It is important to focus on who the key players are in the current housing finance debate. Here, let’s review Senator Elizabeth Warren (D, Mass) and her contributions to the deliberations concerning FNMA and FMCC and related matters.
Senator Warren is a former Harvard law professor and served in 2009 as Chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP).
As Chair of the Oversight Panel, Mrs. Warren held a hearing with Treasury Department officials for the first time on November 21, 2008 regarding the TARP payouts. The Panel requested then Treasury Secretary Paulson to testify, however he was “not available,” so Mr. Paulson sent his Assistant Secretary, Neel Kashkari (a former Goldman Sachs executive like Mr. Paulson). (1)
Assistant Secretary Kashkari made statements during his testimony that later Senator Warren called lies, as events played out within days of his hearing appearance in a manner counter to his under-oath statements. (2)
Elizabeth Warren is in her first term as Senator, which starting in January 2013. She serves on the Senate Committee on Banking, Housing and Urban Affairs, charged with oversight of the country’s finance and housing industries.
In May 2014, Sen. Warren opposed the Johnson-Crapo Bill (3) that would have eliminated Fannie and Freddie. She was one of nine on the Banking Committee to vote against, with thirteen voting in favor of the bill. The bill made it out of Committee, though failed to come up for a full Senate vote.
The Johnson-Crapo bill was built on the earlier Committee bill on the same subject, Warner-Corker in 2013 (4).
Despite being on opposite sides on the Johnson-Crapo bill, on November 18, 2014 Senators Warren and Warner co-wrote a letter (5) to FHFA Director Mel Watt as he was preparing to testify before the Senate Banking Committee stating:
“We believe that the government conservatorship of Fannie Mae and Freddie Mac (the Enterprises) is not a long-term solution to provide access to mortgages, that that Congress should enact comprehensive housing finance reform.”
Then the next day on November 19, 2014 Senator Timothy Johnson (Chairman of the Senate Banking Committee and co-author of Johnson-Crapo) made the following encouraging opening remarks:
“The Enterprises remain trapped in conservatorship today. FHFA continues to perform the dual role of both regulating and running the businesses of the largest entities in the mortgage market. This is not sustainable, and there is no consensus in Congress regarding how to move forward… Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market. However, if Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.” (6)
At that Committee hearing, “Senator Warren pressed Mr. Watt on FHFA’s lack of action to reduce mortgage principal for the nation’s 5.3 million underwater borrowers. ‘You have not helped a single family. I want to know why this hasn’t been a priority for you?’ Senator Warren asked. Mr. Watt responded that this is a very difficult issue and that FHFA has transferred some loans to lenders and allowed them to do principal reduction on those loans.” (7)
On November 21, 2014, “Senator Warren Questions NY Fed President William Dudley.” (8)
Senator Warren asked NY Federal Reserve President Dudley (former high ranking Goldman Sachs exec) if the NY Fed was “backing up” (not doing their job) regarding regulating Goldman Sachs.
“Senators at the hearing blamed the New York Fed’s alleged fecklessness on a so-called revolving door between regulatory agencies and the firms they monitor, a long-standing criticism of the financial services sector in the wake of the 2008 crisis.
Massachusetts Senator Elizabeth Warren had the sharpest barbs for Mr. Dudley.
‘Is there a cultural problem at the New York Fed? I think the evidence suggests that there is,’ Warren said. ‘Either you fix it, Mr. Dudley, or we need to get someone who will.’” (9)
Earlier in the same busy week on November 17, 2014 Senator Warren co-wrote with Senator Joe Manchin (D, WV) an Op-Ed piece in the Wall Street Journal, The Fed Needs Governors Who Aren’t Wall Street Insiders. (10)
“By nominating people who have a strong track record in these areas and who have a demonstrated commitment to not backing down when they find problems, the administration can show that it is taking the Fed’s supervision problem seriously. Nominating Wall Street insiders for the Board of Governors would send the opposite message.
If regulators had been more willing to protect Main Street over Wall Street before 2008, they might have averted the financial crisis and the Great Recession that hurt millions of American families. So long as the Fed and other regulators are unwilling or unable to dig deeply into dangerous bank practices and hold the banks accountable, our economy—and our country—remains at risk. The administration has a chance to protect the families that are still struggling to recover from the last financial crisis. It should not pass it up.”
On September 9, 2014, during a Senate hearing Senator Warren asks in this video, “How many Wall Street bankers have been prosecuted?”
Sen. Warren states, “No one should be above the law. If you steal 100 bucks on Main Street, you’re probably going to jail. If you steal 100 billion bucks on Wall Street, you darn well better go to jail, too!” (11)
Last year, Senator Warren sponsored a bill with nine co-sponsors, including Senator McCain called “21st Century Glass-Steagall Act of 2013” (12)
“A bill to reduce risks to the financial system by limiting banks’ ability to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were repealed by the Gramm-Leach-Bliley Act, and for other purposes.
The purposes of this Act are —
(1) to reduce risks to the financial system by limiting banks’ ability to engage in activities other than socially valuable core banking activities;
(2) to protect taxpayers and reduce moral hazard by removing explicit and implicit government guarantees for high-risk activities outside of the core business of banking; and
(3) to eliminate conflicts of interest that arise from banks engaging in activities from which their profits are earned at the expense of their customers or clients.”
I encourage us all to contact Senator Warren as she continues her important work on reforming Wall Street and its regulators. Also, I am sure the Senator would be interested in your input on the future of Fannie Mae and Freddie Mac.
Senator Elizabeth Warren can be reached here: http://www.warren.senate.gov/?p=email_senator
(4) Warner-Corker Bill https://www.govtrack.us/congress/bills/113/s1217/text