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Voices of Power: Elizabeth Warren

Elizabeth Warren, Chairman of the Congressional Oversight Panel talks about the 700 billion dollar TARP bailout and her concerns about the U.S. economy.

WARREN: Well, I believe that the middle class is under terrific assault. And I don't want to play this as a capitalism issue.

When we compare middle-class families today with their parents a generation ago ¿ we have basically flat earnings-a fully employed male today earns on average about $800 less, adjusted for inflation- than a fully employed male earned a generation ago. The only way that houses could increase or families could increase their household income was to put a second earner into the workforce, and, of course that's now flattened out because there aren't any more people to put into the workforce. So you've got, effectively, flat income in this time period ¿ with rising core expenses; housing; health insurance; child care; transportation, now that it takes two cars to get everywhere, two jobs to support; and taxes, because you've got two people in the workforce and we have a somewhat progressive taxation system. So that families are spending a lot more on what you describe as the basic nut.

The third leg to the triangle, and that is families, to deal with this, stopped saving and started going into debt.

And the debt side of where families both spend more money and are made much more vulnerable on mortgages, on credit cards, on check overdraft fees, all this side of it, the credit side of it really means that we have a middle class that a generation ago we would have described as solid, secure, dependable. If you could just get into the middle class, you could pretty much count on a fairly comfortable life and all the way through to a comfortable retirement.

That's been hollowed out. Sure, there are people who are going to make it through just fine, but the vulnerability of families in the middle class has just ¿ it has gone up enormously.

ROMANO: We're just past the year anniversary of the collapse of Lehman Brothers where a lot of safeguards were ostensibly put in place. The TARP money went out.

Are we, as an economic nation, are we better off systemically now? Have we put things in place to prevent this from happening?

WARREN: You know, this really has me worried. A year ago when we talked about why we needed to pass the TARP, why we needed a $700-billion blank check written to the Secretary of Treasury, remember what we were saying. We said the big crisis is toxic assets on the books of the banks.

Today, the banks still have those toxic assets. Almost none of the TARP money was used to remove the toxic assets. Some of it may have been used to write down the total amount. But, in the meantime, those toxic assets, many of them have gotten more toxic, more foreclosures, higher unemployment rate. Now we're starting to move into commercial mortgages creating problems. So the way we described the crisis a year ago is still a very serious crisis today.

A year ago, we talked about too big to fail, too much concentration of the banking industry and too deeply interwoven. A year later, the big are bigger than they were. They are more intertwined, and there's more concentration in the banking industry. The failures have all occurred among the intermediate-sized and smaller banks, so we have a more concentrated industry.

And then the ¿ kind of the third part of it, rolling forward just a little bit, our path out was going to be the stress tests. And so we had the announcement in February/March, we're going to do the stress tests, and then everyone passed the stress tests. But the Congressional Oversight Panel at the time, who was trying to review these stress tests, were very concerned about not seeing enough of the detail about how the stress tests had been implemented. They were only implemented on the 19 largest financial institutions.

ROMANO: So, was the government playing God? What gives the government the right to choose who is going to succeed and who fails?

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