The Common Good
April 2010

Leveling the Playing Field

by Jim Wallis, Jeannie Choi | April 2010

Dr. Elizabeth Warren -- head of Congress's TARP watchdog and veteran Sunday school teacher -- talks with Sojourners about facing down the Goliaths of Wall Street.

Elizabeth Warren is more than just the head of Congress’s panel reviewing the bank bailout (officially, the Troubled Asset Relief Program). Along with being a Harvard Law professor, she’s also a plain-spoken and passionate advocate for everyday people who is deeply motivated by her Oklahoma Methodist upbringing, as she described in an interview with Sojourners editor-in-chief Jim Wallis and assistant editor Jeannie Choi this February.

Wallis: Particularly for people of faith and conscience, what’s at stake in the battle over financial regulation that we’re in now?
Warren: Our future is at stake, and the future of our children. The story works this way: We had a boom-and-bust economy from 1794 until 1930. Our young nation would lurch from moments of great prosperity to moments of economic panic. Coming out of the 1930s, our leaders crafted a set of basic rules that put fairness into the marketplace: FDIC insurance that made it safe to put money in banks; Glass-Steagall, that said banks that take deposits cannot go out and speculate with your money; some honesty rules for Wall Street through the SEC. Those rules brought us 50 years of economic security and prosperity.
By the 1980s, some of those were outmoded—but instead of trying to think through what kind of rules we need to create a fair marketplace, we just began to throw the rules out. The credit marketplace became a lawless arena.
Credit cards had been access to modest amounts of credit on fair terms; that model was tossed out. Instead, Wall Street developed a model of tricking people—pretending that a credit card was 2.9 percent financing and then making all the money on the tricks and traps buried in the fine print. A credit card agreement in 1980 was one page; by the early 2000s, it was more than 30 pages and unreadable—that’s the point.
The mortgage industry introduced teaser-rate mortgages, “liar’s loans”—mortgages that they knew, when they issued them, that the family after two years would either have to find a way to refinance, with very high fees for the company, or would lose the home.
In this lawless environment, Wall Street companies figured out how to trick their way into billions of dollars annually from hard-working middle-class families. That drove up profits and bonuses in the industry—and risk for families and the entire economy.
Wallis: When we were afraid of the meltdown, we extended grace to the bankers, and then they extend no grace to homeowners. They’re modifying so few loans; I read that a quarter of the money spent on bonuses at the big banks last year would be enough to prevent or postpone projected foreclosures through 2012.
What we do about this is a measure of ourselves. If this is how we define ourselves—that the powerful feast off the rest of us—then that’s what we’ve become. We could have a lawless world in which the fast and the slick can take whatever they can get their hands on. Some of us will do all right with that. But millions of families will get caught—if it’s not credit cards, it’s mortgages, or overdraft on checking accounts, or payday loans.
What’s at stake here is how we want to live in markets. If we get this right, we’ll have it right for another 50 years—we’ll have it right for our children and grandchildren.
Wallis: With taxpayer bailouts, it’s as if these guys are going to Las Vegas and betting on red 21. If they win, they get rich. If they lose, we bail them out.
Right now, if a Wall Street bank goes out and makes the wildest bet on earth, it will keep the profits if the bet pays off, and if it doesn’t pay off, you and I and millions of other American taxpayers will make up the difference. But if a family gets into trouble, if a family loses a job, if they’ve been tricked into some crazy payment scheme, if someone in the household has gotten sick, the answer is: Squeeze them until they’re dry—take everything. Those are the rules we’re operating under, and those rules are wrong.
Wallis: How would a Consumer Financial Protection Agency help fix the problem?
There are seven agencies in Washington that have some responsibility for consumer financial protection. Seven bureaucracies, all ineffective, because none are in agencies that are principally accountable to consumers. The Office of the Comptroller of the Currency (OCC), the primary bank regulator, has a large consumer division, but its principal responsibility is the profitability of the banks! So, when there have been disputes between banks and consumers, over, say, check-clearing practices or credit cards, the OCC has gone into court to argue on behalf of the banks—always on behalf of the banks.
The idea behind a consumer financial protection agency is to scissor out the rest of that bureaucracy, and focus on leveling the playing field on behalf of families. So it doesn’t make any difference whether your mortgage is issued by a nationally chartered bank, a state chartered bank, or a broker on the Internet—the same rules would apply. Same thing for car loans, credit cards, or any other financial product.
The principal idea is to make consumer financial products easy to read. The American Enterprise Institute has come up with a model two-page mortgage form. Another group has come up with a one-page credit-card agreement. If they’re short and readable, there’s no place to hide the tricks and traps, and it will be possible for a family to compare four different credit cards and see which one’s cheaper, which one has more risk.
The idea is to get some basic fairness in the marketplace so that customers can tell in advance what they’re buying. Evidently, according to Wall Street CEOs, that’s outrageous, and they have vowed to kill this agency.
Wallis: Where is the support, and the pushback, coming from about this?
The support has come from a very wide variety of groups: The AARP, Consumers Union, the AFL-CIO, and the Service Employees International Union, as well as from community groups and grassroots organizations. More than 200 groups have supported this new agency.
The pushback has come almost entirely from Wall Street. The American Bankers Association has spent millions and millions of dollars lobbying Congress, making contributions to political action committees, to bottle up this bill.
It’s deeply shocking to me that we are now 16 months past the near-collapse of our economy and we have not changed a single rule. The basic laws that got us into this—the laws that put those mortgages out there that caused the collapse to begin one household at a time, and brought us right to the edge of bringing down our entire economy—we haven’t changed any of those.
The House has passed a version of this bill. It’s a good version—it has some dings, but it is strong enough to get the job done. It’s bottled up in the Senate. So the question will be: Can we get it out of the Senate?
Wallis: I remember the day we both were at the White House, and President Obama spoke about meeting with several ordinary Americans who had been victims of these predatory and abusive practices. It’s the stories of ordinary people that ought to change us. You’re a veteran Sunday school teacher; you’ve been using the language of David and Goliath.
It is a David and Goliath story. I remember one woman at that event—we spoke afterward. She spoke about how deeply humiliated she felt. She didn’t just lose money and her house: She lost her sense of self-worth. She had the sense that she was stupid, that she was not up to the task of surviving in this world.
So I say: Look, this is about a set of rules. We used to have a good set of basic rules that governed credit. They were largely usury-based rules, biblical in origin, which had been part of America’s laws since colonial times. They were very quietly tossed out in the 1980s. That’s what provoked this race to the bottom. My push right now is—we can change this. We are the ones who determine what the rules are!
Wallis: There are issues of personal responsibility to look at, but you’ve also spoken against scapegoating consumers. How do you strike the balance?
So long as credit card agreements are unreadable, and car loans come with hidden kickbacks, and mortgages carry the seeds of their own foreclosures from the day they’re issued, then we need a change in the rules, period. When those are changed, people have to look hard at their own values and spending habits. But our failure to do that is not an excuse for someone else to cheat us. For me, that’s the heart of it.
Choi: What can our readers do to support these changes?
I’m not someone who ever thought I would write letters to Congress, but now is the time—we must make a change. Write your senator, make a phone call, send an e-mail, do all of the above, and ask your neighbors to do the same. Write a letter to the editor in your newspaper. There has to be a sense of public energy behind this. This is not a Democrat-Republican issue, this is not a liberal-conservative issue; this is about the survival of our families.
Senators hear literally every day, from bank lobbyists, a plausible story for why we need to stay with the status quo. It’s water that wears on a rock, even for committed senators. They need to hear, on a personal level, what’s happening to families. They need to be held to account.
Choi: How does your faith inform the work you are doing today?
I grew up in Oklahoma in what we used to refer to as a mixed marriage—my mother was Baptist and my father was Methodist! I grew up in a world of Christian service, and the whole notion that some people of faith embrace greed is so deeply troubling to me.
My Methodist roots—a tradition that worship is doing what is right—show in every bit of work I do. It is about helping others. That guides my life every day.
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