June 24, 2010

Sherrod Brown would like to see Elizabeth Warren appointed as the head of the new consumer financial protection agency, and so would I. I think she would make an excellent choice. Here's one reason why. She's been holding Tim Geithner's feet to the fire with her current TARP oversight duties.

Geithner and Warren Duel Over Banks’ Health:

When it comes to the health of the banking system, Timothy F. Geithner and Elizabeth Warren don’t see eye to eye.

Mr. Geithner, the Treasury secretary, told the Congressional Oversight Panel on Tuesday that the Troubled Asset Relief Program had been “remarkably effective” in stabilizing the banking system, noting that the program was on track to end in October with only minimal losses to the taxpayers.

But Ms. Warren, the panel’s chairwoman, questioned whether the banks were really stable enough to stand on their own without the program’s government safety net, and she called for another round of stress tests to make sure the banks are sound.

Ms. Warren was particularly concerned about the billions of dollars worth of bad securities and questionable commercial real estate loans still on the banks’ balance sheets. These relics from the boom years could haunt the banks in the future, possibly forcing them back into the arms of the government. Read on...

Elizabeth Warren appeared on the PBS Newshour and expressed similar concerns about the health of the banks and relief on foreclosures with Judy Woodruff.

TARP Watchdog: Foreclosure Program 'Too Small, Too Slow:

JUDY WOODRUFF: We heard Secretary Geithner say today he thinks the TARP program has worked remarkably well. Taxpayers are getting most of their money back. Should that be the main measurement of its success?

ELIZABETH WARREN: Well, it should be one of the measurements.

And, look, it's always part of the measurement that the initial action very well may have pulled us back from the brink of a depression. The big question is, what are we going to do with the money now? TARP is winding down. There's three more months to figure out whether or not we actually have adequate stability in the financial institutions and what to do about home mortgage foreclosure.

We only have this limited period of time to adjust the programs, to change the programs to try to deal with those problems.

JUDY WOODRUFF: Well, let me ask you about the home mortgage foreclosures. You had a very animated exchange with the secretary over that question.


JUDY WOODRUFF: He says the success, as we heard him say, can be measured family by family, that it was never intended to help everybody.

ELIZABETH WARREN: Well, you know, no one disputes that. Of course it was never intended to help everybody. But it was intended to help somebody.

The problem we have got -- let me put it this way. This is a program that is saving a tiny number of people, ultimately, by getting them into affordable mortgages that the estimates are they will be able to sustain over time.

And for every one of those families that goes in, there are many, many more families who never make it. And the kinds of numbers we're looking at, we're looking at mortgage foreclosures that stay well over a million families this year, next year, the year after that, the year after that.

That has implications, not only for those families, but for the financial institutions that are holding those mortgages, for the construction industry, for our overall economy. We have a serious problem and a limited amount of time to get ahead of it. HAMP is not getting ahead of it.

JUDY WOODRUFF: The government's current -- that's the name of the program.


JUDY WOODRUFF: And what's your understanding of why the government -- why the administration, why the Treasury Department isn't doing more?

ELIZABETH WARREN: It is -- it's as if we had a boat that's taking on gallons of water, and they're trying to bail it with a teaspoon.

And, actually, I will give you an example of that. This program has now been in effect for 15 months. It has an allocation to try to deal with a very large problem. The allocation is $50 billion. And, so far, they have actually spent less than $200 million on mortgage foreclosure relief.

It is a -- it is a badly designed program that, from the beginning, was too small, too slow, couldn't be scaled up.

JUDY WOODRUFF: Elizabeth Warren, you also expressed concerns today about the number of banks that you said are dangerously exposed to commercial real estate loans. What did you make of Secretary Geithner's answer on that?

ELIZABETH WARREN: Well, you know, he said he's comfortable. And I'm -- I just have to worry.

We have 3,000 of the 8,000 banks in the United States, by the definition of their own regulators, are dangerously exposed on commercial mortgages. We see a problem that's coming that's getting bigger in the years ahead. And six of the 19 stress-tested banks -- just to give you an idea about concentration, six of the 19 stress-tested banks have commercial real estate mortgage portfolios that are larger than their Tier 1 capital.

This is an area -- just to give you an idea, by the end of this year, commercial real estate mortgages will have shrunk in value, the property underlying those mortgages, by about 50 percent. Well, this is a big problem. And it's a problem in our future, not in our past.

JUDY WOODRUFF: And I listened to your exchange with the secretary on that. And he didn't seem to be nearly as concerned as you are. And is this a definitional difference here, as much as anything else? How do you explain it?

ELIZABETH WARREN: Well, you know, I do have to say, I really wish that the secretary had said, your numbers are wrong. Here's some part of it you're not seeing.

Instead, what he said is, the problem isn't as bad as we thought it was going to be.

JUDY WOODRUFF: Separate question. The financial regulatory reform legislation moving through Congress, it came up today at the panel several times. I know it's not -- it's not officially under your purview as chair of this panel, but as someone who studies the financial sector, what do you think is good about what's moving through Congress, and what do you worry about?

ELIZABETH WARREN: I think the Consumer Financial Protection Agency is good. You know, we don't know until the final details are there, but it is a strong agency. It's right up to the edge. You take much more away from it, and it won't be enough to get the job done.

Right now, the big issue on that, it is whether or not car dealers ought to have an exemption, not have to follow the same rules of disclosure and honesty in their loans that everyone else is going to have to follow. But the consumer agency looks good.

The other pieces, in the right direction. The real question is whether they push hard enough, whether we get enough done in this round of reform.

JUDY WOODRUFF: And what would be your definition of enough?

ELIZABETH WARREN: Well, enough that we feel like we have wound real risk out of the system. And that's hard to do.

You know, we always have to remember what it was that brought us this crisis in 2008. We talked about concentration in the financial services industry. Here we are, two years later, and the industry is more concentrated. The big are bigger. And there are fewer small banks, so we have less diversification in the industry.

We have not yet dealt with the problems of derivatives with these shadow markets that impose a lot of risk on the overall financial system, and not on the rest of us. Until we deal with that, we -- we continue to live at risk.

JUDY WOODRUFF: And will your panel be hearing from Secretary Geithner again, before TARP expires in October and before your panel expires next spring?

ELIZABETH WARREN: We will certainly invite him. And that's the best we can do. I call on a regular basis and ask if he will come to talk with us.

JUDY WOODRUFF: Elizabeth Warren, chair of the congressional oversight panel, thanks very much for coming to talk to us.


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