and it's the one that mattered the most this past summer the president called me in and after the bill had been signed into law and after you know that hello he took both my hands in his and said to me do might have a strong enough agency did you get what you need to get the job done and I said yes mr. president we did we've got the pieces we need and he said you're sure you've got enough and I said if we can hang on to what we have here we have enough this mattered to him it still does this is and he said this is an important part of my legacy as long as the press the United States stands behind this and we've got the tools we need my feel is I just keep building this agency and I just keep moving forward and the rest of it you know they're firing live ammunition over my head I'll try to stay down he does building every single day my boys go back on this issue to when he was working down the hall from Lisa in the Illinois State Senate tell if you could the story of when he first met Barack Obama at Harvard Law School so I got an email my husband I both did um from one of our colleagues who said there's another one of our former students who wants to run who wants to put together a committee to explore whether or not he might be able to run in the Democratic primary for Senate in in Illinois against an incumbent and I like to go to these things for our former students and so we we put it at a whopping 250 bucks and went over late afternoon to David Wilkins house and the the physical part of this is actually the most fun part of this story he has this house that has a big sunroom on the back that lets in a lot of light and it was late afternoon and so I walked in the front door there were by the way I think there were six people who came to this party and you know this is like my one time I bought Microsoft at a penny you know and and I look back and here's this tall slim man you love this whose back lit and he just sort of glows in the light and I walked down the hall I actually don't know who this is and I'm walking down the hall and he turns around and holds his hand out and as our hands meet he leans forward and says predatory lending and I went and he said it's predatory lending this is why I need to go to the United States Congress I've tried to deal with it in the state legislature I've tried to deal with it in state laws the federal regulators are holding us off they won't let us act to protect our own citizens I've got to be able to move to Washington to do something about predatory lending he went on and on and on and I'm still just standing there with my if I think that's all the way to the end and then he says with this great smile well and I said you had me at predatory lending okay so the president has a lot of people in this room as well but Christie asks a good question so what can you ask this captive group to do tomorrow to help you help America okay two things I don't want just one I'm not getting paid for this I'm not getting out of here without two asks the first one is there's a dust-up right now about the consumer agency bear with me for a second on funding all banking regulators those who have to stand up to the big powerful financial institutions in this country and say anything to them have always been independently funded that means outside the political process and like I said there's a little twist in that some of them got their money from the banks but the banks had to choose at least one regulator and be in the system in pay the Fed gets its money of course from selling Treasuries they're outside the political process because of lobbying because of political influence and this has always been the case the consumer agency is set up in what I believe is a profound statement of poetic justice and that is it here's how I interpret the law Congress sent to the Fed you were responsible for dealing with consumers and protecting consumers for many decades now and it's true if you go back and read the statute they should have been they should have been actively involved in the mortgage crisis they had the laws to head it off and they failed to do so so Congress said from the day dodd-frank is signed going forward you must tithe 10% of your income to consumers and that will become the budget of the new Consumer Financial Protection Bureau so we get the tithe money and it keeps us out of the political process there is a move in the house right now to try to pull us back into the political process which by the way would add to the national debt to put us back into the political process so that lobbyists would be able year after year after year to attack our funding and the reason I think this is so important about what's going on I don't think anybody's going to try to repeal the consumer agency but if you can rip its arms and legs off say that it can't do anything then you get the same effect so the first to ask is email somebody powerful tomorrow somebody who has a connection to Washington and say ah the consumer agency stays independent that's the first thing the second thing goes at this from a different point and that is I just want to mention about community bankers and credit unions they fought the consumer agency and I understand why they are very worried about additional regulatory burdens and they looked at this and just said oh my god this could be one more regulation and we are already think about it they have to follow the same regulations as largely is a trillion dollar institution a trillion dollar institution spreads that across as a kazillion accounts a community bank or credit union has got to spread that across a very small number of accounts and so they've been very deeply concerned and I understand that I've been trying to reach out to community banks to credit unions because I think we should be partners with them I think the kind of business model they follow is what we want to see for the American people at the end of the day I don't want to be part of a consumer agency that causes even more concentration in the banking industry that at the that causes us to end up with three or four a trillion-dollar banks and nobody else no diversity in this system so if you have a connection to a community bank or a community banker to a credit union talk to him about the consumer agency and talk to him about what they're doing and what we're doing we should be together on that you sure help explain briefly how we can do this and do it for the troops which has helped politically with mrs. Petraeus so one of the one of the best parts of doing this agency is that you get to see a lot of people who really care about these set of issues this set of issues and have lived it from different parts of it um one of the parts is what's happened to military families military families have often been targeted for some of the most abusive forms of credit this has been true with payday loans title loans but also with certain kinds of mortgages and military families of course face certain challenges about being moved around families now we're getting to couples who are both military and they get sent to different places a lot of special challenges I was on the job a week when Holly Petraeus came to see me and sat in my office she was working for the Better Business Bureau on a military outreach initiative on credit and started lecturing me there's just really no other way to describe it I started lecturing me on the loopholes in the law that needed to be closed and better enforcement of the laws and by the way online what are you planning to do about that they're targeting military service members and you know by the time she took her third breath which was long way into her conversation I thought this is a woman who should come work for this agency and so mrs. Petraeus is now the head of our servicemember Affairs Office and she's terrific um I am also pleased um I want to say is because this is what you really need to understand she gets it I mean she was she was military she grew up in a military family her father was military her grandfather was military this goes back for a long time obviously her husband General Petraeus her son is in the military but she gets what's happened to these families and she is deeply and profoundly passionate about it and I want to say this she is like the other people who work at this agency who may not have such famous names but all of whom believe that what we're trying to do is we're trying to do a little good in a very dangerous world for some families who really really need it so thank you for the opportunity [Music]

Channel: Chicago Humanities Festival

Views: 62,789

Rating: 4.7826085 out of 5

Keywords: Banks, Middle Class, Elizabeth Warren, public service, America, consumers, government, money, Obama

Id: f519_LGjhCA

Length: 63min 24sec (3804 seconds)

Published: Sun Feb 27 2011

Reddit Comments

[u/DutchAmerican93]

This is one of the things I love most about her. She's just great at telling stories. I really think it's part of the reason why she's rising in the polls as well. Her stories are just so compelling. The fact that she's also able to tie them to policy is just fantastic.

[u/drkyle54]

"You had me at predatory lending."😂 Please can we have a delightful policy nerd as our president???

[u/Brysynner]

Came for the predatory lending, stayed for the CFPB story.