In March 2007, five months before the first tremors of acute financial panic, Harvard bankruptcy law professor Elizabeth Warren gave a lecture at Berkeley titled “The Coming Collapse of the Middle Class.”
Warren is one of a very small circle of experts who, during the boom years, accurately diagnosed the frailty of American finance capitalism. In scholarly articles, blog posts and several widely praised books, she has focused on the ways post-1970s wage stagnation has squeezed the middle class, leading to a drop in savings, a massive spike in consumer debt and more hours of labor spent to purchase core middle-class goods like healthcare and housing. The cumulative effect of these changes, as she argued in her talk at Berkeley, is families taking on far more risk than those of a generation earlier, and an economy skating on very thin ice.
Fast-forward eighteen months to the frenzied, panicked week in September after the fall of Lehman Brothers, when Henry Paulson sent his original three-page TARP proposal to Congress with the notoriously tone-deaf provision that Treasury’s decisions would be “non-reviewable…by any court of law or any administrative agency.” The provision was nearly unanimously panned, and the final Emergency Economic Stabilization Act stipulated several oversight mechanisms, including the creation of a five-member Congressional Oversight Panel. Appointed by leaders in Congress from both parties, the COP was given the task of reporting every thirty days on the program’s effectiveness, transparency and protection of taxpayers.
Somewhat amazingly, Senate majority leader Harry Reid chose Elizabeth Warren to chair the COP. “I asked Harry Reid if he was really sure he wanted me to do this,” Warren told me in a recent phone interview. “And he said, ‘Yes, I expect you’ll bring your consumer perspective.’ I didn’t come into this beholden to anybody, and I’m not looking for a job coming out on the other side. That means I say what I think is right.” (Reid’s office confirmed this account.)
COP’s oversight mandate is, in the words of its spokesman Caleb Weaver, to ask the “fundamental questions” about the Treasury’s strategy of doling out the funds. Although the panel has statutory authority to obtain documents from the government, it has no subpoena power. It has a staff of only eleven and, remarkably, no fixed line-item budget. I asked Weaver what the COP’s budget was. “That’s not clear,” he said. “I know that doesn’t come off well.”
On top of that, the panel got a late start. By the time House minority leader John Boehner got around to appointing Representative Jeb Hensarling on November 19–giving the panel the requisite quorum–it had only eight days to produce its first report.