Inside Financial Services

Elizabeth Warren’s Preposterous Grandstanding

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Oh, now Elizabeth Warren is an expert on the stock market. “[M]any of the Wall Street banks right now are trading below book value,” she commented at a Senate hearing last week. “And I can only think of two reasons why that would be so. One would be because nobody believes that the banks’ books are honest, or the second would be that no one believes that the banks are really manageable.”

Actually, there are a few other possible reasons banks are trading below book. I’ll get to those in a minute. But first: can it possibly be true that after the banking industry has endured three straight years of federally mandated stress tests, four years of post-crisis independent audits, and more severe regulatory scrutiny generally, that Elizabeth Warren still believes the banking industry is cooking its books? How could they be? That would be one vast conspiracy! It would have to involve everyone from auditors, to regulators, to bank managements-all without anyone saying a word. The Trilateral Commission would have nothing on this crew. Alternatively, Sen. Warren might have lost her mind.

The Internet was abuzz last week over video of Warren ripping in to regulators during a hearing of the Senate Banking Committee. She seems to feel there haven’t been enough prosecutions that would “make an example” of banking industry wrongdoers, for the purpose of deterrence. That’s an astonishing view. The Justice Department has spent the better part of the past four years trying to get the goods on some of the highest-profile names associated with the credit meltdown. They went after Dick Fuld and came away with nothing. They went after Angelo Mozilo and came away with nothing. They went after Kerry Killinger and came away with nothing. It could be-although Elizabeth Warren’s view of the world is so blinkered that she’ll never believe it-that while what Fuld, Mozilo, and the rest did might have been unwise and imprudent, it was not criminal. Considering all the time and effort the DoJ has spent looking into the matter, in fact, that would appear to be the case.

But Elizabeth Warren puts on an entertaining YouTube show, just the same. I had assumed her bottom-line goal as a member of the Senate Banking Committee would be to ensure adequate oversight of a banking industry that would still be an important source of credit for the economy generally. That’s entirely reasonable. But based on her harangue last week, it looks like I was wrong. All Elizabeth Warren seems to be interested in doing is bludgeoning the banking industry and the people who oversee it, just to play to her base. Thanks, Massachusetts!

Now back to those bank valuations, for a minute. First off, the vast majority of publicly traded banks do trade above book value. But among those that don’t, one possible reason for the discount that Sen. Warren didn’t mention has to do with the tremendous new regulatory load that Congress imposed on the banking industry, mainly via Dodd-Frank. This mountain of new regulations is making it difficult for some banks to earn their cost of capital. Those banks are trading below book value, therefore, because that book value will likely earn a paltry return and deserves to be discounted. It’s not bad assets that are holding the bank stocks down. It’s hyper-regulation-the kind that’s been championed for years by Elizabeth Warren.

What do you think? Let me know!

21 Responses to “Elizabeth Warren’s Preposterous Grandstanding”

  1. PureDakota

    I’m unhappy with Sen. Warren for the way she grandstands, and for how difficult she has made life for banks who had nothing to do with the crisis, but I’m unhappy about other things too:
    I’m unhappy with the banks who made loans that made no sense.
    I’m unhappy at the rating agencies for saying you can have triple A security supported by loans that made no sense..
    I’m unhappy at the bank regulators for seeing what was going on and not doing anything to curb it until it was way too late.
    I’m unhappy at Congress for it’s multi-faceted role in facilitating this mess, and for the way it dealt with it once it occurred.
    I’m unhappy at consumers who lied to get loans, and then complained because they lost their homes.
    Who did I leave out?

  2. Doug Christopher

    Thank you Tom. Your opinions and insight are excellent. Wall Street and its leaders have gotten so far away from investing and actual analysis that they now take whatever a politician says rather than think independently. Rather than becoming independent they’ve molded into a “politically correct” model that has no longevity or consistency. Elizabeth Warren is the ultimate example of someone distant and ignorant of the investing process and only interested in herself. While selfishness has never been a virtue, Warren is one who is trying to make it such. She has not lost her mind, she is just one of many politicians in the age of brainwashed babblers in high places.

  3. oy

    It may not be cooking the books because it is GAAP sanctioned, but US banks do underreport their leverage due to asset netting and their income is subject to idiotic credit valuation adjustments. In addition, risk-weighted assets remain subject to their own valuation models.

  4. John

    Tom – I totally agree she is delusional. Unfortunately, that’s why she was elected to congress. At some point, it will be nice to get past political grandstanding and have congress focus more of it’s efforts on things that truly matter. Like eliminating the deficit, etc. I guess when you have elected members that don’t truly understand their resposibility, this is what happens!!!

  5. Ken Greenberg

    Why do people elect these idiots??? Oh, because it’s nice to blame the big bad guys. The traditional liberal/progressive argument is to bring up other stuff that went awry. You call me names, I call you names.

    The 535 will only be happy when the whole system collapses under their weight and oversight. But it won’t be their fault. Hope MA wakes up. Then again, CA is still snoozing.

  6. c smith

    They’ll never “get the goods” on any bank execs for one simple reason: the crisis was not about outright fraud, but the moral hazard created by mortgage guarantees emanating from the Federal government. Everyone participating in the giant mortgage machine knew that the Treasury (and ultimately the Federal Reserve) would end up paying for the whole mess. And, ultimately, THEY DID!

  7. jsc173

    Warren is a smarter, more focused version of Joe Biden. While Joe is comical when he rants about his topic of the day, Warren is dangerous. The apparent inability (or unwillingness) of anyone to throttle her is disturbing. Of course, her friends in the media are always going to make sure a camera and microphone witll be available whenever she calls. I think she still covets the idea of running CFPB. In that role she would have real enforcement power. And we’d all suffer.

  8. ed

    Four years later, people are still unable to distinguish between incompetent and criminal.
    What about the many borrowers who comitted fraud on their loan applications? Where are THOSE prosecutions? Those people were far more criminal in their behavior.

  9. stays

    I think your opinions are perfect examples of a loser stock picker that needs outside help, such as lousy regulators or dumb consumers, to make any money in the market. And now that regulators are not so lousy and consumers are smarter, you are finding it difficult to make money in the market. It must be disconcerting to not have the predictability in the market place to line your pockets. Too bad for you and your clients.

  10. swellesley

    she is a hypocrit..okay to pay her $350k to teach ! course at Harvard!!! But god forbid banks making any money on a transaction….from big mouth Barney Frank to Liz ..thats why i,m leaving Ma. next year…

  11. jack bazler

    I thought beating up on the wealthy was the new past time for one of Obama’s favorite anticapitalist personalities. Well you have to earn your salary it seems. This will go on until the whole crowd is thrown out.

  12. DCMG

    All I do is call on community banks and they are about at the point of no return as far as regulation. FDIC will come in and force them to sell assets in a small community that has a thin market therefore forcing asset values lower due to the sale, then make them mark other assets down to reflect the lower value comps. The best bet would be to allow the banks to hold those assets due to the low funding costs until you have the market establishing market levels not the bank establishing lower market levels in reduced price sales. (If the market knows it’s a bank it is a massive drop in bid price). But suggesting that the government knows anything about what would protect a market and an economy is laughable!

  13. stays

    Tom, from the bottom of the market in 2009, anyone can look good in 2013. Hell, you could have thrown darts and picked winners from that market bottom. So, don’t go around congratulating yourself on your stock picking prowess — the market had few places to go in 2009 but up.

  14. Sgr

    Princess Fauxcohontas speaks with angry and forked tongue. She’s an intellectual lightweight with a history of lies and fabrications. Yes…many thanks Massachusetts.

  15. John

    Tom – I totally agree she is delusional. Unfortunately, that’s why she was elected to congress. At some point, it will be nice to get past political grandstanding and have congress focus more of it’s efforts on things that truly matter. Like eliminating the deficit, etc. I guess when you have elected members that don’t truly understand their resposibility, this is what happens!!!

  16. Ole

    And what about the Tom Brown? He won’t answer anything about his pumping of First Marblehead some years ago. What’s the full story, Tom?

  17. apppro

    Her policies are set in her distorted “Warren Manifesto” and based on misguided hate.

  18. c'mon stays

    stays is the Cherokee translations for loser. So loser person that lives in your parents basement, please have a relevant counterargument and preferably one that address the actual points in the article. This women is a disgrace to America and to everyone it. She’s never been productive and apparently she’s incapable of ever being coherent. At least she’s an upgrade from the guy who use to hold the seat because she didn’t get expelled from Harvard or drive her lover into a river and call her lawyer while the person died. Anyways, continue to support her and those types.

  19. Making A Difference

    Elizabeth Warren is a joke. So is Barney Frank. He led Congressmen who bludgeoned the mortgage business to “get ‘working American’s’ into homeownership”. So the bigger banks and the unregulated mortgage companies skirted prudent underwriting rules and put WILLING “working American’s” into homes and mortgages they could never repay. When you are lending to folks who don’t make enough money to support a mortgage payment, don’t put any of their own money into the property, don’t have acceptable credit and don’t have to verify that they have an income at all, what does anyone expect will eventually happen? When everything blows up, Teflon Barney blames the big banks/mortgage companies and Squaw Elizabeth buries all banks under onerous regulations. What’s going to happen when all the small community banks – who never made a subprime loan – end up merging into bigger banks because they just cannot absorb the regulatory costs? I’ll tell you what; less support of local businesses with loans, drying up of cash and management support for local charities, less financial education and guidance for those with small nest eggs and an overall decline in the fabric of small communites. For more than a century, community banks have helped to build and support local individuals and economies, and in just a few years, Elizabeth Warren is going to do her best to destroy all that. She needs to take a course in understanding the difference between a nuclear blast and a surgical missile strike!!

  20. paracelsus

    Ok,Ms.Warren isn’t flavor of the month here,no doubt.But what does that make of Corzine?

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