From Outside or Inside, the Deck Looks Stacked

By Gretchen Morgenson

“The game is rigged and the American people know that. They get it right down to their toes.”

That’s Elizabeth Warren talking, the former consumer advocate and law school professor and now a Democratic senator from Massachusetts. I interviewed her about her new memoir, “A Fighting Chance,” in which she discusses one of America’s biggest challenges: how to level the playing field so that Main Street doesn’t always come second to Wall Street.

Although the book recounts Ms. Warren’s childhood and formative years as a law professor, mother and dog lover, it also examines in considerable detail the government’s deeply inequitable response to the financial crisis of 2008.

Ms. Warren was on the scene for the aftermath of that mess, when she became the chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program, which carried out one of the government’s major bailout deals. In her retelling, we watch as the banks that caused the crisis receive special treatment and costly rescues while troubled homeowners get little or nothing.

The Congressional Oversight Panel, she writes, “couldn’t change a system that seemed hellbent on protecting the big guys and leaving everyone else by the side of the road.” About President Obama, she writes, “The president chose his team, and when there was only so much time and so much money to go around, the president’s team chose Wall Street.”

“A Fighting Chance” is the latest in a line of books by participants in the government’s response to the financial crisis. Like “Bailout” by Neil Barofsky, former special inspector general of TARP, and “Bull by the Horns” by Sheila C. Bair, former chairwoman of the Federal Deposit Insurance Corporation, Ms. Warren’s book describes the troubling patterns and practices of high-level Washington.

Insiders’ Influence Seemingly Limitless

A telling anecdote involves a dinner that Ms. Warren had with Lawrence H. Summers, then the director of the National Economic Council and a top economic adviser to President Obama. The dinner took place in the spring of 2009, after the oversight panel had produced its third report, concluding that American taxpayers were at far greater risk to losses in TARP than the Treasury had let on.

After dinner, “Larry leaned back in his chair and offered me some advice,” Ms. Warren writes. “I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.

“I had been warned,” Ms. Warren concluded.

A spokeswoman for Mr. Summers did not respond to a request for comment.

A second revealing story recounts an autumn 2009 meeting that the oversight panel members had with Timothy F. Geithner, then the Treasury secretary. Ms. Warren recalls asking why the government’s response to the foreclosure crisis had been so lackluster — the equivalent of trying to put out a forest fire with an eyedropper.

In her telling, Mr. Geithner responded this way: “The banks could manage only so many foreclosures at a time, and Treasury wanted to slow down the pace so the banks wouldn’t be overwhelmed. And this was where the new foreclosure program came in: It was just big enough to ‘foam the runway’ for them.”

To Ms. Warren, Mr. Geithner’s message was clear, if startling. “Millions of people were getting tossed out on the street, but the government’s most important job was to provide a soft landing for the tender fannies of the banks,” she writes.

A spokeswoman for Mr. Geithner said that Ms. Warren’s account did not reflect his views and that the foreclosure program was not designed to protect the banks. “The housing programs were designed to help as many Americans as possible stay in their homes, refinance their mortgages and avoid further declines in the value of their homes,” the spokeswoman said in a statement. “The financial rescue was effective in preventing a second Great Depression but could not prevent all damage from the crisis, and we are still living with those scars.”

Warren’s Outsider Mentality and Spirit

Today, of course, Ms. Warren is no outsider in Washington. But she told me that she still brings that mind-set to her work.

“I came to the United States Senate late in life,” she said. “I didn’t shape my life around how I could run for office and how I could have the maximum number of donors or allies. I came as a continuation of the consumer work I had done for 25 years. That work was the outsider’s work.”

In her book, Ms. Warren tells of her disappointment at not being chosen to head the Consumer Financial Protection Bureau, the agency she had conceived of and championed since her arrival in Washington.

Now a member of the Senate banking committee, Ms. Warren is keen on resolving the problem of too-big-to-fail banks; she also prods regulators to be more aggressive.

“I keep reminding them that they don’t work for the companies they regulate, they work for the American people,” she said in the interview. “Every agency is set up so that the regulators hear over and over from the industry and their lawyers and lobbyists. That means the message is the same over and over — regulate less, do less, create an exception. In building the consumer agency, it was so powerfully important to me to try to set it up structurally so that the people in the agency would hear from real families, from customers of banks. That the wind would blow sometimes from the other direction.”

While Ms. Warren contends that the deck in Washington is stacked against Main Street, she says she remains hopeful about working to level the playing field.

“People will put up with a lot, but there comes a time when taking away the opportunities for their children — it stirs something deep in people,” she said.

“Washington, instead of being a place that builds opportunity for young people, has turned into a place that helped concentrate money and power with those who’ve already made it,” Ms. Warren said. She is right about that. But leveling the field is going to be one monumental job.Φ

Gretchen Morgenson is assistant business and financial editor and a columnist at the New York Times. She has covered the world financial markets for the Times since May 1998 and won the Pulitzer Prize in 2002 for her “trenchant and incisive” coverage of Wall Street. Ms. Morgenson joined The Times as assistant business and financial editor in May 1998. Previously, she was assistant managing editor at Forbes magazine since rejoining the magazine in March 1996. Before that, she was the press secretary for the Forbes for President campaign from September 1995 to March 1996. She is the co-author of Reckless Endangerment, published by Times Books in 2011