Elizabeth Warren is a law professor at Harvard that teaches contract law, bankruptcy, and commercial law. She has been pushing for the newly created consumer protection agency since Bush was in office in 2007. It is literally her creation because she realized that all of the regulators in the government were designed to protect banks and not individual families.
Warren believes that all contracts for financial products should be simple. For example, during a Charlie Rose interview back in March, she explained that in 1980, the credit card agreement for Bank of America was roughly 1 page, whereas today it is 30+ pages and contains incomprehensible legalese. One of her big proposals was that financial institutions should be required to disclose the cost of products in plain, simple English, in a legible font size, and without tons of hidden fees that buried in fine print; as she put it, consumers have a right to know the true cost of a product such as a credit card or mortgage.
Furthermore, she has indicated that she believes that "too big to fail" should not exist. If a financial institution large enough to threaten the country and our economy, it should be broken into pieces.
Timothy Geithner, the Secretary of the Treasury, reportedly does not like this woman. It is now rumored that he is advising the White House not to appoint her to the agency that she recommended, conceived, and pushed to create to protect average American families from financial institutions. The primary reason is that she is a threat to his worldview and, if the reports are to be believed, he views her as hostile to the big bank business model, which now relies on fees and charges, not traditional lending.
I am telling you (and I say this as someone who has made a hell of a lot of money off of bank stocks so I know why the banks are scared of her): It is incredibly easy to hide things in the fine print where honest people get ripped off by dishonest financial institutions. If you want to stop that and go to a full-disclosure system, I believe that the single, most important thing you can do is call your Representative, Senator, and the White House and demand that Elizabeth Warren be appointed to head the Consumer Protection Agency.
I mean, the other day I was reading the prospectus for an index fund by one of the world's biggest banks and they were advertising how experts recommend indexing as a strategy. The problem was the expense ratio - the percentage of your money the fund takes each year - was literally 1,500% higher than competitors like Vanguard and Fidelity! Most people don't have the financial savvy to read through and see that it will cost them tens of thousands of dollars, if not more, by the time they reach retirement. The system must change; life is already easy enough for people like me who understand how these products work. We don't need any more unfair advantages.
But don't take my word for it: Take a moment to watch Elizabeth Warren's interview with Charlie Rose to understand why it is important she get this job and base your opinion on her worldview and beliefs about how the banking industry should function. This is one of those moments when "democracy happens" and you need to get up from behind your computer and do something to help your portfolio in the long-run.
I’ll have to go back and re-read some topics on Warren, but the last time I read an article about her, I thought I concluded that some of the things she wants would be a direct government infringement on personal choice. And my answer to that is: It’s great that people want to be “safe”, but I’m not willing to sacrifice my personal will, or constitutional rights, in order to be “safe”.
I’d rather take the time to educate myself about the world and mechanisms working around me, than have an overbearing government tell me how I will behave.
Muggy Nights: I’m not crazy about all of her proposals but at the same time, she makes a convincing argument: It is impossible to buy a toaster that blows up yet you can buy a mortgage that blows up. No one bemoans the toaster regulations as a “lack of freedom”. I understand people need to “be free to be stupid” but the question becomes, how much freedom should they be given when their actions can force a huge systematic catastrophe on their innocent neighbors? The nature of the global markets makes this an interesting ethical and financial quandary that we, as a society, are going to have to work out.
Even though I invest in bank stocks and make money from them, I would favor putting in some systematic controls such as returning to the usury limits that the nation had in effect up until the early 1980’s. I think of it as an investment in the long-term health of the middle class. It is the business class that is going to reap the rewards. If a family isn’t miserable under 35% credit card interest, which was illegal up until 30 years ago, they are going to have more money to spend on software, clothing, home improvements or other sources. So I try to be pragmatic about it with an eye on the history books and how we’ve managed our affairs in the past.