Published on Tuesday, February 9, 2010 by Huffington Post

Elizabeth Warren: Time For Wall Street CEOs To 'Earn Back' America's Trust

by Shahien Nasiripour

Bailout watchdog and Middle Class advocate Elizabeth Warren has accused Wall Street CEOs of abusing consumer trust and challenged them to step up and support financial reform -- for the nation's benefit as well as their own.

Bailout watchdog and Middle Class advocate Elizabeth Warren has accused Wall Street CEOs of abusing consumer trust and challenged them to step up and support financial reform -- for the nation's benefit as well as their own. (File)

In an opinion piece to be published in Tuesday's Wall Street Journal, Warren writes:

For years, Wall Street CEOs have thrown away customer trust like so much worthless trash.

Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.

The Harvard Law professor and TARP overseer added that the bankers "squandered what little trust was left" when they took taxpayer bailouts.

The piece, titled "Wall Street's Race to the Bottom," explains how bankers can reclaim that trust: by supporting a strong consumer protection agency designed to root out the kinds of abuses that helped lead to the financial crisis. Long supported by Warren, this new agency would protect borrowers from abusive lenders by policing mortgages, credit cards and personal loans.

President Barack Obama proposed the agency last year as part of a set of comprehensive financial reforms. The House of Representatives passed a bill in December to create it.

Bankers, however, argue that the agency will add another layer of bureaucracy to government and increase costs, which would ultimately be passed on to consumers seeking credit. Simply put, banks -- especially the big ones -- despise the very idea of such an agency.

As proposed by Warren and Obama, the agency could protect consumers by writing and enforcing robust rules. Right now, that authority is split among seven regulators that also are charged with overseeing the health of individual banks and the broader financial system.

Those dueling missions -- bank profitability and consumer protection -- are exemplified by overdraft fees. Consumer advocates charge that the fees are excessive and structured in a way to maximize the potential hit to the customer. Banks see it as a profitable practice that reaps billions of dollars.

Warren shreds the banks' arguments against such an agency:

So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It's a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and-bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected 'every five to seven years.'

He is wrong.

Warren contends that the agency is actually in line with the banks' long-term interest. "It will stabilize the industry, rebuild confidence in the securitization market, and leave more money in the pockets of families," she writes.

Warren says Wall Street's reputation is going up in flames as the lack of strong consumer rules has set off a competition to see which firm can make the most profits by tricking consumers.

But Wall Street CEOs can reverse that trend, she argues.

When the history of the Great Recession is written, they can be singled out as the bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies. Or they can acknowledge how Americans' trust has been lost and take the first steps to earn it back.

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