With the stock market on a roll and employment beginning to pick up, it's easy to think that the economy has finally turned the corner. Leading bankers and politicians assure us that the financial crisis is behind us – and the reckless gambles that cratered the global economy will never be repeated. But Elizabeth Warren, Washington's top financial watchdog, has news for you. The economy may be growing at long last – but unless Congress gets serious about reforming our financial system, we're doomed to repeat a catastrophic cycle of boom, bust and bailouts. "We have one slim chance, right now," says Warren, "to put the too-big-to-fail genie back in the bottle."
If Congress can deliver on President Obama's promise of financial reform, Warren says, it can create the conditions needed for 50 years of economic growth and shared prosperity – just as the Depression-era reformers did in the 1930s. But if lawmakers simply paper over the crisis, she warns, Wall Street's rash bets will continue to be rewarded – and the next crisis will be far worse. "It will be TARP 2.0," Warren says, "and our economy will never be the same."
A professor of law at Harvard, Warren has become the folk hero of the bailout era. Appointed to oversee the $700 billion TARP bailout, she's the one official in Washington who can be counted on to champion the interests of the middle class. As chair of the Congressional Oversight Panel – the aptly named COP – Warren exposed Hank Paulson's big lie: The initial round of TARP money was a $78 billion giveaway to Wall Street's most reckless banks, not, as Bush's treasury secretary claimed, a fair exchange of cash for equity. In a true display of bipartisanship, Warren has also kept the heat on the Obama administration, grilling senior officials over their sweetheart treatment of AIG. (For a six-minute primer in Warren's prosecutorial prowess, search YouTube for "Timmy Geithner squirm.")
In the process, Warren has transformed her obscure post into a bully pulpit. As the intellectual architect of the proposed Consumer Financial Protection Agency, she has waged a relentless media campaign to ensure that the government safeguards borrowers from toxic financial products the same way the FDA protects patients from toxic drugs. Warren's critics have tried to paint her as a self-righteous, bank-hating, ivory-tower elitist. Sen. Richard Shelby, a Republican from Alabama, calls the consumer agency "the nanny state at its worst," and the U.S. Chamber of Commerce has launched an all-out campaign to "Stop the CFPA," claiming that it "would make a bad economy even worse."
If Warren has all the right enemies, she has also cultivated powerful friends. At the White House, she speaks directly to presidential wingman David Axelrod, and Obama himself has made the case for her agency on The Tonight Show. Warren strategized with Rep. Barney Frank, chairman of the House Financial Services Committee, to steer the CFPA to passage in the House. "She has a great sense of how to operate politically," Frank says. And in the Senate, where debate on reform is just heating up, Majority Whip Dick Durbin calls Warren his "go-to person."
But Warren isn't taking any chances. "She's carried this fight way beyond Washington to the American people," says Nobel Prize-winning economist Joe Stiglitz, who lauds Warren as a one-woman bulwark against the bank lobby. "So many of our politicians have failed us – and she has filled the gap."
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