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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.

Obviously, it bothered me. That's why I kept asking it. There is such a difference. I mean, just take a deep breath for a second on this. We said with the auto companies you have to have an entirely new business plan. You have to go through bankruptcy. You have to wipe out your shareholders. Your debt holders have to take a hit. Your labor has to take a reduction. Your management team is at risk for being fired; some of them got fired.

And we said to the banks, take the money, but we didn't ask for any of those things. We didn't ask that they wipe out their shareholders, that they make their debt holders take a hit, that they come up with a new business plan. We didn't ask for any of that. We just said here's the money.

And I really wanted to understand that. You know, this isn't a political cheap shot that I was engaged in. I want to understand. If it's taxpayer money on the line, if these are described as systemically significant institutions and that's the reason for coming in, did he think the banks were better run? We know there were problems in the auto industry, but I would think this crisis would suggest there were some problems in the banking industry.

The Treasury Department on behalf of the taxpayer was tough in dealing with the auto industry. Some still think maybe we shouldn't have gone in at all. But I want to make the point, they were tough. They were not tough with the banks, and I want to understand why.

ROMANO: On the banks, this notion of too big to fail and I did get several questions on this on Twitter. Why can't they fail? Why are they too big to fail?

WARREN: Well, the view of the Treasury Department is that if they fail, they will bring down other institutions, and, therefore, it will be really too hard for the economy overall. It's like hikers, you know, who are up on a mountainside, and they're all roped to each other, and the fear is that if one hiker falls off, you know, he'll tear ten other hikers off with him.

ROMANO: What do you think?

WARREN: I'm deeply skeptical about that point. I watch big institutions make really stupid economic decisions and pay the ultimate price, get wiped out.

So I start from a premise that the way capitalism works is that there is always a death threat at the end that if the business is not properly managed and properly run, it can be liquidated through we can call it bankruptcy.

We can call it resolution authority. We can call it a receivership under the FDIC, but the point is there are ways to get rid of them, to kill off the institutions that don't work, and that, ultimately, in my view, that's good for the system in that the healthy ones survive, and the bad ones are weeded out.

But, also, an absolutely important message to every institution going forward, if your shareholders don't monitor you, if your debt holders don't monitor you, if you don't monitor yourself, you could all end up out of a job.

ROMANO: Would the economy be better off if we broke up these financial conglomerates into smaller focused entities that could fail?

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