- Key insight: Sen. Elizabeth Warren, D-Mass., is pressing the Fed for records on Kevin Warsh’s actions during the 2008 financial crisis, arguing he downplayed subprime risks and helped funnel taxpayer-funded bailouts to major Wall Street firms.
- Forward look: Warsh’s path to confirmation is already complicated, with Democrats uniformly opposed and Republican Sen. Thom Tillis withholding his vote until the DOJ drops an investigation into current Fed Chair Jerome Powell.
- Expert quote: “Since 2008, it has been well-documented that Mr. Warsh, in his role as Fed Governor, failed to take seriously the risks posed by the subprime mortgage market,” Warren said.
WASHINGTON — Sen. Elizabeth Warren, D-Mass., is pressing the Federal Reserve for records relating to the actions of Kevin Warch, a former Fed Governor and current nominee to chair the Fed, during the 2008 financial crisis ahead of his confirmation hearing next week.
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Warsh served as Fed governor from 2006 to 2011, playing a key role during the tumult of the mortgage crisis and ensuing financial crisis of 2008. Warsh was a liaison between then-Chairman Ben Bernanke and Wall Street, working on major actions taken by the central bank at the time, including facilitating the JPMorgan takeover of Bear Stearns.
Warren is expected to use this record against Warsh at his confirmation hearing in the Senate Banking Committee, which is scheduled for April 21.
As it stands, Warsh does not have the votes to pass the committee. Democrats, led by committee ranking member Warren, uniformly oppose his nomination, and Sen. Thom Tillis, R-N.C., is
Warren sent a letter, shared with American Banker, to the Fed and Powell on Tuesday evening, asking for more information about the actions and speeches that Warsh gave during and in the lead up to the financial crisis.
“Since 2008, it has been well-documented that Mr. Warsh, in his role as Fed Governor, failed to take seriously the risks posed by the subprime mortgage market and played a central role in helping to arrange numerous multibillion-dollar, taxpayer-funded capital infusions to financial institutions involved in the crisis,” Warren said.
In August 2007, Warsh said that risks associated with subprime mortgages and derivatives didn’t prevent any “immediate systemic risk issues,” Warren pointed out. And along with aiding the JPMorgan and Bear Stearns deal, Warsh was also involved in Morgan Stanley — a previous employer — and Goldman Sachs’s emergency conversions from investment banks to bank holding companies, which let those banks access the Fed’s discount window directly and to tap into the Troubled Asset Relief Program’s Capital Purchase Program.
Warren’s letter also cites an email that Warsh sent a Treasury Department contractor about AIG’s liquidity needs during a Federal Open Markets Committee meeting in 2008. Later that day, AIG received a $85 billion loan that the contractor had recommended, Warren said.
Warren requested the information, including information about the ethics waiver that Warsh received to work on matters concerning Morgan Stanley, from the Fed by April 24. Warsh’s hearing in the Senate Banking Committee is scheduled for April 21st.