TARP Oversight Chief Scold Elizabeth Warren On CNBC (Yet Again) This Morning

TARP Oversight panel chief scold Elizabeth Warren was on CNBC, yet again, this morning.

For the very first time, she actually had something positive to say, and came really close to fingering two culprits responsible for some of the financial problems of 2008 and their aftermath.

Self-identifying as a bankruptcy law professor, Warren asserted that there are two fundamental principles in that discipline- equity owners take losses first, to exhaustion, if necessary, followed by creditors taking a haircut on their claims.

She noted that in AIG's case, neither occurred.

I found this to be atypically lucid and useful, for which Warren should be commended.

Then she proceeded to drop the ball. For the next few minutes, she nattered on about how the New York Fed had claimed that they either had to let AIG fail, and, thus, the US economy, or pay creditors in full. No other option existed. This would speak to Warren's second bankruptcy principle.

To anyone familiar with the publicly reported facts, there is one person, and one person alone, to whom Warren and her TARP oversight colleagues can turn to probe this curious situation- current Treasury Secretary Tim Geithner. (For more on the tax-cheat-in-chief's role in the AIG affair, search my posts with the label 'Geithner.')

But instead of stating this, and either castigating Geithner for his actions, or promising to (re?)call him to testify for the panel, she immediately began pulling other names out of the air, like Bob Willumstad.

Could Warren be skipping over Geithner because she was appointed by a Democratic Congress and, thus, knows better than to implicate one of their own, the administration's Treasury Secretary? That's certainly how it looks.

Warren also stated that AIG shareowners are still trading their equity, which should not have occurred under bankruptcy law.

Well, for that, we have Congress to thank, do we not? Because Congress authorized the TARP, and then-Treasury Secretary Paulson to do whatever he thought necessary. And I believe he was responsible for choosing to rescue AIG in the fashion that left it largely government-owned.

Why doesn't Warren probe the reasons why Paulson and Congress chose to simply disregard bankruptcy law and arrange bespoke bailouts?

In the one area in which Warren would seem to have applicable expertise, bankruptcy, all she seems to be doing is warning that it's a bad idea to let financial firms know they may get rescued.

She spent considerable time at the end of her CNBC appearance warning that it is dangerous to let firms believe they will be, once again, rescued by the federal government. She also offered that the just-passed financial regulatory bill should be continued to be modified as time goes by.

Aren't you glad Liz thought of those two ideas? Because nobody else has.

Seriously, we don't need Warren to lecture us on what a bad idea the entire TARP/bailout idea was, nor that regulatory law shouldn't be passed as a work in progress. Being naive about financial services, Warren completely missed the obvious, i.e., capital flows will be affected by current legislation, not some unknown, hoped-for future fixes in a bad law about to be passed and signed.

Well, thank God for small favors. At least, for once, Warren actually used her legal background to come close to identifying the guilty parties in the TARP fiasco.