Elizabeth Warren's not-so-private crusade

Author: IFLR Correspondent | Published: 8 Aug 2019
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"For decades, Washington DC has lived by a simple rule: if it's good for Wall Street, it's good for the economy."

In the last edition of IFLR, Elizabeth Warren was the only Democrat candidate to make our global list of financial regulation influencers. Stopping short of endorsing the Massachusetts senator for the unenviable task of facing up to Donald Trump in next year's presidential elections, we do recognise that Warren is the candidate most likely to shake up our beat. Wall Street in particular would be very worried to see her sworn into the hot seat in January 2021.

All too often does personality come before policy in the political arena. Warren is a little different in that she has concrete plans for how to fix the issues in front of her; she isn't just slamming her opposition like so many others. A July 18 Medium post titled 'End Wall Street's Stranglehold On Our Economy' is a clear and concise depiction of Warren's plan to rejig the economy so that it favours 'American workers and middle-class prosperity ahead of multinational profits and Wall Street bonuses'.

"For a long time now, Wall Street's success hasn't helped the broader economy – it's come at the expense of the rest of the economy. Wall Street is looting the economy, and Washington is helping," she wrote.

With flagrant language, the post calls for a return to the financial system's original purpose: connecting savers and borrowers while managing risk.

Private equity (PE) would be first under the guillotine of a Warren administration. Changes would likely create liability for PE firms for the debt of the companies they buy, as well as pensions obligations and blocks preventing them from paying themselves huge, unrestricted fees: measures that would ensure PE firms are working with target companies, not against them.

The banking sector, too, would be hit hard. Another release from Warren suggests revamping the Glass-Steagall Act for the 21st century, reestablishing boundaries between the commercial and investment banking sector. Warren would also do her best to reverse as much of the regulatory loosening brought by the Trump administration as possible, and would likely launch a number of new initiatives that would act in the interest of consumers and not corporates, banks or funds. It goes without saying that her brainchild, the Consumer Financial Protection Bureau, would be put back on its original course.

Another suggestion is the Accountable Capitalism Act, which would legally require corporations to focus on the long-term interests of all stakeholders and not on the short-term financial interests of their institutional investors.

It would take a reckless gambler to predict with any certainty who will face up to Trump next year; it might be Warren or any number of others. If the last election is anything to go by, it seems likely that many of her policies and positions will be echoed by whoever wins. In 2015 Sanders sat much further left than his competitors when it came to policy, but this time around the field is far more aligned. Many have adopted his policies outright.

At the time of writing, Warren is polling in second place behind Joe Biden. While it is of course still very early days (Trump only entered the race in June 2015), she is looking steady as a candidate. It would be foolish to write off her chances. In fact, 26% of those polled in the July 29 Quinnipiac University national poll felt that Warren's policies are the best in the pack.

It's unlikely that much, if any of that 26% come from either the private equity sector or from the US banking system.