Jason Linkins contributed to this story.
As Members of Congress debate the most sweeping reform of the financial industry in decades, some are working closely with an outspoken Harvard professor who has been tapped to oversee the banking bailout.
Congressional Oversight Panel chair Elizabeth Warren addressed the full House Democratic caucus Wednesday afternoon, while across Independence Avenue, a House committee was voting on elements of her brainchild, the Consumer Financial Protection Agency. The full bill passed the committee 39 to 29 on Thursday morning, and is expected to be approved by the full House.
Warren, a longtime consumer advocate and champion of the middle class in her academic research, has been deeply involved. "Last Saturday night, I think I got my last email from Elizabeth Warren after eleven," said Rep. Brad Miller (D-N.C.), who is championing her measure in the committee. "And the first one came in before seven o'clock Sunday morning... She's been very involved in all these discussions."
Progressives won a major victory against bank lobbyists this week when Rep. Melissa Bean (D-Ill.) pulled back an amendment that would have established the CFPA as the strictest regulation across the country, thereby preventing states from enacting tougher laws. With her amendment withdrawn, the CFPA would be the floor rather than the ceiling across the country.
Still, the legislative process in Chairman Barney Frank's House Financial Services Committee has taken a toll on Warren's initial proposal, and a number of lenders and financial interests continue to lobby for exemptions. Warren is watching them closely. "She hasn't gotten everything that she wanted. None of us have. But she's certainly had an opportunity to squawk," Miller said. And Rep. John Larson (D-Conn.), chairman of the caucus, said Warren, in her remarks, "lauded the efforts of Barney Frank and the committee."
Warren also made an appearance on Thursday morning's edition of Morning Joe on MSNBC, where she discussed executive compensation reform and the current state of consumer regulation. She told the show's panel that the two "watchwords" to think about when considering the Wall Street culture that continually rewards executives for failure were "arrogance" and "cozy."
The arrogance is evident, Warren says, in the way Wall Street executives "think they deserve [compensatory rewards] after they effectively bankrupted their companies and nearly bankrupted the country." Warren pointed out: "Had it not been for taxpayer bailouts, these people would be on the streets."
The coziness, Warren said, was reflected in the way that financial firms have set up their corporate boards: "Who did you get on the board, you got your buds on the board. And then what did you do? You sat on their boards."
Warren also put the odds of taxpayers getting paid back the money they sunk into the financial system as "not good." As far as the current state of regulatory reform, how's this for bad news?
So this is the single scariest part about what's happening. We have finally learned if you throw enough taxpayers under the bus you can stabilize at least the top part of the economy. Obviously what's happening with unemployment and foreclosures says we haven't stabilized the real economy. But the same rules that brought us to this crisis are still in place. We have not changed any of the basic rules, and the conversation on regulatory reform has really in large part been drowned out.
SCARBOROUGH: Let's look at a full screen and have you tell us what's going on here. Citigroup borrowed $387 billion they haven't paid anything back. AIG $181 billion. they've paid $72 back. Bank of America, $101, they haven't paid anything back. Goldman Sachs has borrowed $69 billion, paid back $25 billion. JP Morgan Chase $53 billion, $10 billion back. Look at that chart and tell me what do you expect to happen over the next year with these companies? Do you suspect that JP Morgan Chase and also Goldman Sachs may pay back all of their money sooner or later?
WARREN: You know, I'm just going to -- I'm going to have to take a bit of a bump on this one. Some of them will pay back, but let's face it. The odds are not good that we're going to get repaid in full on this money. That's what makes it even more disturbing that they are draining out as much as they can for the executives right now. But let's face it. Overall, the taxpayer is the one at risk here. We're the one who stand in the last position to get paid. That's why we have an interest in this.
SCARBOROUGH: Explain the arrogance, professor. You looked into this more closely than probably than most people in America. Explain the arrogance, explain the culture in these companies that would have them behaving the way they are behaving a year after September 15th.
WARREN: You know, arrogance is exactly the right word, because what we're really talking about is not just people who can get it, they are in the legal position where they can get it until someone like the pay czar smacks them and tells them no. We're talking about people who think they deserve it. And think they deserve it after they effectively bankrupted their companies and nearly bankrupted the country. Had it not been for taxpayer bailouts, these people would be on the streets. They wouldn't have their CEOs and keys to the fancy jets and perks.
BARTIROMO: Can I jump in. where's the accountability, though, on the boards and -- and what's with the compensation committee? What's their role? What's the role of shareholders? I'm not necessarily criticizing the pay czar for making this order, and it is an order, but more so I mean, we have a structure in place, so where's the accountability on the board, on the compensation committee and what's happening with these guys? Don't they hold some responsibility for allowing this to happen?
WARREN: You bet they do. So let me point out. The first word is arrogance, the second watch word in understanding this crisis is cozy, and that is, who did you get on the board, you got your buds on the board. And then what did you do? You sat on their boards.
BARTIROMO: They're not getting pay cuts, they're not really getting -- feeling accountable.
WARREN: They slathered each other was the game here. That's why the real point is not just -- we talked about this before. How you pull the economy out of the ditch right now, it's what kind of rules we're going to have going forward. And if we're going to end up having subsidized all of these companies, we start to get the economy stabilized but we say hey, you can go back to business as usual, no real change in how corporate governance works we're going to be back here again every ten years talking about it.
BARTIROMO: We are back here again. There's still too big to fail, where's the financial reform? Elizabeth, derivatives got us into this place. We're still seeing the use of derivatives. Where is financial reform, we're all dominated by health care. So I don't know, understand what's going on here because when do you expect financial reform to actually materialize?
WARREN: Okay, so this is the single scariest part about what's happening. We have finally learned if you throw enough taxpayers under the bus you can stabilize at least the top part of the economy. Obviously what's happening with unemployment and foreclosures says we haven't stabilized the real economy. But the same rules that brought us to this crisis are still in place. We have not changed any of the basic rules, and the conversation on regulatory reform has really in large part been drowned out. So, my view on this is, let's demand that we get real changes. You know, if what came out of this craziness over executive compensation is that people had a renewed energy to go back on Capitol Hill and say we are really going to make the kinds of reforms we need to make to change thele rules of the road going forward, then it can turn out to be a good thing. There needs impetus for change.