Prof. Elizabeth Warren, chairman of the panel Congress set up to oversee the TARP program, says her group’s first report will be out December 10 and will lay out “the central questions that Treasury should be addressing as it spends the taxpayers’ money.”  

Oh, I just bet it will. Unfortunately, the issues Prof. Warren and her group raise will almost certainly be beside the point, and could set the TARP program off on entirely a wrong, expensive, counterproductive track.

If you have any familiarity with the banking business, you have likely heard of Elizabeth Warren. She teaches at Harvard Law School and, as a leading industry scourge, is the go-to gal for reporters working on negative stories on card companies, mortgage lenders, and any other form of consumer lending you can name. You simply can’t read about, say, double-cycle billing or universal default without her name popping up, accompanied by some lecture about what predatory monsters consumer lenders are. 

Now, I like bashing big companies as much as the next guy. I even occasionally agree with some of the things Professor Warren has to say. But the Professor doesn’t just quibble with this lending practice or that one. She thinks the entire industry is diabolical. Warren apparently believes consumer lenders have some mystical, systematic advantage over consumers, which they see as their duty to exploit at every turn. Or, as she puts it, "Credit products aimed at both middle class and poor families are designed to trick them, trap them, and otherwise pick their pockets.” Card companies in particular are a favorite target. “What kind of profits are credit card companies squeezing out of middle class American families, using every trick in their (very big) book?” she wrote in a typical rant on her web log not so long ago. “Card companies don’t want to play by the same rules as everyone else—and with today’s rules, they don’t have to.” She’s not so crazy about subprime mortgage lenders, either. And payday lenders? Forget it. To Elizabeth Warren, the entire consumer lending industry is a “giant credit machine that wants to eat families alive.”

Whoa! Easy, girl! Now, I have a question. How can anyone believe this woman will be a disinterested overseer of the recapitalization of the U.S. banking industry? She cares less about seeing that the TARP money helps end the financial crisis, I suspect, than she does about finding ways to bind the industry in a straitjacket of new “consumer-friendly” regulation. Unfortunately, those new regulations would almost certainly have the effect of slowing the supply of credit—the opposite of what the TARP plan is supposed to achieve. 

And in fact, Warren’s view of the consumer finance industry, and the “tricks” at lenders’ disposal, happens to be 100% wrong. If consumer lenders really did have the fearsome advantage over their customers Warren imagines, how is it that the entire subprime mortgage industry has gone out of business over the past 18 months? Or that most monoline card lenders have either gone belly up or have been forced to seek buyers? Here’s why: consumer lending is a tough, competitive business. Lenders don’t have proprietary, unfair tricks. They all get competed away.

Or, to put it another way, if the financial industry were as cunning and all-powerful as Prof. Warren seems to think, it wouldn’t need any bailing out in the first place.            

So what about the questions that the TARP oversight panel will be asking in its December 10 report? If it were my committee, I’d want to ensure that Treasury a) had a way to systematically identify which sectors of the credit markets are most in need of TARP money, b) had figured out how the money can be put to use in those markets to greatest effect, and c) had a system in place to monitor effectiveness.

Instead, I fear we’re likely to see a document that aims to turn the TARP plan from a program aimed at easing the financial crisis into some back-door borrower-relief scheme that will only delay the pain, but will make everyone feel a lot better in the meantime.

Maybe I’m wrong, of course. We’ll know on Dec. 10. Fortunately, Warren is just one of five members—three Democrats and two Republicans—of the panel. Less fortunately, the group thought it would be a good idea to put her in charge. That’s not a good sign. Based everything I’ve read so far about the good Professor, her panel won’t be providing the kind of oversight the TARP needs. 

What do you think? Let me know!