The financial watchdog on the trouble the American middle class is in, who’s responsible for it, and what needs to be done to get out of it.
“Elizabeth Warren for President” writes Matt Taibbi in True/Slant. He then cites from the December Mother Jones, “Beyond monitoring how the government is mopping up after the financial crisis, Warren is pushing a proposal that could help prevent the next one: creating a Financial Product Safety Commission to protect consumers from abusive lenders. Mortgages and credit cards, she wrote in a 2007 journal article about the proposal, ‘should be subject to the same routine safety screening that now governs the sale of every toaster, washing machine, and child’s car seat.’”
But as political heroes go, Warren is, at best, unlikely. As she tells Harry Kreisler in the interview that follows (which will appear in Political Awakenings: Conversations with History this month), she grew up in working class Oklahoma to parents who never quite got over the Great Depression. “I’m of that generation where there were only two things that a woman could do,” she says, other than stay home: “she could become a nurse, or she could become a teacher.” Her rise to becoming one of the leading advocates for consumer financial protection has therefore been nothing short of astounding. But looking into the question of debt, she initially bought into the notion that invariably it was the consumers’ fault. Not so, she found.
Due to forces far outside your average American consumer’s control, dreams of a middle class life are slipping away from many. “Families with children are tightening the belt one more notch,” she says, “are working extra hours, are sending both people into the workforce, to try to get into the best possible school district for their children.” But she adds one key, and very humane, caveat: “Families are in financial trouble, not because they’re irresponsible but because they’re too responsible.”
The Leo Gottlieb Professor of Law at Harvard University, Warren has written two books, The Two-Income Trap and All Your Worth: The Ultimate Lifetime Money Plan, both co-authored by Amelia Warren Tyagi. Her legal publications include major contributions to the study of bankruptcy and credit. In 2007, she first developed the idea to create the new Consumer Financial Protection Agency (mentioned by Mother Jones and Taibbi). In the wake of the 2008-2009 financial crisis, she became the chair of the Congressional Oversight Panel to oversee the Troubled Assets Relief Program, the government’s bank bailout.
—Interview by Harry Kreisler in 2007
Harry Kreisler: Where were you born and raised?
Elizabeth Warren: Born and raised in Oklahoma.
Harry Kreisler: Looking back, how do you think your parents shaped your thinking about the world?
Elizabeth Warren: Well, my parents were from Depression-era, dust-bowl Oklahoma, and that shapes your life growing up. I was the last of four children—I have three much older brothers—and by the time I came along I was really kind of the second family for my parents. They hadn’t recovered from the Depression, and I guess in many ways they never did. Those were the stories that permeated my childhood: what it was like to have seven years of drought, what it was like when nobody had any money, what it was like when all your neighbors left to go to California or someplace where they thought there might be jobs. My parents hung on, they stayed, and my father worked a series of different jobs. He was a maintenance man in an apartment house—it was his last job—but they always saw themselves as middle-class people. For them the distinction was that they used good English and they didn’t say “ain’t.” Those were important indicia of middle-classness for my folks. They believed in education and were very proud of this little daughter they had.
Harry Kreisler: Around the dinner table was there a discussion of politics, of law, or did that all come to you later?
Elizabeth Warren: Oh, no. Not around the dinner table. Mostly around the dinner table it was discussion of cars, or rodeos and dogs and cows and horses, and a little discussion of worry about others in the family. There was always a big sense of trying to look out for each other, but nobody in the family really had much of anything.
Harry Kreisler: A theme that you pursue in your work is what’s happening to the family. From what you’re saying now I get the sense that the family was very important as a last resort for survival in the context of those very harsh times.
Elizabeth Warren: That’s exactly right. People who didn’t have family or people who broke from their family—they were the true poor, they were the ones with nothing. As long as you had family, you had people who would make sure that you got fed one way or another. Family was about canning peaches, and canning peaches was about making sure that there’d at least be something come next November, when it was cold outside and there were no more crops coming in. Family is the heart of what it’s about.
In a democratically elected Congress how on earth are you going to pass legislation to benefit two dozen already powerful multibillion-dollar corporations at the expense of all the families filing for bankruptcy every year? This was straight wealth transfer.
Harry Kreisler: When you were young, did you have any teachers as a young person who shaped your thinking about the kind of career you might take?
Elizabeth Warren: I’m of that generation where there were only two things that a woman could do, if she wanted to do something other than stay home: she could become a nurse, or she could become a teacher. And so, there were some amazing women who taught me from grade school on, and what they opened me up to was the possibility that I, too, could be a teacher. When I went off to college, that’s what I wanted to do. I just didn’t quite know what kind of teacher I would end up becoming.
Harry Kreisler: At college what did you major in, and what was the focus of your interest?
Elizabeth Warren: I was sixteen years old when I graduated from high school, and I got a full scholarship in debate that was room, board, tuition, books, and a little spending money. It was a fabulous scholarship at George Washington University, if I would debate for them. It was sort of the equivalent of an athletic scholarship, only this was one that actually a girl could get, even though there weren’t very many girls in debate either. I got my degree in speech pathology and audiology, which meant that I would be able to work with children who had head trauma and other kinds of brain injuries. And that’s what I did.
I was married at nineteen while I was still in college. My first year post-graduation I worked in a public school system with children with disabilities. I didn’t have the education courses and was on an “emergency certificate,” so I went back to graduate school and took a couple of courses in education and said, “I don’t think this is going to work out for me.” I was pregnant with my first baby, so I had a baby and stayed home for a couple of years, and I was really casting about, thinking, “What am I going to do?” My husband’s view of it was, “Stay home. We have children, we’ll have more children, you’ll love this.” And I was very restless about it.
By this point, we were living in New Jersey because of his job, so I went back home to Oklahoma for Christmas and saw a bunch of the boys from high school debate. They’d all gone on to law school, and they said, “You should go to law school. You’ll love it.” I said, “You really think so?” And they said, “Of all of us, you should have gone to law school. You’re the one who should’ve gone to law school.” So, I took the tests, applied to law school, and the day my daughter, who later became my co-author, turned two, I started law school at Rutgers Law School in New Jersey.
At that point, I’d never met a lawyer. I mean, I’d never—I didn’t travel in those circles, but I took to law school like a pig takes to mud. I loved law school. And then in my third, final year in law school, I got pregnant again, and I didn’t take a job. Alex was born about three weeks after I graduated, and it was the hardest moment in my life, because I thought, this world that had opened up to me, this world of ideas, and law was a tool you could use to make things happen—and I thought, because I didn’t take a job right out of law school, it was all over. I just kissed it all good-bye. I’d stepped off the train and would never have a chance to get back on it. But I took the bar, hung out a shingle in northern Jersey, did real estate closings and little incorporations and lawsuits, all on the civil side, and raised my two babies.
And then Rutgers called and said, “Somebody didn’t show up to teach a class. Would you like to come and teach it, and start Thursday?” And I said, “Sure! How hard could it be?” And so, I started teaching.
More people filed for bankruptcy than had a heart attack. More children lived in homes that were filing for bankruptcy than in homes that were filing for divorce.
Harry Kreisler: What do you see in your background that made you able to seize these opportunities?
Elizabeth Warren: Partly my mother always said that I was just contrary, that some kids are just born that way. Families tell stories, and those stories both reflect what the children are and shape what the children become. The story that was always told is that when I was about two and a half I would be allowed to play in the front yard but my mother would tell me, “Don’t go into the street.” And I would look at her and wait until she turned her back and step right on the street, and I would just stand in the street, just a little bit, just near the curb, but I would stand in the street. And my mother was big on switches. She’d pull a switch off a tree and just switch the backs of my legs. And I’d cry, but I’d step right back in the street. Finally my mother realized I was going to go in the street anyway, so she said, “Okay, here are the rules. You look this way and you look that way, and this is how you safely go in the street.” She gave me all the rules for the street, and I was perfectly happy.
I think partly that I always had my neck bowed, I was always going to do something else. When we were able to pick an elective in junior high school and all the girls picked drama, I, of course, had to pick debate. I said I was going to take physics, you know, just because. So, there was a little bit of the “just because,” and it was a moment when Gloria Steinem was out there talking. Did I think I was going to be one of those “women’s libbers”? Heavens, no. I wanted children, I wanted a family, and I somehow thought those were either/or choices. And yet, I also wanted to do things.
I once was at a friend’s house and I saw that they had wallpaper in their bathroom, and I thought it was the coolest thing I’d ever seen. So, I went to Sears and saw this brochure on how to do wallpaper, and I took my babysitting money and bought enough to wallpaper our bathroom. Two weeks later when it came, I announced at the dinner table, “I’ve bought wallpaper so we can wallpaper the bathroom.” And my daddy said—because it was always a family thing—“Nobody in our family knows how to wallpaper. What are you doing?” I said, “How hard could it be? People dumber than us do it every day.” So, I’ve thought that way—you know, you get out there and try it. The worst that happens is you make a mess out of it and have to throw it away.
Harry Kreisler: You started in commercial law, but then you moved to the public realm. How did that transition come about?
Elizabeth Warren: I did my very first empirical study looking at the families who were going into bankruptcy back in the early ’80s, and I’ll tell you, I set out to prove they were all a bunch of cheaters. I was going to expose these people who were taking advantage of the rest of us by hauling off to bankruptcy and just charging off debts that they really could repay, or who’d been irresponsible in running up debts.
I did the research, and the data took me to a totally different place. These were hardworking middle-class families who by and large had lost jobs, gotten sick, had family breakups, and that’s what was driving them over the edge financially. Most of them were in complete economic collapse when they filed for bankruptcy. They would never pay these debts off. Realizing this changed my vision. But it certainly didn’t make me want to talk about it in any public sense, until, in 1994, Congress passed a law saying they were going to have a commission on bankruptcy, and I was recruited to work on it. And that’s when I waded into the thick of it and started taking much of my research and translating it much more into public policy.
Without this public policy component, the work would have been so sterile by comparison with what it turned out to be. Oh, yeah, I’d have had great ideas for how 11 USC 1326(b)(2) should be modified in order to achieve a more harmonious result, but, oddly enough, the political part ultimately enriched my understanding of the scope of the problems. It took me far beyond bankruptcy and much more into questions about what’s happening to the middle class. Often, it was other people who would ask me the big questions. “Why are families in so much debt?” “Who are these people who are filing for bankruptcy?” Or sometimes it would simply be their allegations of fact. “Well, we know it’s just the poor and the profligate.” That would cause me to say, “Oh, I’ve got to go back and study this some more.” And so, it enriched and in many ways transformed the work that interested me as a scholar.
Families are in financial trouble not because they’re irresponsible but because they’re too responsible. They’re trying to do it for the kids.
Harry Kreisler: You mentioned that your initial attitude about these people who had gone bankrupt was that it was their fault, that they had failed, that they had been spenders, that they had been whatever negative values we associate with them. Do you think it serves a political purpose to believe those kinds of statements?
Elizabeth Warren: Absolutely. I began to see that there were a lot of people who really just didn’t care one way or another who was in bankruptcy. The banks and credit card companies wanted this new legislation. In a democratically elected Congress how on earth are you going to pass legislation to benefit two dozen already powerful multibillion-dollar corporations at the expense of all the families filing for bankruptcy every year? This was straight wealth transfer.
So, policy makers and the media would make assertions about who these people were, and at first I believed these were assertions made out of ignorance. And so, I’d come in with the data and say, “Well, actually, let me show you how this works,” and, “Here’s a random sample of 1,250 families and here’s how they were chosen and here’s what we know about them, and look at what happened to them.” And people just didn’t want to hear it.
Finally, it was senators themselves who said, “Professor, you don’t understand. So-and-so over here has taken $300,000 from credit card companies over the last so many years and this is something that industry wants; I see two lobbyists in here a day from the financial services industry to make this happen.” The credit card companies wanted a piece of legislation to cut their losses and boost their profits. And so, the reality of these families’ lives had to be reshaped to tell a politically acceptable story: that this is the fault of these families who are in financial trouble. But you know, the data are just overwhelming on this question, and that is just simply not the truth.
This is part of a larger story. For example, “We don’t have to provide health insurance for folks, because decent people who worked hard and got an education and therefore got good jobs already have health insurance.” There’s an undertone that those who don’t have it have made other bad life choices that caused them to be in a place where they don’t get it.
The differentiation between the poor and the middle class is no longer so clear. Now the differentiation is between the upper class and everybody else, because everybody else lives on a financial cliff.
Bankruptcy is a case in which, literally, the lobbyists wrote the bill. I’m not being metaphoric here. The lobbyists wrote the bill, the credit industry paid for it, the campaign contributions then paved the highway for the bill to get passed, and ordinary families just lost out.
We reached a point in America a few years ago where more people went through bankruptcy than graduated from college in a single year! More people filed for bankruptcy than had a heart attack. More children lived in homes that were filing for bankruptcy than in homes that were filing for divorce.
To step beyond bankruptcy, we’re on target now to see 1.4 million families thrown out of their houses this year  in mortgage foreclosures. One in every seven Americans, right now, is dealing with a debt collector. We hear the word from [the Bush administration], “Oh, it’s all about personal responsibility,” over and over and over, but at some point the families themselves start to say, “Uh-uh, no good. This answer doesn’t work.” Indeed, I should point out, some of the family-oriented groups that have aligned themselves politically with conservatives have backed off and said on bankruptcy issues, on credit card issues, on payday loan issues, on home mortgage issues, Congress has got to go a different way. The cracks in the dominant story are starting to appear.
Harry Kreisler: Let’s go back and talk about this bigger picture where the middle class finds itself, both from your own personal experience and from what you were experiencing as a lawyer/academic studying these issues. What we’re witnessing beginning in the seventies is a major economic transition in this country affecting the family, and everybody’s running to catch up. Talk a little about it. Give us that big picture.
Elizabeth Warren: Starting in about 1970 a fully employed male’s wages completely flattened out, and in fact, a fully employed male today, on average, earns about eight hundred dollars less than his dad earned a generation ago. Unlike the first seventy years of the twentieth century when wages grew as the economy grew, now the family does better only if they can put two people in the workforce. Millions of mothers poured back into the workforce, and the norm switched from a one-earner family to a two-earner family, for those who are lucky enough to have it. Expenses in the same thirty-year period far outstripped what families were spending, and I’m not talking about consumer price index.
Start with the consumption. This is what everyone in the popular media [supposes] is the reason for people getting in trouble: too many Game Boys, too many iPods, too many two hundred dollar sneakers. In fact, families today, adjusted for inflation, spend less on clothing, less on food (including eating out), less on furniture, and less on appliances than they spent a generation ago. Where they spend more is for the three-bedroom, one-bath house. The median family is spending 80 percent more on mortgage payments, adjusted for inflation, than they spent a generation ago. They’re spending about 75 percent more for health insurance than they spent a generation ago. Because today they need two cars instead of one, they’re spending about 60 percent more on cars. They’re paying for child care, which, of course, they didn’t a generation ago, because the mother was home.
Today the median two-income family is spending 75 percent of their income on those five basic expenses, and with two people in the workforce they actually have fewer dollars left over than their one-income parents had a generation ago to cover everything. So, what we have today is two people working full-time, flat-out, hard-bore, and they actually have less money to spend than one person working full-time just one generation ago.
Today’s family is already running full out. They’ve got both people in the workforce full-time, and that creates its own vulnerabilities. They have double the risk someone will get laid off or that somebody will get too sick to go to work. Today if a child gets sick, or if Grandma falls and breaks a hip, someone’s got to take off work to be with them. A generation ago, you already had someone at home to be able to fill that other role. Today someone’s got to take off, and for most jobs that means they lose income.
People are more likely to lose jobs than they were before; jobs are going abroad. When they lose jobs, statistically the odds that they’ll get a new one that pays as well as the job they lost has gone down, compared with a generation ago. These are families that are losing health insurance, losing retirement, so what we’re really watching here is a family unit that’s getting more and more economically vulnerable. They’re working harder than ever, they’ve got two people in the workforce, they’re trying to do homework at night with the kids and hold it all together, and yet economically every part of the game is loaded against them.
Harry Kreisler: You point out in this book [The Two-Income Trap] and in your writings that the focus on the family, the concern about education of one’s children, impacts this very vulnerable situation to a greater extent over time, and it’s all about “I want my kids to have the best education.”
Elizabeth Warren: “I want my kids to have a shot of making it in the middle class.” This is what it’s about for parents. And so, what does that mean in America today, because of our peculiar way of financing education? It means you’ve got to get to the right zip code, because the right zip code will determine the school assignment for your child. But the prices have shifted upward for those zip codes.
Families with children have seen a 100 percent increase in housing costs since 1983. Why? Not because families with children have a bigger need for granite countertops or spa bathrooms, but because housing is the substitute way to buy into a decent school system. This is white families, African American families, Hispanic families, Asian families, it’s across every spectrum. Families with children are tightening the belt one more notch, are working extra hours, are sending both people into the workforce, to try to get into the best possible school district for their children. Families are in financial trouble not because they’re irresponsible but because they’re too responsible. They’re trying to do it for the kids.
Harry Kreisler: All the literature in comparative politics, writings about democracy, democratization, point to the importance of the middle class as the foundation of a working democratic system. What are the long-term implications of what you’re saying?
Elizabeth Warren: A strong middle class gives us a strong democracy and a strong economy; it’s what makes us flexible and able to compete in the world; it’s what makes us who we are. Here’s what I fear. I think these data point toward a somewhat larger upper class, with the rest as just one big underclass. The old middle class is now comprised of families who are living paycheck to paycheck, who are dealing this week with debt collectors and next week with late fees and 29 percent interest on the credit card, who are on a treadmill that they can never get out of debt, never put anything aside in the way of savings. They have better moments and worse moments, but the differentiation between the poor and the middle class is no longer so clear. Now the differentiation is between the upper class and everybody else, because everybody else lives on a financial cliff. Some are getting pushed off, and some are just going to hang on the edge of the cliff. I fear we are moving toward a two-tier society and that government policies have pushed us in that direction, encouraged that division, and made it more comfortable for those who are well-to-do and much more dangerous for those who are part of the growing underclass in America.
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Copyright © 2010 by Harry Kreisler. This excerpt originally appeared in Political Awakenings: Conversations with History by Harry Kreisler, published by The New Press. Reprinted here with permission.