Author: Elizabeth Warren

  • Bullshit–Professionally Speaking

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    Elizabeth Warren

    I don't get to post very often right now, but sometimes I can put on my academic robes and talk about a new piece of scholarship. And what better thing to talk about when wearing academic robes than bullshit?

    Curtis Bridgeman and Karen Sandrik have written a new piece called Bullshit Promises. The piece focuses on contract language that is designed to make someone believe that something has been promised (e.g., a promise of a fixed interest rate highlighted in the contract) while buried somewhere else is another provision that takes away that right (e.g., reservation to change terms at any time).  The result is a "bullshit promise," something that will mislead–all within the bounds of current contract and tort law.  

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  • How Congress Could Save GM

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    Elizabeth Warren

    Ronald Trost is surely one of the sharpest minds in Chapter 11.  He negotiated the Chrysler non-bankruptcy bankruptcy back in 1979. (His work is highlighted in Moritz & Seaman, Going for Broke:  The Chrysler Story.  Jay Westbrook and I still use an excerpt from that book to introduce Chapter 11 negotiations to law students in our casebook.)  Ron is now Of Counsel with Vinson & Elkins, and he’s still one of the most creative people in the field. In fact, he’s laid out a plan for reorganizing GM.   

    The plan is ingenious. Believing that there’s not enough time left to negotiate a consensual Chapter 11 for GM, Ron has an alternative. He takes the best elements of Chapter 11, then short circuits much of the negotiation process to reflect the current economic realities. He shows how Congress could pass a law to resolve many of the most intractable problems, offer government guaranteed financing, and effectively impose a rapid settlement on all the parties.  It is a tough-love solution that imposes some pain on everyone, which is exactly what we should expect from a tough-love kind of guy like Ron. 

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  • What Happened to Truth-in-Lending?

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    Elizabeth Warren

    Professor Lynn LoPucki sent this email, which I pass along with his permission. Perhaps someone will want to answer his question.

    Last  month I was a little short of cash, so I left $3,000 on my credit card balance. The bill I got today shows a finance charge of $122. Citibank states that the APR is 14.49%, but by my calculation, the rate charged is 48.8%.

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  • Layaway Christmas

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    Elizabeth Warren

    K-Mart has a new ad: Pick out your Christmas presents today, pay a little now and a little as you go along, then pick up your paid-for presents in time for holiday giving. If we needed evidence of the constriction of consumer credit, here it is. K-Mart is advertising the layaway plan that department stores used for decades before the free flow of credit turned the layaway plan into a relic.

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  • Who Needs Bankruptcy Reform?

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    Elizabeth Warren

    When Eric Nguyen, a 3L at Harvard Law School, conducted his research on the disproportionate efforts of families with children to save their homes through bankruptcy, he seemed to be embarking early on a promising scholarly career. But events have made his research intensely relevant to national debates. In an op-ed in today’s New York Times he reprises his central findings.  Eric endorses an amendment to the bankruptcy laws that would permit a bankruptcy judge to restructure home mortgages. 

    Senator Dodd and Congressman Miller advanced this proposal early last spring, but the lobbyists from the American Mortgage Association fought them off.  Even as the bailout took shape, the banking lobbyists were still calling the shots to block bankruptcy amendments. Not surprisingly, mortgage holders prefer a government bailout over taking the write downs on their bad mortgages.  The McCain proposal offers just that: a payoff on bad mortgages at their full face value. The taxpayers–rather than the investors–would take all the losses. 

    Eric’s op-ed is timely–but time is running out.

  • Colonel Ken

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    Elizabeth Warren

    Colonel Ken Allard is no whiner.  He’s military tough, a firm believer in personal responsibility.  But he has been so badly treated by Bank of America that he decided to go public, here and here.  Along the way, he picked up stories from other folks about their treatment at the hands of B of A.

    I like the colonel.  He has the sort of "I’ll fix it myself" view of injustice that makes me root for him. But I read his story and I wonder:  how many people will be cheated, scammed, tricked, ignored and generally infuriated before someone says it is time to put some basic supervision in place.

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  • Is the Crisis Real?

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    Elizabeth Warren

    At a Harvard panel discussion yesterday, [correction**] Gregory Mankiw–Harvard economist and Chair of the President’s Council of Economic Advisers 2003-2005, made an interesting point: The liquidity crisis isn’t real.  Or, to restate it: Any liquidity crisis is caused by the promise of a government bailout. Greg said that his many friends in investment banking said that there is plenty of money to invest in financial services, but right now it is "sitting on the sidelines."  Why?  Because the financial services industry does not want to pay the terms required to get that money back in circulation (e.g., give up equity).  As he put it, why do business with Warren Buffett who will negotiate a tough deal, if you believe that the government will ride in soon with cheaper cash? 

    Economics professor Ken Rogoff also talked about the need to shrink the financial services sector. He thinks it is good that the investment banking houses are failing and many people on Wall Street are losing their jobs because, in his view, we have an oversupply in that sector and our economy just can’t support it.   

    Greg’s work with the current administration and Ken’s background with the IMF and on the Board of the Federal Reserve add a certain credibility to their assessments of conditions on Wall Street.  If they are right, the $700 bailout is saving some investment bankers’ jobs in the short term, but overall it is just making the financial system worse. 

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  • A Ray of Sunshine

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    Elizabeth Warren

    I know things are moving fast and furious on the bailout, but the House did a significant bit of business today that deserves note.  By a vote of 312 to 112, Congresswoman Maloney’s credit card bill has passed the House of Representatives.  The credit card issuers had said No Way No How on this bill for a year, and lobbyists had pounded on every member of the House.  Hours ago, a bi-partisan group said the new rules should become law. 

    The bill won’t become law this year–no time to get it through the Senate and little chance that the White House would sign off–but it is a significant event nonetheless.  For a moment today the lobbyists weren’t in control. 

    So take a deep breath and savor the moment. The consumer groups, ably led by the Consumer Federation of America, showed strong support and engaged in some clever maneuvers of their own.  I’m still deeply worried about the American family and about the economy. The $700 billion bailout on the table is keeping me awake at night, but this little ray of sunshine tells me it isn’t time to give up hope quite yet. 

  • As Treasury Sows, So Shall It Reap

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    Elizabeth Warren

    Once the Treasury bailed out Bear Stearns with government guarantees, the next buyer of a major US financial institution might expect similar help. Barclay’s was the last likely buyer of Lehman Brothers.  Minutes ago, it announced that without the US taxpayers putting their money on the line, Barclay’s isn’t interested in buying. 

    We can debate whether the government should have bailed out Bear Stearns, but surely the current mess tells us one thing we should not have done:  Bail out Bear Stearns and then return to business-as-usual.  So long as the only tool the government seems to have to halt this crisis is a bailout, then we are in trouble.  More bailouts will be needed, and, at some point, even the American taxpayer can’t handle it. 

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  • Lose Your Home, Lose Your Vote

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    Elizabeth Warren

    With both political parties are focused on Michigan this fall, high foreclosure rates and the neighborhood fallout from those foreclosures are likely to become a political issue.  The GOP has announced a new way to deal with the problem: challenge the voting eligibility of people whose homes have been posted for foreclosure.  Evidently the GOP thinks those people are more likely to vote Democratic, so it can neutralize the impact of a sour housing market by barring votes from those who are losing their homes.

    It isn’t clear from the report whether the challenge is based on posted foreclosures or homes that have already been transferred from the homeowner. Presumably the challenge is based on no longer living in the area.  Depending on how the list is constructed, this means challenging some larger or smaller number of people who are in financial trouble, but who are in their homes and are certainly eligible to vote in their local precincts.

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