This archive report was first published on 25 August 2019.
Published on August 25, 2019, a study by Elizabeth Warren and her co-authors revealed a surprising trend in lending practices. Lenders had extended large amounts of credit to individuals who were clearly bad risks, leading to a significant increase in bankruptcies.
One couple's experience illustrated this trend. Despite quickly finding new jobs, their income dropped by 25 percent, causing them to fall behind on their $45,000 mortgage and other debts.
Warren's research, laid out in her 1989 book, challenged a central tenet of law and economics: that individuals respond rationally to economic incentives. Her findings also raised questions about the 1984 campaign that toughened the bankruptcy code.
Warren's work on bankruptcy law elevated her status from a little-known Texas professor to a sought-after lecturer, writer, and consultant. It also set the stage for her career in politics.
In 1995, Warren was asked to advise a special commission reviewing the bankruptcy system. She initially declined, fearing that the work would compromise her scholarship, but eventually agreed when promised to be insulated from politics.
During this period, Warren switched her party affiliation from Republican to Democrat in 1996, citing a shift from 'not political' to 'political' rather than a change in her core values.
‘I didn’t come from a political family,’ she said. ‘I hadn’t been political as an adult. I was raising a family, teaching school and doing my research.’
