I have very mixed feelings about Elizabeth Warren. I think she is smart and intelligent. I respect her opinion on many things, but I did not always agree with her testimony about protecting consumers from themselves. (The link is to a PDF of House testimony. I disagree with needing a specific agency for consumer financial protection, but not the overall message. I kind of thought we already had protection with the Fed, per her own understanding. They just are toothless about it. Read the article.) Some of it made me downright angry. But today, rather than view her as a Cassandra of doom and gloom, I think of her as a woman with straight-talk and a lot of common sense. She is absolutely right that consumer financial products are too complicated for the layman and they are full of deceptive practices. But once you eliminate deception, then it is the consumer’s fault they drive themselves deep into debt. (A position I felt was missing from some of her previous congressional testimony.)
This excerpt is from the Washington Post’s interview with her. (Video link here. Transcript here.)
Interviewer: With regard to consumers: how much blame should they share in the predicament that they are finding themselves in? No one forced them to put their whole lives on credit cards. No one forced them to buy homes that they couldn’t afford.
WARREN: My take is that personal responsibility is a huge part of dealing with credit. But there has also been a problem with the products themselves. [ed. emphasis added] You know, we have both halves here. We have people who knew exactly what they were doing when they got into it with home mortgages, when they went crazy with credit cards, went to the mall and charged up too much stuff that they couldn’t afford to pay for.But we also have the flip side of the story. We have people who thought they were buying mortgages that were going to have monthly payments of $599 and never tumbled to the fact that that was actually only for the first three months or six months and that it was all going to explode after that, or people who took out credit cards, they carefully budgeted and said I can afford to buy a washer and dryer and pay it off at 8.9 percent interest. And the interest rate just got jerked up to 19.9 percent for no reason other than the bank would like to have higher revenues.
So my view of this is that it is the role of good regulation to make sure that the credit problem is not the one that is caused by putting out deceptive products. But once you clean that part of it up, it is also very clear that people should be held responsible. They should be held to their bargains, so long as the products they’re buying are clear.
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I absolutely agree with her! Thanks for highlighting her responses. Individual responsibility shouldn’t be an excuse for deceptive business practices. You have to have responsibility on both sides.
The FBI warned of an approaching “epidemic” of mortgage fraud in 2004.
CNN, September 17, 2004: “Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an ‘epidemic’ of financial crimes which, if not curtailed, could become ‘the next S&L crisis.’”
Rocky Mountain News: “The FBI report said research indicates that 80 percent of mortgage fraud nationwide ‘involves collaboration or collusion by industry insiders.’”
Mentioned in new Michael Moore movie. The FBI
Can’t say I agree with her 100% either, but she does make some good points. Great post.
My husband calls her “our Elizabeth” as we’ve been fans since she first started commenting on the economy on Dan Rather’s HDNet show (I know he’s weirdly possessive – like we invited her to be interviewed and are the sole watchers of the show?!). I’m a fan of her macro-level analysis and feel she gets a little off-track when discussing the tactics for consumer protection. But on the whole, I’m glad that among the varied voices in the economics dialogue, hers is available and getting more listners.