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Edited on Sat Mar-06-10 07:24 PM by FourScore
Warren's observations on Greece and Goldman's involvement in creating Europe's Enron: CHARLIE ROSE: We are now looking at the situation in Greece where there is risk of default on debt. And what’s come into play are private equity firms looking how they get engaged and also betting on Euro, and credit default swaps have risen their presence again.
And the whole notion of bookkeeping, in effect.
CHARLIE ROSE: Whether certain firms -- the charge is certain firms help them cover up the amount of debt they had.
ELIZABETH WARREN: Enron taught us a few years back, you remember, in fact that the books are dirty, that there is one set of books put out in front for everyone to see, but there are effectively off the book transactions that nobody can see that reflect the real risks that your enterprise has taken.
And we’ve gone straight from Enron to Greece, with lots of stops in between for large financial institutions.
But what it really goes back to is how much honesty, how much transparency are we going to insist on in the financial system? Everyone wants to make this stuff really hard. It’s about credit default swaps and derivative squares, and so on. No, it really is about things like transparency and honesty. On Too Big To Fail: CHARLIE ROSE: What else do you want to see in regulatory, in a bill that’s supposedly looks at how we got where we are in the economic crises and the recession that we experienced and to make new rules and regulations that will prevent it from happening again?
ELIZABETH WARREN: It’s about the other end of the spectrum. We started at families. The other end is "too big to fail."
Until we build a chapter 11 system, a resolution authority system, whatever we want to call this, until we build the part of the legal structure that permits us as a people to say with real credibility behind it, "credibility" is the underlying word here -- I don’t care what your business is. I don’t care how big you are, I don’t care how intertwined you are. If you make bad enough decisions, you can be liquidated. It’s over. On wiping out shareholders in the bankrupt institutions (and yes, that includes Goldman Sachs): ELIZABETH WARREN: There’s a key part to this on bailing out the banks. Here’s what’s always driven me crazy about this from the beginning. I understand financing that comes in once a business is in distress. We call it post-petition financing in the bankruptcy world.
The price for that is that equity gets wiped out, top management loses their jobs, and the old debt takes a hair cut of some proportion. To come in and rescue under those circumstances, I get it, that happens. That’s what bankruptcy’s about. That says the participants in the old one don’t get it.
What we did when we rescued these banks is that we left the shareholders intact, we left their top management intact, we paid their debt in full. We came in --
CHARLIE ROSE: So we, the U.S. government -- in your judgment -- for good motivation mostly to save the economy from collapsing, made a bad deal.
ELIZABETH WARREN: We were far too generous.
CHARLIE ROSE: That’s a bad deal, isn’t it?
ELIZABETH WARREN: With those who made --
CHARLIE ROSE: So you could have saved the economy without going to the extent in making the deal you did?... And on Commercial Real Estate (yes, CNBC, it has not gone away just because nobody is talking about it): CHARLIE ROSE: Commercial real estate, what are we looking at.
ELIZABETH WARREN: Oh golly -- 2,988 banks that by the terms of their own regulators are too concentrated in commercial real estate. These are the medium size banks. By the end of this year, half of all commercial real estate loans will be underwater, and they are coming in ‘11, ‘12 and ‘13.
The reason this is such a bad problem anyway -- think about that, nearly 3,000 banks out of a total of 8,000 -- it’s the very banks that do small business lending who are about to get socked in the nose on real estate, commercial real estate losses.
CHARLIE ROSE: So we’ll see banks going under because they’ve got too many loans out there are not being repaid?
ELIZABETH WARREN: We’re seeing banks that don’t want to lend because they see every dollar that comes in the door and say "I’ve got to hold on to it to try to fill my commercial real estate hole or else I will be gone." http://www.zerohedge.com/article/elizabeth-warren-discusses-global-enron-wall-street-greece-and-backVIDEO: http://www.charlierose.com/view/interview/10895#frame_top
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