Today, Elizabeth Warren was put into de facto control of the Consumer Financial Protection Bureau she helped conceive. Opposition from America’s banks was the widely reported reason she wasn’t formally nominated to run it. One might wonder that the U.S. banking industry, given the low esteem in which it is held, would hold such sway. But such seems to be the case.
Warren’s main thrust has been transparency: regulations that would remove hidden fees from the financial sectors, especially with regard to credit. The website she created – Credit Slips – is a good place to visit if you want to know where transparency issues are right now.
As to how you might size her up as your consumer advocate – fair? peremptory? angry? wise? – I have one suggestion.
I first sat down with Elizabeth Warren almost three years ago in early 2008. The economic crisis was percolating, but even Bear Stearns hadn’t failed yet. The Dow Jones was over 12,000.
The discussion was strikingly one-sided, though it came as no surprise. That’s because I was watching her on YouTube, in an hour-long video of a lecture she had given at the University of California, Berkeley, the link sent to me by a respected friend.
The title of the lecture: The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net. It’s still up and nearly 400,000 people have viewed it to date. If you want a sense of President Obama’s point person on consumer protection, there’s probably no better place to start.
The main point of the lecture is the squeeze faced by the typical American family, a squeeze that’s grown tighter and tighter over the past 30 to 40 years.
Highlights of the talk include data over the 30 years from 1972-2003. How personal saving disappeared and the nature of the consumption that ate it away.
Warren had been surprised to learn that spending on clothing had gone DOWN by 32 percent, inflation-adjusted. Food (including eating out) was down by 18 percent; appliances down 52 percent. Even per car expense was down 24 percent, because the average American family was keeping any given car two years longer than in the past.
So what went up?
Home mortgages: 76 percent, even though the typical (median, i.e., 50th percentile) house had barely grown – from 5.8 to 6.1 rooms.
Health care: up 74 percent.
Cars: up 50 percent because of the typical family now had two careers, not one, and thus needed the extra car to get to work.
Child care: a totally new expense (again because of the two earners).
Taxes: Up 25 percent due to a higher marginal income tax rate for the second earner.
What was striking to Warren is that the “downs” were for relatively small purchases that are truly discretionary; the “ups” were not.
Meanwhile, income volatility increased dramatically over this period. So two-income families had to push harder and harder, with less and less of a safety net.
No wonder they resorted to credit, thus expanding that industry radically. No wonder the industry, like any other, pushed the envelope to extract maximum profits. No wonder that pushing resulted in a regulatory backlash. No wonder, after watching the video, that Warren is in charge of it.
This entry is cross-posted on Paul Solman’s Making Sen$e site.