Elizabeth Warren: Financial Rules 'Literally Don't Work Anymore,' Regulations Should Be 'Clear And Painful'

Elizabeth Warren, a professor at Harvard Law School who has more recently assumed the role of chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), sat down with The New Yorker's James Surowiecki recently. The topic was Warren's brainchild, the Consumer Financial Protection Agency Act, which is currently being debated in Congress.

The agency would demand transparency in consumer financing, which Warren detailed in her essay, "Unsafe at Any Rate," published in Democracy in the summer of 2007. She lays out how the agency would essentially apply the same logic that is applied to buying a toaster to financing a home or car:

Consumers can enter the market to buy physical products confident that they won't be tricked into buying exploding toasters and other unreasonably dangerous products ... we need ... a new regulatory regime, and even a new regulatory body, to protect consumers who use credit cards, home mortgages, car loans, and a host of other products. The time has come to put scaremongering to rest and to recognize that regulation can often support and advance efficient and more dynamic markets.

Surowiecki pointed out that critics charge that consumer financial protection would restrict consumer credit too much, making it difficult for people to borrow money. Warren's response: "the point is not to say, 'Thou shalt not charge somebody more than X,' which would have restrictive consequences. It's to say, you've got to be really clear about it."

Warren added that last year's historic bailout of the financial sector necessitated a different set of rules regulatory principles:

"...The old rules of regulation just literally don't work anymore. Because now we're under this giant shadow of implicit and explicit government guarantees ... we said in effect ... we will throw as many taxpayers as we need to throw under the bus to keep your business functionally operational in the way that it was functionally operational before without a cost to you personally, and to your shareholders personally. That's a whole new world."

According to Warren, financial institutions need a regulator regime that is both "clear and painful."

WATCH The New Yorker's full interview with Warren:

Get HuffPost Business On Facebook and Twitter!

testPromoTitleReplace testPromoDekReplace Join HuffPost Today! No thanks.