2. Ms Warren is one of the few upright and prudent people in DC though she is very polite calling Geithner and Paulson honorable man. Recommended read and see.
Elizabeth Warren Discusses The Global "Enron": From Wall Street To Greece And Back
The appearance of the Chair of the Congressional Oversight Panel, Elizabeth Warren, on Charlie Rose is a must watch. In addition to an in depth discussion of the the consumer protection agency, which despite all valiant attempts to the contrary, will likely end up under the Fed's jurisdiction, thereby making the world's most powerful cabal even more powerful, Warren touches on a variety of other issues, including the sovereign debt situation, commercial real estate, and the one concept at the heart of it all: the lack of impairments by stockholders (and certainly by debtholders) in what was a bankrupt financial industry. The world would not have ended had banks been forced to readjust their balance sheets: the outcome would have been far simpler - all those who had their collective net wealth associated with the balance sheets, and specifically the equity tranche, of firms like Goldman, JPM, Citi, BofA and Wells would have been wiped out. But why do that when not just they, but the entire government were willing to make it seems that a balance sheet reorganization is equivalent to liquidation. Once again, those at the top were more than happy to take advantage of the stupidity of the morts (whose great desire to be distracted by stupidity like primetime TV is well known to the financial-media complex) and in the process make themselves even richer, and more powerful. Now, we expect yet another blogger to come out with yet another book discussing this and every other deadbeaten horse issue out there. And with time amoral hazard itself will slowly become illegal, as everything, and we mean everything, succumbs to the decision making of the Federal Reserve's Politbureau. In the meantime nothing will change until democracy itself is reignited in this country.
Warren's observations on Greece and Goldman's involvement in creating Europe's Enron.
CHARLIE ROSE: We are now looking at the situation in Greece where there is risk of default on debt. And what’s come into play are private equity firms looking how they get engaged and also betting on Euro, and credit default swaps have risen their presence again.
And the whole notion of bookkeeping, in effect.
CHARLIE ROSE: Whether certain firms -- the charge is certain firms help them cover up the amount of debt they had.
ELIZABETH WARREN: Enron taught us a few years back, you remember, in fact that the books are dirty, that there is one set of books put out in front for everyone to see, but there are effectively off the book transactions that nobody can see that reflect the real risks that your enterprise has taken.
And we’ve gone straight from Enron to Greece, with lots of stops in between for large financial institutions.
But what it really goes back to is how much honesty, how much transparency are we going to insist on in the financial system? Everyone wants to make this stuff really hard. It’s about credit default swaps and derivative squares, and so on. No, it really is about things like transparency and honesty.
On Too Big To Fail:
CHARLIE ROSE: What else do you want to see in regulatory, in a bill that’s supposedly looks at how we got where we are in the economic crises and the recession that we experienced and to make new rules and regulations that will prevent it from happening again?
ELIZABETH WARREN: It’s about the other end of the spectrum. We started at families. The other end is "too big to fail."
Until we build a chapter 11 system, a resolution authority system, whatever we want to call this, until we build the part of the legal structure that permits us as a people to say with real credibility behind it, "credibility" is the underlying word here -- I don’t care what your business is. I don’t care how big you are, I don’t care how intertwined you are. If you make bad enough decisions, you can be liquidated. It’s over.
On wiping out shareholders in the bankrupt institutions (and yes, that includes Goldman Sachs):
ELIZABETH WARREN: There’s a key part to this on bailing out the banks. Here’s what’s always driven me crazy about this from the beginning. I understand financing that comes in once a business is in distress. We call it post-petition financing in the bankruptcy world.
The price for that is that equity gets wiped out, top management loses their jobs, and the old debt takes a hair cut of some proportion. To come in and rescue under those circumstances, I get it, that happens. That’s what bankruptcy’s about. That says the participants in the old one don’t get it.
What we did when we rescued these banks is that we left the shareholders intact, we left their top management intact, we paid their debt in full. We came in --
CHARLIE ROSE: So we, the U.S. government -- in your judgment -- for good motivation mostly to save the economy from collapsing, made a bad deal.
ELIZABETH WARREN: We were far too generous.
CHARLIE ROSE: That’s a bad deal, isn’t it?
ELIZABETH WARREN: With those who made --
CHARLIE ROSE: So you could have saved the economy without going to the extent in making the deal you did?
ELIZABETH WARREN: I think you could have.
CHARLIE ROSE: And within the context of the crisis at the moment and working around the clock --
ELIZABETH WARREN: Come on. Bankruptcy lawyers work around the clock all the time...We do it with lots of financial institutions.
Wiping out shareholders who were the people who invested and who had profited from all of the mistakes that these companies had made for years and years and years before that, that’s not hard. That’s not rocket science. That’s just a difference on who gets to sit at the table and who gets to walk away with money.
I’m sorry. That one is not an emergency situation.
And on Commercial Real Estate (yes, CNBC, it has not gone away just because nobody is talking about it):
CHARLIE ROSE: Commercial real estate, what are we looking at.
ELIZABETH WARREN: Oh golly -- 2,988 banks that by the terms of their own regulators are too concentrated in commercial real estate. These are the medium size banks. By the end of this year, half of all commercial real estate loans will be underwater, and they are coming in ‘11, ‘12 and ‘13.
The reason this is such a bad problem anyway -- think about that, nearly 3,000 banks out of a total of 8,000 -- it’s the very banks that do small business lending who are about to get socked in the nose on real estate, commercial real estate losses.
CHARLIE ROSE: So we’ll see banks going under because they’ve got too many loans out there are not being repaid?
ELIZABETH WARREN: We’re seeing banks that don’t want to lend because they see every dollar that comes in the door and say "I’ve got to hold on to it to try to fill my commercial real estate hole or else I will be gone."
And lastly, on the imminence of the double dip:
CHARLIE ROSE: Joe Stiglitz, who you know who was here last night, basically says he fears we’ll see a double dip recession, so the economy has to do with inventory and the end of the stimulus and a whole range of issues, unemployment staying where it is.
Do you have that kind of, even though you’re a lawyer and not an economist, fear about this economy?
ELIZABETH WARREN: I am afraid. I’m afraid because of what I see in the real economy. I’m afraid because I don’t see books that are clean, balance sheets that have been cleaned up. I’m afraid because in October of 2008, Secretary Paulson came to the American people and he said the problem is toxic assets on the books of the banks, and they’re still there.
CHARLIE ROSE: Although they’re worth more than they were.
ELIZABETH WARREN: Lucky us.
I’m afraid because Secretary Paulson said there’s too much concentration in the banking industry, and there’s even more concentration today than there was --
CHARLIE ROSE: So bigness is bad?
ELIZABETH WARREN: It’s not that bigness is bad, it’s that we’ve got concentrated risk and that’s what creates too big to fail, and that’s creating distortions throughout our economy.
We haven’t yet put our feet on solid ground and begin -- begun to rebuild an economy we can believe in.
CHARLIE ROSE: I hear you as saying that the mindset of the people making the economic decisions in Washington, Larry Summers, Tim Geithner, Christina Romer, and others, they look at the world through the wrong experience. You might want to include Christine not in that, but certainly Summers and Geithner.
Do you think their experience has been too connected to the point of view that does not allow them to make the optimal decision? I tried to make that as easy as I could.
ELIZABETH WARREN: I think we have different worldviews.
CHARLIE ROSE: You and them?
ELIZABETH WARREN: Yes. I just don’t think we see the world the same way.
CHARLIE ROSE: And so therefore they shouldn’t be in place.
ELIZABETH WARREN: Well, I’m going to say it differently. I think that Summers and Geithner are smart. I think they’re honorable. I think they approach the economy and the world through the largest institutions. And they see the world from a top-down perspective.
I spent 25 years somewhere else.
CHARLIE ROSE: Academia?
ELIZABETH WARREN: No, come on. Summers and I started in the same place.
CHARLIE ROSE: I know.
ELIZABETH WARREN: I’ve spent my time and my research on economic death and rebirth. And much of that was about what happened to America’s middle class, how we have hollowed out America’s middle class. It will not save us if a handful of Wall Street banks prosper and the rest of America fails.
Our focus, our energy, our heart has to be on the rest of America.
Full Charlie Rose clip after the jump.