Why we should all bow before Elizabeth Warren (even if you've never heard of her).

Five years from now, when Tesla Sedans and Facebook and American Idol have miraculously powered America out of its second Great Depression, historians may share a belly laugh about the days—not that long ago!—when respected economists and policymakers spent trillions of borrowed dollars attempting to bail out "toxic" and "troubled" assets, as though they might rehabilitate a subprime mortgage gone bad with a solid hug, maybe a week at Promises for one of those nonperforming (but still chic) California jumbo mortgages. Problem solved! Of course these much-maligned assets were not really the problem, they will chortle. It was the people underlying these assets who were truly troubled; it was the institutions that overleveraged so many Americans so insidiously that were really toxic.

How could we have been so blind? they will wonder.

That the American financial system itself is irreparably broken is already obvious enough to a handful of public figures as diverse as the president of China, the most recent Nobel laureate in economics, and even Jay Leno, who last month personally chided the president for delegating our national nightmare to a banker, a Bush-era strategy that has proven disastrous for more than a year. But I'm convinced that no one grasps the true nature of our hard times better than Elizabeth Warren, the Harvard Law School professor who last month revealed that TARP, the original asset-bailout program that she oversees, had resulted in taxpayers subsidizing tens of billions in investor profits while producing no discernible uptick in bank lending.

Way back in 2003, Warren—a pretty, blue-eyed former Republican farm girl from Oklahoma who rose to become one of Harvard Law's rare female tenured professors—and her daughter published a groundbreaking study of Americans' financial woes titled The Two-Income Trap. The book arose from Warren's tenure as senior adviser to Bill Clinton's National Bankruptcy Review Commission, which might, like TARP, also have become a study in frustration. Handed the task of figuring out how bankruptcy rates could be higher than during the Great Depression—and rising—in prosperous times, Warren was denied the cooperation of the financial industry. So she decided to pore over thousands of pages of federal surveys of household spending patterns that had been ignored for decades. What she found was that modern American households are worse off than their counterparts of a generation ago, even with an additional breadwinner—hence, the title. Today's families literally cannot afford not to borrow, and unregulated financial products, with their limitless interest rates and myriad fees, are literally killing them.

That Americans' financial troubles were not, generally speaking, the result of moral failing was news to Warren, who, a hint of exasperation in her voice, recently told me, "The notion that consumers need more protection in this marketplace must be clear to everyone by now." But arguing for regulatory reform does not get you an audience with Oprah, whose couch tends to be a bully pulpit for the self-help gurus like Suze Orman rather than a classroom for academics like Warren. "When it comes to making decisions with money," Orman told her female fans a couple of years ago, "you refuse to own your own power, to act in your best interest. ... You simply won't bring yourself to take care of yourself financially, especially if those actions compete with taking care of those you love. ...Y our inner nurturer reigns supreme." Guess who sells more books.

Warren brought her research to Capitol Hill in 2005, when Congress took up legislation to restrict Americans' access to bankruptcy, a tradition that predates the Bill of Rights, but, as it turned out, the vast majority of politicians were as eager to hear it as the queen of talk. Led by Wisconsin Republican James Sensenbrenner, Congress member after Congress member took the floor to disparage broke Americans as "gamers" before throwing them to the wolves. In retrospect, the inaptly named—and horrifically timed—Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was a warm-up for TARP, sending the message that even Democrats would bail out the banks rather than the middle-class families struggling to make ends meet.