Elizabeth Warren

           About 2 weeks ago, President Barack Obama appointed Elizabeth Warren as a special advisor in the creation of the Bureau of Consumer Protection.  This role will include recommending the new director of the Bureau and creating a framework for the policy goals of the new bureau, according to WhoRunsGov.com, a Washington Post Publication. Throughout the past decade, Warren has illustrated an understanding of the financial burden families face in the United States.

            Most telling is the publication of her 2003 book “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” which Warren co-wrote with her daughter. The book details how the pressure to live in an area with a good school system, relying on two incomes, maintaining an inadequate financial cushion and divorce are all leading factors in families filing for bankruptcy. Even before the housing crisis, Warren recognized a problem in housing affordability and some of the reasons why a family would overextend themselves on a mortgage. In her book, she found having children was often an indicating factor in families filing for bankruptcy, as they competed for homes in better neighborhoods. Based on this publication, at least, Warren acknowledges a fundamental cause of the housing crisis, which is that people are overextending themselves.

            Warren’s fundamental common sense is also illustrated in an interview on “Dr. Phil,” as reported by 2009 article appearing in Newsweek. In the interview, a family was discussing how they had taken out a second mortgage to pay for their debts. Warren told the family, according to Newsweek, that consolidating the debt onto a mortgage is the worst mistake because it puts the already struggling family at risk of losing a house to foreclosure. She later told Newsweek, “Afterward I thought…I may have just done more good in the last 90 seconds than I ever accomplished with anything else I wrote.” Utilizing the equity in a home is not just disastrous for the homeowner but also for the overall economy. When a homeowner maxes out their equity due to financial distress and the housing market weakens, the house will go into short sale, causing banks to lose money on the property. The issue of homeowners owing more than their home is worth continues to be an ongoing problem of the recession.

           The question is what will she do with her research to build a better foundation for the economy. There can be no doubt that the middle class has found itself in a precarious position, as she detailed in her book.   In order to successfully create a functional bureau which benefits consumers, Warren needs to continue to acknowledge the pressure families to over extend themselves and create avenues within the bureau to help inform consumers’ decisions about how much house they can afford. If she were to take her research and build into the bureau the idea that families should be able to meet a majority of their obligations on a single income and use secondary income to build a nest egg for the better long term stability, the bureau stands a good shot at protecting consumers from the pressure to overextend themselves.