How Elizabeth Warren saved taxpayers $1 billion

Elizabeth Warren's work keeping tabs on the bank bailout is a great argument for good government

Topics: Elizabeth Warren, TARP, Financial Crisis, government spending, federal government\,

While Mitt Romney and Barack Obama battle nationally for the right to occupy the White House for the next four years, perhaps the second most contentious significant race in the entire country is occurring in Massachusetts. That is where the Democratic Party’s candidate for Senate, self-described advocate for the middle class Elizabeth Warren, faces off against Republican Scott Brown. Polls show the race is close, and the bitterness of the rhetoric matches the polling.

One of Scott Brown’s most consistent arguments is that Elizabeth Warren represents Obama’s liberal “tax and spend” policies leading to big government. But a new paper by Stanford political scientist Lucas Puente published in PS. Political Science and Politics shows that Elizabeth Warren’s work on the Congressional Oversight Panel was highly advantageous to the taxpayer, saving over a billion dollars money by taking a skeptical approach towards the Treasury Department’s bailout plans.

The issue has to do with an obscure part of the Troubled Asset Relief Program, or TARP, known as warrants. This was a piece of the bailout that was designed to allow the government to profit from its investment in banks.

In 2008, at the height of the financial crisis, Treasury Secretary Hank Paulson decided to put money into the banking system by investing in preferred shares of the banks. These investments entitled Treasury to dividend payments of 5 percent a year for the first five years, and 9 percent thereafter. In addition, as part of the deal, the government received warrants, or the right to purchase common stock at a preset price at any time over the next ten years, at a value of roughly 15 percent of the government investment. The strike price of these warrants was equivalent to, as Puente wrote, “the 20 day trailing average of first’s common stock trading price at the time of the deal.” Two hundred and seventy-three firms eventually exchanged warrants. Treasury has sold many of them, including those from the largest banks.



Bailout politics are fraught with bitter political accusations. Just this week, Financial Services Committee Chairman Spencer Bachus released a report showing that Section 204 of the Dodd-Frank bill allows AIG-style bailouts to happen again, despite the claims of the administration. And scholarship is showing that the political influence of financial institutions, as measured by campaign contributions, was correlated with receipt of TARP funds. This makes sense – high level White House official Michael Froman, who apparently advised Obama to hire Geithner during the transition, made millions from Citigroup, the largest recipient of bailout funds and as Sheila Bair notes in her book Bull by the Horns, the least stable bank. Jack Lew, current White House Chief of Staff did as well. And Bob Rubin, a frequent below the radar advisor to Obama and mentor to Tim Geithner and Larry Summers, was the Chairman of Citigroup at the time of the bailouts.

TARP and Federal Reserve lending were correlated with political connections. But with the disposal of warrants, what Puente found is that political connections did not play a role in the valuations Treasury got when the government decided to auction them off. In fact, according to Puente, there was only one factor that mattered: Congressional Oversight Panel Chair Elizabeth Warren. It was Warren who, along with the Special Inspector General of TARP Neil Barofsky, put out a series of reports that forced Treasury to modify its process for selling the warrants. Puente noted that “warrant deals that occurred prior to the July 2009 COP report were systematically discounted.” The deals that came after were not. “With $8.97 billion in warrant deals having been completed between May 2009 and March 2011, that the COP helped Treasury get 10 percent more after publishing its report is non-trivial.”

Oversight works, but it’s rarely pleasant. Barofsky, who recounted his experience as a government watchdog in the new book Bailout, noted that the relationship between the Treasury Department and the oversight bodies could be quite poor. He said, “The sad reality is that often in government arrogance and the political imperative to never acknowledge fallibility leads to egregious errors that can and have cost the taxpayer billions of dollars. With TARP, Elizabeth and I were able to leverage one another as well as Congress to shine a bright light on Treasury’s actions.” This leverage saved the taxpayer roughly a billion dollars. The final budget for Warren’s Congressional Oversight Panel was $10,684,422. That’s roughly a one hundred to one return on investment for every dollar invested in oversight. And that’s not including anything else that Warren’s oversight body did.

Oversight is the most overlooked part of the Congressional process, but it is arguably the most important. The indelible picture of tobacco executives raising their hands before a Congressional panel headed by Congressman Henry Waxman was the precipitating event for reform of the tobacco industry. Chuck Grassley, Carl Levin, Henry Waxman, and Claire McCaskill are all known for their investigative work. As Senator, if she wins, Elizabeth Warren will in all likelihood continue the work she did at the Congressional Oversight Panel. The Treasury Department may not like it, but the taxpayers will be grateful.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails

    Ten spectacular graphic novels from 2014

    Beautiful Darkness by Fabien Vehlmann & Kerascoët
    Kerascoët's lovely, delicate pen-and-watercolor art -- all intricate botanicals, big eyes and flowing hair -- gives this fairy story a deceptively pretty finish. You find out quickly, however, that these are the heartless and heedless fairies of folk legend, not the sentimental sprites beloved by the Victorians and Disney fans. A host of tiny hominid creatures must learn to survive in the forest after fleeing their former home -- a little girl who lies dead in the woods. The main character, Aurora, tries to organize the group into a community, but most of her cohort is too capricious, lazy and selfish to participate for long. There's no real moral to this story, which is refreshing in itself, beyond the perpetual lessons that life is hard and you have to be careful whom you trust. Never has ugly truth been given a prettier face.

    Ten spectacular graphic novels from 2014

    Climate Changed: A Personal Journey Through the Science by Philippe Squarzoni
    Squarzoni is a French cartoonist who makes nonfiction graphic novels about contemporary issues and politics. While finishing up a book about France under Jacques Chirac, he realized that when it came to environmental policy, he didn't know what he was talking about. "Climate Changed" is the result of his efforts to understand what has been happening to the planet, a striking combination of memoir and data that ruminates on a notoriously elusive, difficult and even imponderable subject. Panels of talking heads dispensing information (or Squarzoni discussing the issues with his partner) are juxtaposed with detailed and meticulous yet lyrical scenes from the author's childhood, the countryside where he takes a holiday and a visit to New York. He uses his own unreachable past as a way to grasp the imminent transformation of the Earth. The result is both enlightening and unexpectedly moving.

    Ten spectacular graphic novels from 2014

    Here by Richard McGuire
    A six-page version of this innovative work by a regular contributor to the New Yorker first appeared in RAW magazine 25 years ago. Each two-page spread depicts a single place, sometimes occupied by a corner of a room, over the course of 4 billion years. The oldest image is a blur of pink and purple gases; others depict hazmat-suited explorers from 300 years in the future. Inset images show the changing decor and inhabitants of the house throughout its existence: family photos, quarrels, kids in Halloween costumes, a woman reading a book, a cat walking across the floor. The cumulative effect is serene and ravishing, an intimation of the immensity of time and the wonder embodied in the humblest things.

    Ten spectacular graphic novels from 2014

    Kill My Mother by Jules Feiffer
    The legendary Pulitzer Prize-winning cartoonist delivers his debut graphic novel at 85, a deliriously over-the-top blend of classic movie noir and melodrama that roams from chiaroscuro Bay City to Hollywood to a USO gig in the Pacific theater of World War II. There's a burnt-out drunk of a private eye, but the story is soon commandeered by a multigenerational collection of ferocious women, including a mysterious chanteuse who never speaks, a radio comedy writer who makes a childhood friend the butt of a hit series and a ruthless dame intent on making her whiny coward of a husband into a star. There are disguises, musical numbers and plenty of gunfights, but the drawing is the main attraction. Nobody convey's bodies in motion more thrillingly than Feiffer, whether they're dancing, running or duking it out. The kid has promise.

    Ten spectacular graphic novels from 2014

    The Motherless Oven by Rob Davis
    This is a weird one, but in the nervy surreal way that word-playful novels like "A Clockwork Orange" or "Ulysses" are weird. The main character, a teenage schoolboy named Scarper Lee, lives in a world where it rains knives and people make their own parents, contraptions that can be anything from a tiny figurine stashable in a pocket to biomorphic boiler-like entities that seem to have escaped from Dr. Seuss' nightmares. Their homes are crammed with gadgets they call gods and instead of TV they watch a hulu-hoop-size wheel of repeating images that changes with the day of the week. They also know their own "death day," and Scarper's is coming up fast. Maybe that's why he runs off with the new girl at school, a real troublemaker, and the obscurely dysfunctional Castro, whose mother is a cageful of talking parakeets. A solid towline of teenage angst holds this manically inventive vision together, and proves that some graphic novels can rival the text-only kind at their own game.

    Ten spectacular graphic novels from 2014

    NOBROW 9: It's Oh So Quiet
    For each issue, the anthology magazine put out by this adventurous U.K.-based publisher of independent graphic design, illustration and comics gives 45 artists a four-color palette and a theme. In the ninth issue, the theme is silence, and the results are magnificent and full of surprises. The comics, each told in images only, range from atmospheric to trippy to jokey to melancholy to epic to creepy. But the two-page illustrations are even more powerful, even if it's not always easy to see how they pertain to the overall concept of silence. Well, except perhaps for the fact that so many of them left me utterly dumbstruck with visual delight.

    Ten spectacular graphic novels from 2014

    Over Easy by Mimi Pond
    When Pond was a broke art student in the 1970s, she took a job at a neighborhood breakfast spot in Oakland, a place with good food, splendid coffee and an endlessly entertaining crew of short-order cooks, waitresses, dishwashers and regular customers. This graphic memoir, influenced by the work of Pond's friend, Alison Bechdel, captures the funky ethos of the time, when hippies, punks and disco aficionados mingled in a Bay Area at the height of its eccentricity. The staff of the Imperial Cafe were forever swapping wisecracks and hopping in and out of each other's beds, which makes them more or less like every restaurant team in history. There's an intoxicating esprit de corps to a well-run everyday joint like the Imperial Cafe, and never has the delight in being part of it been more winningly portrayed.

    Ten spectacular graphic novels from 2014

    The Shadow Hero by Gene Luen Yang and Sonny Liew
    You don't have to be a superhero fan to be utterly charmed by Yang and Liew's revival of a little-known character created in the 1940s by the cartoonist Chu Hing. This version of the Green Turtle, however, is rich in characterization, comedy and luscious period detail from the Chinatown of "San Incendio" (a ringer for San Francisco). Hank, son of a mild-mannered grocer, would like to follow in his father's footsteps, but his restless mother (the book's best character and drawn with masterful nuance by Liew) has other ideas after her thrilling encounter with a superhero. Yang's story effortlessly folds pathos into humor without stooping to either slapstick or cheap "darkness." This is that rare tribute that far surpasses the thing it celebrates.

    Ten spectacular graphic novels from 2014

    Shoplifter by Michael Cho
    Corinna Park, former English major, works, unhappily, in a Toronto advertising agency. When the dissatisfaction of the past five years begins to oppress her, she lets off steam by pilfering magazines from a local convenience store. Cho's moody character study is as much about city life as it is about Corinna. He depicts her falling asleep in front of the TV in her condo, brooding on the subway, roaming the crowded streets after a budding romance goes awry. Like a great short story, this is a simple tale of a young woman figuring out how to get her life back, but if feels as if it contains so much of contemporary existence -- its comforts, its loneliness, its self-deceptions -- suspended in wintery amber.

    Ten spectacular graphic novels from 2014

    Through the Woods by Emily Carroll
    This collection of archetypal horror, fairy and ghost stories, all about young girls, comes lushly decked in Carroll's inky black, snowy white and blood-scarlet art. A young bride hears her predecessor's bones singing from under the floorboards, two friends make the mistake of pretending to summon the spirits of the dead, a family of orphaned siblings disappears one by one into the winter nights. Carroll's color-saturated images can be jagged, ornate and gruesome, but she also knows how to chill with absence, shadows and a single staring eye. Literary readers who cherish the work of Kelly Link or the late Angela Carter's collection, "The Bloody Chamber," will adore the violent beauty on these pages.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>