Back almost a month ago, the Wall Street Journal published a staff editorial entitled President Warren's Empire. It dealt with the tortured details of Warren's position as head of the newly-created Consumer Financial Protection Bureau.
If you want to understand why job creation and investment are growing so slowly in the US, this story is instructive.
Given the politics of the moment last year, Democrats wrote the unnecessary Dodd-Frank regulatory legislation in such a way as to shield Warren and her agency from possible Republican legislative retribution, should they have, as they did, retake control of the House.
Warren's agency is funded mandatory out of the Fed's budget, and the Fed's chairman can't object. So Congress has no budgetary authority over the agency. And Warren dodged confirmation hearings because she was appointed as a White House staffer.
The overall effect has been for Democrats to organize the agency and treat Warren in such a way as to leave both effectively without any oversight or restraints by Congress.
As the editorial observes at its close,
"This is no way to run a government, especially not one that Madison envisioned. The consumer bureau is essentially a bureaucratic rogue....But at the very least Congress should remove it from the Fed, make it part of the Treasury and subject it to annual appropriations. No one elected- or even nominated' Elizabeth Warren."
Meanwhile, from this bureaucratic tangle, Warren and her fellow appointees have already begun to coerce and shake down banks to forgive mortgage principle, or face further harassment.
Indeed, this was not the sort of federal government the Framers had in mind. With such capricious, deliberately-opaque and unresponsive design of so-called regulatory agencies, you can't blame business managers for withholding investment due to uncertainty of government intervention and coercion, disguised as 'regulation.'
Showing posts with label Elizabeth Warren. Show all posts
Showing posts with label Elizabeth Warren. Show all posts
Wednesday, April 13, 2011
Thursday, November 11, 2010
Elizabeth Warren's Suspect Research On Personal Bankruptcies
Back at the end of September, Todd Zywicki wrote a lengthy article concerning Consumer Financial Protection Bureau head Elizabeth Warren. He focused on her rather checkered history researching alleged consumer financial bankruptcies. Zywicki teaches contract and bankruptcy law, as well as editing the University of Chicago's Supreme Court Economic Review, so he would seem to be familiar with some of the data Warren used in her studies.
Here are some of the passages from Zywicki's editorial,
"By appointing another White House czar to avoid Senate confirmation, the administration politicized the powerful new bureaucracy from its birth. And by appointing an individual with a track record of using questionable research to advance policy ends, it has jeopardized the second goal as well.
Consider Ms. Warren's much-ballyhooed study on the alleged link among health problems, medical expenses and personal bankruptcy filings. Published in the February 2005 issue of Health Affairs, the report was timed to head off bipartisan bankruptcy legislation that was enacted later that year. Ms. Warren and her co-authors claimed that "at least" 46% of personal bankruptcy filings in 2001 (the year from they collected the data) were the result of "medical causes," and that this represented a 23-fold increase over 20 years.
Both conclusions are extremely suspect. First, the study provided an implausibly broad definition of "medical bankruptcy"—including any filer who reported uncontrolled gambling, drug or alcohol addiction, or the birth or adoption of a child.
Equally dubious, the authors classified a bankruptcy as having a "major medical cause" if the individual had accumulated more than $1,000 in out-of-pocket medical expenses (uncovered by insurance) over the course of two years prior to filing—regardless of income, and even if the debtor did not cite illness or injury among the reasons for bankruptcy.
In 2001, average per capita out-of-pocket medical expenses were $683. During the two-year period Ms. Warren and her co-authors studied, in other words, Americans spent an average of $1,366 on uninsured medical expenses, or 30% more than their threshold definition of a "major medical cause." There was no larger context for their threshold figure: A debtor with $1,001 in uncovered medical expenses and $50,000 on a Saks card would constitute a "medical bankruptcy" in their study.
The claim of a 23-fold increase in medical bankruptcies was based on a comparison of their 2001 data with Ms. Warren's research in a 1981 study—which appears to count only those who self-reported as having filed bankruptcy for medical reasons. This is a completely different and much narrower definition of "medical bankruptcy" than the one she used 20 years later, and obviously inflates the increase.
In contrast to Ms. Warren's studies, a battery of analysis, including research done by the Department of Justice's Executive Office of the United States Trustee (which oversees the administration of bankruptcy cases), and by David Dranove and Michael Millenson of Northwestern University, concluded that fewer than 20% of bankruptcies are caused by health problems or medical expenses."
This is pretty troubling, isn't it? Just what is Warren's claim to expertise in this area, if her research is demonstrably flawed, poorly designed, and seemingly deliberately misleading. Warren comes across as having her conclusion in mind, and jamming the data into whatever classifications were required to support those a priori conclusions.
Zywicki further wrote,
"Last year Ms. Warren and her co-authors were back with an even more dramatic study, in the American Journal of Medicine, timed to promote President Obama's health-care reform law. Drawing on 2007 filings, the authors concluded that 62% of bankruptcy filings were the result of medical issues and that the odds that a bankruptcy had a medical cause had doubled between just 2001 and 2007. This study was also flawed.
After Congress made it harder for people to skip out on their debts in 2005, the number of bankruptcy filings plummeted. In 2001, the year Ms. Warren used for the first study, there were 1,452,030 personal bankruptcy filings; in 2007 there were 822,590. Even if we are to accept the methodologies of the two studies for the sake of argument, there were 670,838 "medical bankruptcies" in 2001 and 510,828 medical bankruptcies in 2007—a drop of 160,000 per year. Yet Ms. Warren's article nowhere acknowledges that the absolute number of bankruptcies and purported medical bankruptcies declined.
Concerns about Ms. Warren's presentation and interpretation of data have been longstanding. As I wrote in these pages in August 2007, her book "The Two-Income Trap" willfully ignores the obvious in her own data: that spiraling taxes—and not living expenses—were a major cause of middle class financial woes.
Similarly, reports of the Congressional Oversight Panel of the Troubled Asset Relief Program (TARP)—a panel of which she was chair—uniformly treated home foreclosures as the result of bank fraud and the bullying of helpless homeowners. Fraud and bullying there was, but her panel consistently ignored the many foreclosures that have resulted from a homeowner's strategic decision to walk away from a house whose value has fallen below the amount still owed on the mortgage. Economists and housing analysts widely agree that a substantial number of defaults occur for this reason. That reality is largely absent from the TARP panel's reports."
It's quite distressing to learn that Warren, a darling of Washington's liberals, has basically twisted facts and done shoddy research, published just in time to affect some key legislation which will continue to cause unintended consequences for years to come.
Here are some of the passages from Zywicki's editorial,
"By appointing another White House czar to avoid Senate confirmation, the administration politicized the powerful new bureaucracy from its birth. And by appointing an individual with a track record of using questionable research to advance policy ends, it has jeopardized the second goal as well.
Consider Ms. Warren's much-ballyhooed study on the alleged link among health problems, medical expenses and personal bankruptcy filings. Published in the February 2005 issue of Health Affairs, the report was timed to head off bipartisan bankruptcy legislation that was enacted later that year. Ms. Warren and her co-authors claimed that "at least" 46% of personal bankruptcy filings in 2001 (the year from they collected the data) were the result of "medical causes," and that this represented a 23-fold increase over 20 years.
Both conclusions are extremely suspect. First, the study provided an implausibly broad definition of "medical bankruptcy"—including any filer who reported uncontrolled gambling, drug or alcohol addiction, or the birth or adoption of a child.
Equally dubious, the authors classified a bankruptcy as having a "major medical cause" if the individual had accumulated more than $1,000 in out-of-pocket medical expenses (uncovered by insurance) over the course of two years prior to filing—regardless of income, and even if the debtor did not cite illness or injury among the reasons for bankruptcy.
In 2001, average per capita out-of-pocket medical expenses were $683. During the two-year period Ms. Warren and her co-authors studied, in other words, Americans spent an average of $1,366 on uninsured medical expenses, or 30% more than their threshold definition of a "major medical cause." There was no larger context for their threshold figure: A debtor with $1,001 in uncovered medical expenses and $50,000 on a Saks card would constitute a "medical bankruptcy" in their study.
The claim of a 23-fold increase in medical bankruptcies was based on a comparison of their 2001 data with Ms. Warren's research in a 1981 study—which appears to count only those who self-reported as having filed bankruptcy for medical reasons. This is a completely different and much narrower definition of "medical bankruptcy" than the one she used 20 years later, and obviously inflates the increase.
In contrast to Ms. Warren's studies, a battery of analysis, including research done by the Department of Justice's Executive Office of the United States Trustee (which oversees the administration of bankruptcy cases), and by David Dranove and Michael Millenson of Northwestern University, concluded that fewer than 20% of bankruptcies are caused by health problems or medical expenses."
This is pretty troubling, isn't it? Just what is Warren's claim to expertise in this area, if her research is demonstrably flawed, poorly designed, and seemingly deliberately misleading. Warren comes across as having her conclusion in mind, and jamming the data into whatever classifications were required to support those a priori conclusions.
Zywicki further wrote,
"Last year Ms. Warren and her co-authors were back with an even more dramatic study, in the American Journal of Medicine, timed to promote President Obama's health-care reform law. Drawing on 2007 filings, the authors concluded that 62% of bankruptcy filings were the result of medical issues and that the odds that a bankruptcy had a medical cause had doubled between just 2001 and 2007. This study was also flawed.
After Congress made it harder for people to skip out on their debts in 2005, the number of bankruptcy filings plummeted. In 2001, the year Ms. Warren used for the first study, there were 1,452,030 personal bankruptcy filings; in 2007 there were 822,590. Even if we are to accept the methodologies of the two studies for the sake of argument, there were 670,838 "medical bankruptcies" in 2001 and 510,828 medical bankruptcies in 2007—a drop of 160,000 per year. Yet Ms. Warren's article nowhere acknowledges that the absolute number of bankruptcies and purported medical bankruptcies declined.
Concerns about Ms. Warren's presentation and interpretation of data have been longstanding. As I wrote in these pages in August 2007, her book "The Two-Income Trap" willfully ignores the obvious in her own data: that spiraling taxes—and not living expenses—were a major cause of middle class financial woes.
Similarly, reports of the Congressional Oversight Panel of the Troubled Asset Relief Program (TARP)—a panel of which she was chair—uniformly treated home foreclosures as the result of bank fraud and the bullying of helpless homeowners. Fraud and bullying there was, but her panel consistently ignored the many foreclosures that have resulted from a homeowner's strategic decision to walk away from a house whose value has fallen below the amount still owed on the mortgage. Economists and housing analysts widely agree that a substantial number of defaults occur for this reason. That reality is largely absent from the TARP panel's reports."
It's quite distressing to learn that Warren, a darling of Washington's liberals, has basically twisted facts and done shoddy research, published just in time to affect some key legislation which will continue to cause unintended consequences for years to come.
Wednesday, May 26, 2010
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.
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.
Thursday, May 13, 2010
TARP Oversight Chief Scold Elizabeth Warren Whines On CNBC This Morning
It was my unfortunate fate to sit through more whining this morning from the head of the Congressional panel looking into the financial crisis, Elizabeth Warren, on CNBC.
Every time I hear this woman talk, my sense that there is nothing she says that is new is reinforced. As well as my sense of how much she doesn't understand about the financial sector.
She began her typical rant by excoriating large US banks for not lending out the TARP money they had been "given." Never mind much has been repaid.
Warren then added the usual pundit's rant about small businesses. Small businesses, she insisted, were being hurt at the expense of larger businesses by the failure of those big, bad banks to lend to the bedrock of the US economy....blah blah blah....small businesses.
Several other guests on the CNBC set countered Warren on two issues. Bob Barbera, chief economist at ITG, noted that small businesses had been disproportionately hurt by the drop in real estate values and, thus, were in no position to borrow any more money. Another guest, perhaps Rich Bernstein, a former Merrill Lynch senior strategist, noted that there wasn't really any real loan demand by small business, just based on economic conditions of late 2008 through late 2009. Further, they were absolutely not hiring anyone.
Nobody on the panel offered another key piece of evidence, i.e., at Fed-induced ultra-low interest rates, how could any bank possibly justify, in hindsight, throwing money given them by the Treasury into risky, low-rate loans to small businesses?
If those banks charged appropriate, higher rates, they would no doubt by garroted by Warren at a later date for daring to profit unfairly on the gift of Federal largess. If they lost money on low-interest loans, they'd be lectured for more foolish lending, just like their original real estate finance excesses.
Warren would have none of the panel's contrary views, insisting she was correct.
Then someone asked if the FCIC was investigating the potential for securitizing small business loans.
I have to say, at this point, I nearly spit out my coffee from shock. What the hell is anyone doing wanting securitization of small business loans when we still are cleaning up the mess from subprime and Alt-A home loans and their securitized offspring?
Warren charged ahead, though, informing everyone that, gosh, small businesses are very unique and require a different kind of lending than simply marking up prime and opening a credit facility for, say, Boeing or Cisco. Only she didn't say it that elegantly. So they are difficult to package up and sell in securities.
Liz Warren is 61 years old, born in 1949, according to her bio. So in 1974-75, when, as a freshmant at Saint Louis University, I was learning the basics of corporate finance in Dr. Fred Yeager's Introduction to Finance 100 course, Warren would have, I guess, been in law school, or already practicing.
Over thirty years ago, I learned in Dr. Yeager's course that conventional business lending was a very qualitative affair. Back then, the standard Brigham & Weston text referred to the "five Cs" of credit: character, capacity to pay, collateral, capital and conditions.
Now, an excited Liz Warren informs CNBC's viewers all about how individualistic is the nature of each small business loan.
Give me a break!
Hundreds of thousands of trained business school graduates working in the financial services sector already know this, Liz. You're only about, what, a few decades late to the party?
Why is it that the head of Congress' vaunted TARP Oversight panel is a liberal lawyer with obviously no practical understanding of finance? How useful are her 'insights' ever going to be? She doesn't even understand how the business works.
To be fair, for all of us, regardless of political persuasion, the challenge of staffing a Congressionally-appointed, outside panel is going to be finding informed but objective members.
The informed experts could well have an industry bias. Financial academics are a potential hybrid which could hold promise, but even some of the more revered theoreticians aren't all that steeped in the reality of fast-moving markets and real instruments, like CDOs.
The more objective candidates from outside the sector, like Warren, simply look clueless and naive. Further, their conclusions are likely to be wrong because they don't fully understand the issues with which they are charged to resolve.
It's hard for me to take seriously anything Warren says from her soapbox perch. When it's an informed comment, which is rare, it's not news. When it's not informed, Warren is just wrong.
Every time I hear this woman talk, my sense that there is nothing she says that is new is reinforced. As well as my sense of how much she doesn't understand about the financial sector.
She began her typical rant by excoriating large US banks for not lending out the TARP money they had been "given." Never mind much has been repaid.
Warren then added the usual pundit's rant about small businesses. Small businesses, she insisted, were being hurt at the expense of larger businesses by the failure of those big, bad banks to lend to the bedrock of the US economy....blah blah blah....small businesses.
Several other guests on the CNBC set countered Warren on two issues. Bob Barbera, chief economist at ITG, noted that small businesses had been disproportionately hurt by the drop in real estate values and, thus, were in no position to borrow any more money. Another guest, perhaps Rich Bernstein, a former Merrill Lynch senior strategist, noted that there wasn't really any real loan demand by small business, just based on economic conditions of late 2008 through late 2009. Further, they were absolutely not hiring anyone.
Nobody on the panel offered another key piece of evidence, i.e., at Fed-induced ultra-low interest rates, how could any bank possibly justify, in hindsight, throwing money given them by the Treasury into risky, low-rate loans to small businesses?
If those banks charged appropriate, higher rates, they would no doubt by garroted by Warren at a later date for daring to profit unfairly on the gift of Federal largess. If they lost money on low-interest loans, they'd be lectured for more foolish lending, just like their original real estate finance excesses.
Warren would have none of the panel's contrary views, insisting she was correct.
Then someone asked if the FCIC was investigating the potential for securitizing small business loans.
I have to say, at this point, I nearly spit out my coffee from shock. What the hell is anyone doing wanting securitization of small business loans when we still are cleaning up the mess from subprime and Alt-A home loans and their securitized offspring?
Warren charged ahead, though, informing everyone that, gosh, small businesses are very unique and require a different kind of lending than simply marking up prime and opening a credit facility for, say, Boeing or Cisco. Only she didn't say it that elegantly. So they are difficult to package up and sell in securities.
Liz Warren is 61 years old, born in 1949, according to her bio. So in 1974-75, when, as a freshmant at Saint Louis University, I was learning the basics of corporate finance in Dr. Fred Yeager's Introduction to Finance 100 course, Warren would have, I guess, been in law school, or already practicing.
Over thirty years ago, I learned in Dr. Yeager's course that conventional business lending was a very qualitative affair. Back then, the standard Brigham & Weston text referred to the "five Cs" of credit: character, capacity to pay, collateral, capital and conditions.
Now, an excited Liz Warren informs CNBC's viewers all about how individualistic is the nature of each small business loan.
Give me a break!
Hundreds of thousands of trained business school graduates working in the financial services sector already know this, Liz. You're only about, what, a few decades late to the party?
Why is it that the head of Congress' vaunted TARP Oversight panel is a liberal lawyer with obviously no practical understanding of finance? How useful are her 'insights' ever going to be? She doesn't even understand how the business works.
To be fair, for all of us, regardless of political persuasion, the challenge of staffing a Congressionally-appointed, outside panel is going to be finding informed but objective members.
The informed experts could well have an industry bias. Financial academics are a potential hybrid which could hold promise, but even some of the more revered theoreticians aren't all that steeped in the reality of fast-moving markets and real instruments, like CDOs.
The more objective candidates from outside the sector, like Warren, simply look clueless and naive. Further, their conclusions are likely to be wrong because they don't fully understand the issues with which they are charged to resolve.
It's hard for me to take seriously anything Warren says from her soapbox perch. When it's an informed comment, which is rare, it's not news. When it's not informed, Warren is just wrong.
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