Not Such Heartless Bastards After All

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..DATE:
20090309
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Fresh Air
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NPR
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Elizabeth Warren: Foreclosures Threaten Economy

TERRY GROSS, host:

This is FRESH AIR. I’m Terry Gross. Who knows what’s happening to the
hundreds of billions of dollars we taxpayers have given to financial
institutions as part of the bailout program known as TARP, the troubled
asset-relief program?

My guest, Elizabeth Warren, is trying to find out the answers to that
and other really big questions surrounding the bailout. Warren is the
chair of the Congressional Oversight Panel that was created to oversee
the expenditure of the TARP funds that were authorized by Congress and
to provide recommendations on regulatory reform.

She’s also a law professor at Harvard and an expert on credit,
bankruptcy and economic stress. The oversight panel issues monthly
reports. Last Friday, the panel released its March report. The subject
was the mortgage foreclosure crisis.

Elizabeth Warren, welcome back to FRESH AIR. Let’s start with a
description of President Obama’s plan to help the people who can’t
afford to pay their mortgages. This plan became public as you were
publishing your report on the mortgage crisis.

So your report doesn’t contain an analysis of the Obama plan, but now
that you’ve had a chance to read it, who do you think will benefit most
from the plan?

Professor ELIZABETH WARREN (Harvard Law School; Chairperson, TARP
Congressional Oversight Panel): The people who will benefit most will be
those who are facing trouble, that is troubles coming their way, but
they’re actually current on their payments, and their homes have not
lost tremendous value relative to the outstanding mortgages - in other
words, the people in troubled but not catastrophic shape.

GROSS: And what kind of assistance will they be getting?

Prof. WARREN: Well, what they mostly will get is the opportunity to
refinance their mortgages so that they can get out of some crazier,
high-priced mortgages and into something that’s more affordable.

In addition, some of them may be eligible for buy-downs on the interest
for a period of time. So, you know, if they’re in an eight-percent
mortgage and they get that mortgage rate moved down to, say, three
percent, then their payments become much more affordable. And then over
time, the payments may go back up, but it gives these people a period
where they can make their payments, stay in their homes. Those are the
people who are mainly the target of the Obama plan.

GROSS: Now a lot of people are paying a mortgage on houses that have
lost a lot of value. So even if you keep up with the payments, you’re
never going to get the full value of the house back. You’re going to owe
the bank money.

(Soundbite of laughter)

Prof. WARREN: Well that’s the problem. There are two things that can be
wrong that will cause people to walk away from their homes or be pushed
away from their homes.

One is you can’t make the monthly payment, right? You know, the payment
went from $900 to $2,200, and there’s just no way you can pay. You can’t
pay it and eat. And that’s called an affordability problem.

The second problem is that the house is deeply underwater, which means
that - let’s just say you bought the house at $200,000, and you took out
a mortgage for, you know, like $190,000 or $180,000, and you live in an
area where housing values have dropped so sharply, the house is worth
about $125,000 now.

So you have this big overhang - that is as you keep making payments, the
house remains not as valuable as the mortgage and not as valuable as the
payments you’re making. That description now is one in every five
homeowners in America with a mortgage.

So we have the affordability problem. That’s about one in 10 homeowners
in American who are either in default or in foreclosure on their homes.
And then we have this problem of the debt overhang, people who are
paying on houses that just, the house is not even close to the value of
the mortgage.

GROSS: Does the Obama plan address people who are in that position where
their houses are underwater, and the homes are worth much less than what
the mortgage calls for?

Prof. WARREN: No. The Obama plan addresses the first one, affordability,
and it does so – I really want to be fair – in some really creative
ways, some very thoughtful ways. But it addresses affordability
directly, but it does not address the big hangover problem. And here’s
the problem with that.

It’s kind of a two-fold problem. The first one is anyone who owes a lot
more on the house than the house is worth and who hits any other
economic pressure. You saw how many layoffs were announced last month.
It hits any other problem - you know, medical problems, a family break-
up, cutback in hours - looks around and says this doesn’t make any sense
for me to keep paying on this mortgage.

And so it makes a lot more sense to walk away if there’s any other
stress in the budget.

There are other people who, even if they could pay, look at it and say
so I’m going to sit here and make payments on this house for 10 years.
And at the end of 10 years, if I’m really lucky, if the housing market
comes back some and I keep making all my payments, I might be up to
dead-flat broke with this house. I might be up to even.

It would make a lot more sense financially for me to hand the house over
to the bank, go rent something or go buy a cheaper house, even though
the house might be the same kind of house, go buy a different house and
make payments that are actually going to go toward paying the house off.

GROSS: Explain to me why, for some people, it would make more sense to
default than to keep paying?

Prof. WARREN: Well, it makes sense for people to default rather than pay
when the amount that’s owed on the house is so large relative to the
value of the house that the payments are not paying the house off.

You know, every month when you make a house payment, Terry, you’ve paid
off at least a little bit of your house. And that’s kind of a - you
know, it’s not only a satisfying feeling, it’s an economically
beneficial event.

So month by month by month as you make your payments, at the end you’re
going to own that house outright. But when we’re in this crazy economic
circumstance that we’re in now where some housing markets have fallen 40
percent, 50 percent, people can pay on their houses, but they’re paying
on a mortgage that is so far in excess of the value of the house,
they’re not paying anything down on the house. They’re not getting any
ownership of the house.

It’s called negative equity. Instead of having equity in your house,
you’ve got negative equity in your house. And the consequence is that
this makes foreclosures far more likely than they otherwise would be
because people walk away, because people say I can’t do this, because
people say it doesn’t make any economic sense for me to do this.

It also has another negative effect, and that is it locks people into
houses. So interest rates have dropped. If your house is worth more than
your mortgage, you can refinance. If your mortgage is bigger than your
house, there’s no one who will refinance your mortgage. So you can’t
refinance.

If you get a job offer across the country, you can’t sell your house
unless you can - and try to buy a new one - unless you can bring money
to the table. If you’re older and you want to move into maybe some kind
of retirement facility, want to make some kind of change, if you’ve got
this big overhang of debt, you’re facing a foreclosure or, you know,
some kind of arrangement with the bank to have to hand the house over
and forego your legal obligations to continue to pay because you just
can’t. It just doesn’t make any sense.

GROSS: Now you’re saying that the Obama mortgage plan doesn’t deal with
this kind of negative equity. In fairness, how could a plan deal with so
many people who are in a position of having the value of their house
plummet after they bought it?

Prof. WARREN: Actually, there is a way that we deal with this. There is
one way, and in a sense, it is in the Obama plan, and that is bankruptcy
deals with negative equity.

Bankruptcy, a family can file for bankruptcy, and they write down the
mortgage to 100 percent of the value of the house. So you know, just
going back to my earlier example, if the mortgage is $180,000 and the
house is worth 125, for a family in bankruptcy to keep the house, they
have to pay the current value - that is the $125,000 you owe on mortgage
and pay it over time and make all their payments, but they don’t pay the
part that is not any more value of the house. That’s treated like
credit-card debt, and it’s discharged like credit-card debt.

Now I say bankruptcy - that’s hypothetically. Bankruptcy would work that
way. It works that way for every other piece of property. So it works
that way if we were talking about a factory. It works that way if we
were talking about a vacation home. It works that way if we were talking
about rental property. It works that way if we were talking about
equipment.

But the bankruptcy laws, as they are written, say you can write down
every piece of property when you file for bankruptcy if you’re an
individual or a business - except a primary residence.

And so there’s a bill pending in Congress right now to say, you know,
that exception doesn’t make a lot of sense, and this market is the one
that proves it. You really ought to be able, if you’re in bankruptcy, to
write down home mortgages the same way you can write down, you know,
mortgages on business property or mortgages on second vacation homes,
that kind of thing.

So the Obama plan says it supports this change in the bankruptcy laws,
and that will be, that will be helpful. It’s a good place to go, but
otherwise, there are going to be a lot of people who are going to be
caught in between.

Bankruptcy, A, we don’t know for sure if the law’s going to pass,
although I - you know, it’s a critical part of this plan. But even if it
passes, bankruptcy is – it’s a last option. It’s something a lot of
people can’t do or a lot of people won’t do.

There are a lot of restrictions put into the laws on who will be able to
do these write-downs. And so the problem of negative equity will
continue to hang out there, and there will be a substantial number of
families caught in between the two poles, I suppose, would be the way to
look at it.

GROSS: If a lot of people whose mortgages were underwater took advantage
of bankruptcy laws and were able to renegotiate down the price of their
home, what would it mean for the banks and for other financial
institutions who hold the mortgages?

Prof. WARREN: Well, you know, unlike the money we’re putting into the
banks through TARP or through any of the other programs, when a family
declares bankruptcy, that loss stays between the borrower and the
lender. In other words, the banks have to take the write-down.

There’s no government subsidy. There’s no taxpayer subsidy in this. So
it would mean that the banks, quite frankly, have to belly-up to the
economic reality of the value of those mortgages they’re holding.

Instead of being able to carry them at inflated values, bankruptcy
forces them to recognize the risk. That may put some banks, on paper,
underwater. But be clear on this one, Terry. It puts them underwater
because they are underwater. The difference is only about making the
paper, the books, reflect the underlying reality.

GROSS: It’s such a vicious cycle, though. You know, if that happened,
and more banks went under as a result, then the FDIC has to bail out
their depositors. So, you know, the government’s bank on the hook again.

Prof. WARREN: But this goes down to the basic honesty problem. We can’t
continue to pretend that the bank’s assets are worth more than they are.
If we do, we will be bailing out not just for months, but for years to
come.

So we fix this problem, in my view – I want to be clear. I’m not
scripted. I’m not talking for my panel. But we fix this problem, we dig
all the way to the bottom. And when we say, okay, this is how much
income can be produced from these home mortgages, this is what they’ll
pay. This is where supply and demand actually finds its equilibrium, and
this is how much it will produce, and that’s what the assets of these
banks are worth.

Now let’s just decide: How many banks are we going to keep? How many are
solvent? How many are insolvent? And what are we going to do with the
ones that are insolvent?

Our principal responsibility is to have a working financial system, a
banking system that works. That does not mean saving every individual
bank. Those are two very different things.

The banks that took a lot of risks, the banks that really got out there
and exposed themselves on these crazy home mortgages may not deserve
taxpayer money for their survival.

GROSS: My guest is Elizabeth Warren, and she’s the chair of the
Congressional Oversight Panel that was created to assess the impact on
the economy of the government bailout program. She’s a professor of law
at Harvard university and an expert on credit and economic stress.

Let’s take a short break, and then we’ll talk some more about the
bailout plan. This is FRESH AIR.

(Soundbite of music)

GROSS: If you’re just joining us, my guest is Elizabeth Warren, and
she’s chair of the Congressional Oversight Panel that was created to
assess the impact on the economy of the government bailout program.
She’s also a professor of law at Harvard University. She’s an expert on
credit and economic stress.

And the latest report that her panel has issued is on mortgages. There
are some things that prevent mortgages from being renegotiated, and this
is something that you address in your latest report. If you want to
renegotiate a mortgage because you’re having trouble meeting the
payments, what are some of the problems you might run into?

Prof. WARREN: Well, you know, if this had happened back in the 1980s
when we hit the savings and loan crisis, the answer was you walked into
your local bank, you sat down with probably the very same person who’d
helped you fill out your mortgage to begin with and you talked through
your economic circumstances and you worked out something that was the
best deal for you and for the savings and loan - if that was possible.

Today, many lenders don’t own their mortgages anymore. They’ve bundled
them and sold them off into something called mortgage-backed securities.
And as a result, they’ve hired a middleman now.

There’s - it’s no longer a two-party transaction, the homeowner and the
lender. It’s now a three-party transaction. It’s a homeowner, a
servicer, which is the middleman, and then a trust that holds thousands
of mortgages in various tranches, as you’ve heard them described, kind
of sliced and diced up.

Well, one of the problems that we face is that the servicer doesn’t have
exactly the same incentives as the - either the borrower or the lender.
In many circumstances, because of the way these trusts are constructed,
servicers actually make more money if the homeowner goes into
foreclosure than if the homeowner does a negotiated deal to rework the
mortgage.

GROSS: So because so many mortgages have been securitized, it’s more
difficult to renegotiate a mortgage.

Prof. WARREN: That’s exactly right. And, in fact, the data show this,
that mortgages that have been securitized are considerably less likely
to be renegotiated than those that are actually held by the financial
institution.

GROSS: Does the Obama plan have any suggestions of how to deal with
those mortgages that have been securitized, where you can’t just go to
your bank who gave you the mortgage and talk to them?

Prof. WARREN: Yes, the do. It’s called a bribe.

(Soundbite of laughter)

GROSS: Did you say it’s called a bribe?

Prof. WARREN: Yes. Uh-huh. A bribe. They use a nicer word than this, but
the Obama plan says we’ll offer cash incentives to servicers who will do
the renegotiations.

I mean, look. I give the Obama team credit. They simply acknowledge the
reality, and the reality is you’ve got this group in the middle, and
they can hold the works up. So the Obama plan gives them cash incentives
- you know, $1,000 for renegotiating the mortgage, more money on down
the line if the thing continues to pay off - in order to get the
servicers to do the thing that’s best for both the investors and for the
homeowners.

And the rationale is, well, it takes more time for them to do a work-out
than it does to push something into foreclosure. But the bottom line is
that there are only two ways you can get the servicers to do this: One
is you can bribe them, and the other is you can make them. And the Obama
administration is trying the bribe.

GROSS: Now what about people who have second mortgages on their home?
Does that complicate things?

Prof. WARREN: Oh, it complicates it, and complicates it a lot. Right
now, the Obama plan is organized around first mortgages, trying to deal
with that big first mortgage and trying to force a renegotiation there
when possible to make it more affordable.

And it just says we’re going to do something about second mortgages. And
I give them credit because the second mortgages, much like the servicer,
has the ability to hold up the deal.

So, you know, the homeowner and the first mortgage holder are ready to
negotiate with each other, and the mortgage lender is saying, okay, you
know, I’ll take a write-down. I don’t like it. But the one who benefits
from that is the one holding the second mortgage. And they have
sometimes both the legal ability to get in the works and gum it up, but
they also have the economic ability because they say that’s great.

Renegotiate that first mortgage. Now you’ll have more money to pay on
the second mortgage, which is usually badly underwater but gets paid and
blocks refinancing and really causes some trouble.

So they said we’re going to do something about these second mortgages.
Right now, it’s, you know, stay tuned for more details on what to do
about them. And let me say, these are really important because many
mortgages when they were initially placed were placed, you know, when
somebody first bought the house, as a first and second mortgage.

So there would be a first mortgage for 80 percent, say, of the value of
the home and a second mortgage for another 20 percent. That’s how you
put people into these houses with no down payment. So we don’t know the
exact numbers, but somewhere in the neighborhood of about 60 to about 90
percent of first mortgages that are in the at-risk category started out
with second mortgages attached to them.

And what that means is you can’t fix the first mortgage without doing
something about the second at the same time.

GROSS: Elizabeth Warren will be back in the second half of the show. She
chairs the Congressional Oversight Panel created to oversee expenditures
of funds in the bailout program known as TARP. She’s also a law
professor at Harvard. I’m Terry Gross, and this is FRESH AIR.

(Soundbite of music)

This is FRESH AIR. I’m Terry Gross back with Elizabeth Warren. She’s
been investigating what’s happening to the money from the bailout
program known as TARP. How is the money being used by the financial
institutions we’re bailing out and what are taxpayers getting in return?
Warren is the chair of the Congressional Oversight Panel that was
created to oversee the expenditure of TARP funds and to make
recommendations on regulatory reform. Warren is also a law professor at
Harvard and an expert on credit bankruptcy and economic stress.

Your panel has put out several reports, let’s consider the report you
put out in February on the Troubled Asset Relief Program, the TARP -
this is the bailout program, this is the program in which the government
bought a lot of shares in some troubled institutions, bailed out some
troubled financial institutions. You’re trying to review what did we
that get for the dollars that we spent. And give us an overview on what
you found. When we bought shares in a troubled financial institution,
what did we get for our money?

Prof. WARREN: So we looked at the first $250 billion that was spent out
of TARP and before we started this process we sent a letter to then
Secretary of the Treasury Paulson who had been saying you’re the
American taxpayers this is an investment, you may not lose any money at
all. This is going to workout fine. We’re maximizing benefits to the
taxpayer. So we sent him a letter and asked him: Now, what we’re getting
exactly in return?

And he sent back a letter addressed to me. And he said the investments
we’re making are at or near par. And all that means is for every $100 we
put in, we’re getting back shares of stock and warrants, which are for
future stock, that are worth a $100 – a hundred for a hundred, now that
sounds fair. And we actually could’ve stopped there. But we decided no,
we’re going to pull together some finance experts and crunch the numbers
and see what it really is - see how much we’re getting back. And I hope
it comes out at $100 or at least very close to $100. And we did the
analysis and what we discovered was that for every $100 we had put in,
we got back $66 in value. Now that’s $66 as of the minute of the
transaction, that’s not the subsequent decline in stock markets.

(Soundbite of laughter)

The stock market is going down dramatically since that point in time.
But even at that moment, in effect, we were giving away one in every
three dollars of the original TARP money and not getting anything in
return for it.

GROSS: Compare that to what some private investors are getting.

Prof. WARREN: Well, that was what we did. We took the same analysis and
we looked at what other investors were getting: What Abu Dhabi was
getting when they made a big investment, what Warren Buffet was getting
when he made a big investment. And what we discovered in the comparison
is that those investors got at or near par, exactly the way Paulson had
described our transaction. In fact, they ran as high as for every $100
put in, they got a $125 back. Now that’s, you know, there was a range in
there, but the important point is it was possible to make very big
investments in that very same time period and to do them as par
transactions, or even better than par transactions. The government just
didn’t do that.

GROSS: What happens here? If you’re buying enough shares, you can
negotiate a deal? Why is it that private investors got a different deal
that the government did?

Prof. WARREN: Well, that really is the heart of the question. I want to
be clear on this. What makes me so deeply angry about what happened is
that Secretary Paulson described one thing. He wrote me a letter and
said, flatly, we got a $100 in value for every $100 dollars we put in,
that’s what he said. And he did something very different. He subsidized
the banks. He just offered subsidies. And he structured the deal - by
the way this $66 in return for $100 was not straight across the board.
For some financial institutions the subsidy was more in the range of
about eight dollars, while for other financial institutions like
Citibank the subsidy was running closer to $50 out of every $100 -
because it was set up from the beginning to subsidize the weakest banks.

Now, the government may be correct that the right thing to do is to
subsidize the weak banks, to just the give them money because they’re
underwater and we’ve decided we need to help them out. I’m prepared to
have that discussion with anyone. And I think the American people are
prepared to have that discussion. We can argue that. There are pros and
cons to that approach. But what is not all right is to say I’m not
subsidizing at the very same moment that that is exactly what the
government is doing. So frankly, I see this really as just calling
someone out for having announced one policy while following another. The
American people deserve better than that.

GROSS: So you’re not even challenging the strategy. You’re challenging
how Henry Paulson, former secretary of the treasury, presented it to you
and to the American public. And you’re saying he misrepresented what
they were doing?

Prof. WARREN: I am challenging the strategy in the following sense: You
can’t even have a discussion about the strategy if you won’t explain
what it is. If you won’t be honest about what it is. We end up having to
spend all our time fighting over, did you subsidize, no I didn’t
subsidize. Yes you did subsidize. The numbers are clear and you’re not
persuade me that Henry Paulson did not understand those numbers. The
numbers are clear. We are adults. This is an emergency. It is time to

have a conversation about whether or not we want to shovel this kind of
money into subsidizing our financial institutions and what we want to
ask for in return.

GROSS: The institutions that I think the treasury department is most
worried about are the institutions that are considered too big to fail
because their failure would involved what? Why are places like Citibank
and the insurance company AIG considered too big to fail?

Prof. WARREN: Their financial futures are linked to lots of other
players in the financial marketplace. So, in effect, this is like a
hostage situation. If you let me go down I will take with me hundreds,
thousands of other businesses of other deals and that will rock through
the economy in a way that will destroy you all. So it’s a hostage that
they’ve taken, right?. It’s a threat and the threat may be real. And so,
in effect, we keep shoveling money into these financial institutions in
the hope that they won’t fail and take us all down.

GROSS: If you’re just joining us my guest is Elizabeth Warren. She’s
chair of the Congressional Oversight Panel that was created to assess
the impact on the economy of the government bailout program. She’s a
professor of law at Harvard University and an expert on credit and
economic stress. Let’s take a short break and then we’ll talk some more
about the bailout plan. This is FRESH AIR.

(Soundbite of music)

My guest is Elizabeth Warren. We’re talking about her work as the chair
of the Congressional Oversight Panel that was created to assess the
impact on the economy of the TARP - the government bailout program -
financial institutions. She’s a professor of law at Harvard University
and an expert on credit and economic stress. When the TARP bailout was
initiated there were no strings attached. There was no built-in
accountability for the financial institutions receiving the money. Part
of your job is to investigate - look what’s happening with the money. Do
we know what the financial institutions are doing with the money that
the government has given them?

Prof. WARREN: No.

GROSS: That was a very short answer. Do we know anything?

(Soundbite of laughter)

I mean, do we know nothing? Is there any reporting that they’re doing,
is there any accountability?

Prof. WARREN: You know, if you don’t ask, you won’t get answers. Now to
his credit, the inspector general is now sending out questionnaires and
asking the financial institutions what they’ve done with the money. But
let’s be clear: When Henry Paulson set it up for people to take that
first $350 billion, they didn’t put any strings on it and they didn’t
even put any reporting requirements on it. So there are reports of
financial institutions who used some of the money to lend. But there are
also reports of financial institutions - in fact, they’ve said it
themselves – who used it to buy other financial institutions to make
other investments.

And then many financial institutions are believed simply to have hoarded
the money - that is, hold on to it to offset their other bad debts that
are coming up. We gave them free money to be able to make themselves
richer.

GROSS: The bailout program was begun in the final days of the Bush
administration and now in the early days of the Obama administration.
The Obama administration is adding money, making some changes. Do you
see a big shift in approach between the Bush administration and the
Obama administration’s approach to the bailout.

Prof. WARREN: Yes and no. The yes is that Secretary Geithner clearly has
gotten the message on transparency, accountability. The very first thing
he did after he became secretary is that he started putting documents up
on the Web site. He started holding press conferences saying, I’m going
to make this information more available. So, it changed. He also said,
in announcing how the second $350 billion is going to be spent, that
they were going to be somewhat more restrictions, it’s a little more
complicated formula, in fact we’re just trying dive in and figure out
what the formula is. So, in that sense, yes I think there has been a
real change. The larger question is a harder one and for that you have
to pause.

Henry Paulson announced at least two plans in quick order of which, you
know, he dropped the first one, went to the second one, then didn’t
follow the second one, as we showed when we did the actual financial
analysis of what he did - done. There was no overall strategy that
indicated that he ever got his arms around what the problem was. Indeed,
if you simply look at it from the point of view of what he actually did,
it’s not clear that he ever even understood the magnitude of the
problem. Now, we come to a new secretary and so we are waiting to hear.

Does he really have his arms around this? Is there - are we going to
keep taking these incremental steps and they’re going to be you know,
higgledy-piggledy in lots of different directions and no clearly
developed overall strategy? Or is it the case that we’re going to get an
announcement about how it is that he’s got something that shaped and
that’s really going to make sense here and get us to bottom of this
problem? And on this very day, the day that you and I are talking, I
don’t know the answer yet.

GROSS: How much money have we spent so far on the bailout program and
how much money is left that has already been allotted by Congress?

Prof. WARREN: It appears that about - in terms of the commitments - that
about $400 billion has either been committed or already gone completely
out the door. And that we’re lining up, under just the TARP program, to
spend about another $300 billion. But keep in mind – I mean, here’s
another iron – the Congressional Oversight Panel is, legally, to look at
TARP money. But the Federal Reserve is out making commitments that
dwarfs the amount of money we’re talking about in TARP. The FDIC is also
making commitments and is about to receive more money to make more
commitments, or at least may be. So we’re talking about somewhere in the
neighborhood of two trillion dollars in various commitments and policy
directions of the Federal Reserve. And there’s no oversight there.

GROSS: Now I want to change subjects for a moment. We’ve been talking
about your work chairing the Congressional Oversight Panel that’s
investigating the TARP, the bailout money. Now you are, among other
things, an expert on credit cards. And the things that credit card
companies do to make a profit and to get more from the consumers who use
the credit cards. Something pretty extraordinary has happened in the
credit card world.

American Express has decided they want to get rid of some of their
customers and so they’re actually offering to pay $300 through a gift
card to some customers who are willing to pay off their balance and
close their account. I’ve never heard of anything like this, a financial
incentive to leave a credit card company. What’s going on here?

Prof. WARREN: Well, we are in extraordinary times and American Express
wants to improve its balance sheet. And right now the possibility that
outstanding balances will eventually go into default and push even
greater losses on the companies that are holding this paper is high. And
so what they want to do is they want to shrink that up. They want that
balance smaller and they’re willing to pay the customer to get rid of
it. Now, here’s the irony, isn’t it. One of two things has to be true,
doesn’t it? Either the customer really has the money, in which case
paying them to get rid of them, you just got rid of a nice little
profits there, because they really have the money and really would pay
it off.

Or the second possibility, and that is the customer really doesn’t have
the money but will switch the balance to another credit card. So that
what we’re doing is playing a game of, you know, hot potato. Let those
bad accounts end up somewhere else - let them end up as Citibank
accounts or as Bank of America accounts - just don’t make them American
Express accounts. You know, there’s a variation on this game to, it’s
the impolite version. American Express is doing the polite version:
We’ll pay you $300. Doesn’t that sound nice?

The impolite version is your 9.9 percent interest rate has now jumped to
27.9 percent for no reason, other than we just don’t want you as a
customer anymore.

GROSS: Are credit card companies afraid that they’re going to be stuck
with the equivalent of the problems in the mortgage industry, where
people can’t afford to pay off their bills.

Prof. WARREN: Yes. They are very afraid. And those who invest in credit
card companies are afraid that the next tsunami of default will be
credit cards. Look at the numbers: Credit card defaults are climbing
every month right now. That is people who just can’t make their
payments.

GROSS: Just one more question: You know, we’re in the middle of an
economic crisis of the likes of which we haven’t seen in decades, or
maybe that we’ve never seen because there’s never been anything quite
like this crisis. Do you think that the crisis that we’re in now, and
the bailout approach that we’re taking, is going to change in any way
who the have’s and have not’s are.

Prof. WARREN: I think the big difference will be what new rules we make
coming out the other side. Are we going to put in financial rules - re-
regulate the economy in a way that continues to make, in effect, profits
private and losses shuffled off to the taxpayers? Or are we going to re-
write the rules to say hey, it’s no longer a profit scheme to take
advantage of people who can’t read mortgage documents or who, you know,
put a lot of tricks and traps into credit cards? We’re going to stop
that sort of thing and say that, you know, if that cuts into the profits
of these big financial institutions, so be it.

You can’t keep wringing money out of middle class families in order to
support this overgrown financial beast. And I don’t know which way we’ll
go. But it’s really going to be the rules coming out the other side.
What are we going to write starting tomorrow about what the rules will
be?

GROSS: Elizabeth Warren good luck with your work, and I want to thank
you as always for being such a good explainer and for talking with us on
FRESH AIR. Thank you very much.

Prof. WARREN: Oh, thank you.

GROSS: Elizabeth Warren chairs the Congressional Oversight Panel created
to oversee the expenditure of funds in the bailout program known as
TARP. She’s also a law professor at Harvard. Coming up, Ken Tucker
reviews a new album of blues influenced rock from a band led by singer-
songwriter Erika Wennerstrom. This is FRESH AIR.
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‘The Mountain,’ Not So Heartless

TERRY GROSS, host:

Our music critic, Ken Tucker, has a review of a new album from the band
Heartless Bastards. The group was formed in Cincinnati, Ohio, around the
lead singer-songwriter, Erika Wennerstrom. She writes blues influenced
rock and Ken says the group’s third album, “The Mountain,” features a
new, bold sound.

(Soundbite of song, “Hold Your Head High”)

Ms. ERIKA WENNERSTROM (Lead Singer, Heartless Bastards Band): (Singing)
I made a lot of choices, most have not been wise, But I have some really
good friends, I’ve been fortunate enough to find. They me get through
the lonely days when I want to stay inside myself. They get me out of my
shell, out into the world.

KEN TUCKER: The heart of the Heartless Bastards is Erika Wennerstrom,
who wears it on her sleeve. On that song called “Hold Your Head High,”
she begins by announcing I’ve made a lot of choices, most have not been
wise. Most rock stars would make these lines boastful or self-pitying.
Wennerstrom floods these sentiments with ruefulness and regret, and
still in the space of a mere 11 words, also fills them with a vow not be
such a mess up in the future. She has a gift for making life-errors into
more than cheesy life lessons — they become statements of resolve.

(Soundbite of song)

Ms. WENNERSTROM: (Singing) Oh! No (unintelligible) I’m trying
(unintelligible) I’m (unintelligible). I’ll (unintelligible) and through
the (unintelligible) and through the (unintelligible) into the wicked
sun

TUCKER: Once again there, Wennerstrom gives us a song in which
everything is in doubt - all the decisions in her life are in play,
changeable, not so much fluid as unsure. The music emphasizes this and
when I say music I mean her own guitar playing, which offers a series of
vehemently strummed chords bolstered by the drumming of Dave Colvin.
Pretty soon Wennerstrom is singing over and over like a chant, I’m going
to keep on running. But the message is not running away from her
problems but running in the sense of functioning, of continuing to
recharge and change to locate the sources of her unhappiness and general
restlessness.

(Soundbite of song, “I Could Be So Happy”)

Ms. WENNERSTROM: (Singing) Song by Heartless Bastard: “I could be so
happy, if I just quit being sad. I could be so funny, if I just quit
being a drag. I could be so sweet, if I just quit being sour. I could do
all these things. Oh, I have the power. I’m going to see what tomorrow
brings, I’m going to make it to the (unintelligible) train. I’m going to
see what tomorrow brings, I’m going to take it to the world outside.
Ooh.

TUCKER: It’s easy to read a lot into the music written and sung by
Wennerstrom and her Heartless band mates, it’s because she provides us
with an open field of opportunity. She has a gift for writing songs that
can accommodate not just her own fears, anger and tenderness, but also
whatever of these elements in your own life you want to hear in them.
She is, as she says here, a searcher - a voyager into the unknown.

(Soundbite of song, “Early In The Morning”)

Ms. WENNERSTROM: (Singing) Early in the morning, I woke up out of bed.
All my thoughts are running back, running through my head. Of how you
want to debate everything you hear, and I just want to go on escaping
from my fears. I don’t want to follow in a path that makes me hollow.
I’ve been living underground trying to get my spirits up. There’s more
than one direction to get to the same end. We don’t have to agree, we
don’t have to agree. Since you know it all why.

TUCKER: Throughout this album “The Mountain,” Erika Wennerstrom builds
many songs to big, swirling climaxes. Sometimes, as on the song I just
played, she begins a with the climax. It’s as though the song is just
bursting out of her heart. She sings deep into the chorus: I’m on my
own, I’m on my own. But her isolation never seems desolate or
despairing. It’s the sound of someone possessed of ruthless clarity,
sparing herself nothing. She fills us as listeners with a new sense of
purpose we might not have felt before hearing her suggest those
possibilities.

GROSS: Ken Tucker is editor-at-large at Entertainment Weekly. He
reviewed “The Mountain” by the band Heartless Bastards. You can download
podcasts of our show on our Web site freshair.npr.org. FRESH AIR’s
executive producer is Danny Miller. Our interviews and reviews are
produced and edited by Amy Salit, Phyllis Myers, Monique Nazareth, Ann
Marie Baldonado, Joan Toohey-Wesman, Sam Briger, Jonathan Menjivar, John
Myers and John Sheehan. I’m Terry Gross.

(Soundbite of song, “All The Time”)

Ms. WENNERSTROM: (Singing) Mind has drifted out into (unintelligible),
so cannot find and the days go by searching all the time. Oh I would
search and all, searching all the time. I’m (unintelligible) the eyes of
everyone I know and the day’s go by, I’m on the way to go. I was
searching all, searching all the time. I found myself (unintelligible)
and you are not, you’ve (unintelligible), Oh, oh, oh. And just let go.
There are some (unintelligible).
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