It was October 1, 2012 and Sen. Scott Brown had just screwed up during his U.S. Senate debate with Elizabeth Warren. Big time. In the annals of debate screw ups in the history of Massachusetts politics, it may have no equal. Asked by moderator David Gregory who his model Supreme Justice is, Brown gave one of the most utterly dumfounding responses in the history of human interaction:
"Uh, let me see here. That's a great question. I think Justice Scalia is a very good judge."
It was at that moment Warren smiled and seemed to suppress a giggle, as if she knew right then she'd win the election the following month (which she did). She adjusted her glasses, it looked like she was facepalming on behalf of the Brown campaign. There were loud gasps and boos at the senator's response, including in the press room, where I was. Brown -- the moderate Republican on borrowed time who managed to stun everyone by winning a special election in 2010 -- had named arguably the most radically conservative Supreme Court justice in the last half century.
As I wrote at the time,
"[I]f you’re a moderate Republican in a liberal state, your answer to this question is 'Anthony Kennedy,' and leave it at that.
"One reason you say Anthony Kennedy is because no one knows who Anthony Kennedy is. The second reason you say Anthony Kennedy is because he is, among the politically literate class, the longtime famed 'swing vote' of the Supreme Court — conservative in most opinions, but a judge who occasionally joins the liberal wing. You say Anthony Kennedy because it allows you to cast yourself as a conservative without scaring the ever-living shit out of independents who think there is in fact a constitutional right to privacy."
After the debate, Warren fielded three questions, the last of which was mine: (And yes, I did have to hold my phone vertically.)
I had met Warren at a campaign event earlier in the year and signed up to volunteer soon thereafter. Unfortunately, that didn't last long because I took a new job in New York, but thankfully it was one that involved doing stuff like covering this debate. Warren first got my attention in 2009 as the feisty and intrepid chairperson of the Congressional Oversight Panel, which was created in November 2008 in accordance with the Emergency Economic Stabilization Act, also known as the Wall Street bailout.
After the economic meltdown of 2008, I, like many Americans found myself just wondering what had happened to bring on the biggest financial crisis in 80 years. I knew it had something to do with mortgages and a lot of horrible decision-making by some of the country's largest financial institutions, but I knew next to nothing about finance. So I poured myself into learning about the disaster, and the more I learned, the more horrified and pissed off I got.
Another person who was equally if not more pissed off was Warren. She had been a Harvard Law School professor and consumer advocate, who in 2007 wrote an essay in which she proposed the idea of a federal Financial Product Safety Commission that would regulate mortgage markets to mitigate both personal and systemic risk. Here's how she put it:
"It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner."
Warren argued that loans with incomprehensible terms and predatory lending posed grave dangers to individual borrowers. Within a year or so, the world would come to realize just how true this was.
The short version of what led to the Great Recession is this: Thanks in part to rock bottom interest rates spurred on by the Federal Reserve in the early 2000s, the number of people buying homes skyrocketed, as did the price of real estate. But many of the mortgages issued were of the subprime variety, meaning they were issued to borrowers with bad credit histories. This didn't deter some lenders, as they knew the mortgages could be bundled up into securities that were often given investment grade ratings by the big three ratings agencies, and then sold to investors as low-risk instruments that would provide steady returns over time. However, it was becoming clear that a lot of these mortgage-backed securities were about to turn to shit as the housing market nose-dived and borrowers would start to default en masse, thereby rendering the mortgage-backed securities worthless. So many holders of this bad paper bought credit-default swaps -- essentially insurance policies -- in the event the mortgage-backed securities went bust. They did, and unfortunately for insurance giant American International Group, it had issued billions of dollars in swaps, but couldn't afford to pay its counterparties looking to collect their "insurance" money. Given the contagion factor, the government decided to step in.
As chair of the Congressional Oversight Panel, Warren had been appointed to look into, among other things, the government's handling of the bailout. The following clip from April 2009 shows she wasn't too happy about it, or at east parts of it. Here, Warren unloads on then-Secretary of the Treasury Tim Geithner, who played an integral role in rescuing Wall Street as the President of the New York Federal Reserve. At issue is the decision by the Federal Reserve and the Treasury department to give AIG's counterparties 100 cents on the dollar, instead of forcing them to take a haircut.
Yes, why were AIG's counterparties, including Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), and Citigroup ($2.3 billion) getting 100% of what they were owed courtesy of taxpayers when they were entitled to literally zero dollars. If you were to invest in a company that loses all its money before you could get a return, do you know what happens? That's right, you get nothing. That's because you're not a big-ass bank that's highly leveraged to the economy as a whole. You are not, in short, too big to fail, a phenomenon that Warren has been railing against for years, just as she had been railing against predatory and risky lending. And the worst part is, they're still to big to fail.
I just hope we're able to avert the next crisis by heeding Elizabeth Warren's warnings, but I fear when the moment of truth about too big to fail comes, we're going to look the problem right in the face and say, "Scalia."