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Elizabeth Warren vs. Wall Street

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Warren's look may be librarian chic – rimless glasses, bobbed hair parted down the middle and tucked primly behind her ears – but her style is more aw-shucks Midwestern than populist fireball. She adheres strictly to the Charles Schulz book of cursing – "Good grief!" and "Holy guacamole!" – delivered without a hint of irony. When we meet at a cafe near the White House, she mentions in passing that she bakes a mean peach cobbler – a recipe she inherited, no joke, from her Aunt Bee.

Warren's unwavering defense of the middle class stems from her own experience – first as a child in Oklahoma, then as a professor researching bankruptcy law. Her parents grew up during the Dust Bowl, and by the time Warren was born in 1949, "they were beaten down financially." Fleeced by a business partner, her father was forced into a series of tough, dead-end jobs. Traveling salesman. Maintenance man. He suffered a heart attack. They lost the family car. At age 16, Warren managed to earn a full-ride scholarship to George Washington University. Working as a summer associate on Wall Street, she saved enough money to get her teeth straightened. But while her own hard work paid off, her family continued to struggle. "My dad, my brothers, my mother – they're good people who said, 'I'll do my best. I'll get out there, and I'll make this work.' But they're also living proof that it's hard."

Given her own bootstrap ethic, Warren began her academic career deeply skeptical of those she saw as taking the easy way out. As a young law professor in Texas in the early 1980s, she embarked on a research project on bankruptcy expecting to "expose deadbeats – people who take advantage of a too-generous legal system." But the data and the case files told a much different story. Warren discovered that most Americans who file for bankruptcy are hardworking folks who play by the rules – and wind up losing, through no fault of their own. They get sick. Their marriages hit the rocks. Their parents need nursing care. "These are my people," she says. "That, for me, was transformative."

The lesson was reinforced a decade later when Citibank invited Warren to propose ways to minimize its losses from cardholders in financial trouble. Warren had simple advice: When borrowers show signs of distress – missed payments and plunging credit scores – cut them off from new lines of credit. But after she finished her presentation, a banker at the back of the room bluntly rejected her suggestion. "We have no interest in cutting back on our lending to these people," he told Warren. "They are the ones who provide most of our profits."

That moment, Warren says, "began to change my whole vision of consumer finance." She came to see Wall Street banks as predators, offering too-easy credit and too-complex contracts designed to "trick and trap" borrowers into recurring fees and exploding interest rates. "If people ended up in bankruptcy," she realized, "it didn't matter for the profit model."

Today, says Warren, the fortunes of Wall Street and the fortunes of Main Street have become disastrously oppositional. Despite profiting from taxpayer bailouts, Wall Street has only made life more miserable for those scraping by in what she calls the "real economy." Banks are refusing to modify mortgages for the hard-strapped homeowners they deceived, and now they're even bilking credit-worthy borrowers with arbitrary interest-rate hikes. Worse, Warren says, bankers like Jamie Dimon of JP Morgan Chase have testified before Congress that we should expect cycles of boom and bust to recur every five to seven years. "What pisses me off – I didn't say that – what makes me so angry is that the financial collapse was not a natural phenomenon like a hurricane or a drought," she says. "It was the consequence of a series of deliberate regulatory choices. That Jamie Dimon has figured out how to make a profit off of that may make him willing to tolerate booms and busts – but for the rest of us, the consequences are catastrophic."

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