A press release from Sen. Elizabeth Warren landed in my inbox last Friday morning. It came not from her presidential campaign but from her Senate office, and it concerned a subject that doesn’t often claim the attention of U.S. senators, much less leading contenders in a presidential race.
The subject was bond ratings.
“Senator Warren to SEC,” read the headline. “Do your job. Crack down on dangerous inflated bond ratings.” The press release was sparked by recent “troubling reports of inflated bond ratings and the perverse incentives within the bond rating industry.” It pointed out that poorly rated mortgage-backed securities caused “millions of Americans to lose their jobs, homes and savings” during the financial crisis — yet a decade later “ratings agencies are continuing to rubber stamp risky products.”
The press release linked to the letter Warren had sent to Jay Clayton, the chairman of the Securities and Exchange Commission, and it was a doozy. Three and a half single-spaced pages, heavily footnoted, it offered a detailed analysis of the damage those triple-A-rated subprime securities had done to the economy in 2008. And it reminded Clayton that the 2010 Dodd-Frank financial reform law had established an Office of Credit Ratings within the SEC that was charged with promoting accurate bond ratings. What, Warren asked Clayton, was the SEC doing about this growing problem?
As it happens, the day before Warren issued her press release, CNBC ran a story saying that big-money Democrats on Wall Street — that is, the people Democratic presidential nominees rely on every four years — were threatening to either sit out the 2020 race, or support President Donald Trump, if Warren were the nominee. (Hillary Clinton received more than $64 million from the financial services industry in 2016.)
One anonymous Wall Street executive (shocker — nobody was willing to speak on the record to CNBC) said that he and his fellow Wall Street Democrats “will not support her. It would be like shutting down their industry.” CNBC linked to a video of Jim Cramer, one of its in-house stars, saying bluntly: “She has to be stopped.”
And early last week, a strategist with AGF Investments put out a note to clients saying that “investors should be more concerned” about the prospect of a Warren presidency than about any “fallout” from Trump’s phone call to the president of the Ukraine. After all, the strategist, Greg Valliere, told Bloomberg News, the Robert Mueller investigation hadn’t affected markets, so the impeachment inquiry probably wouldn’t either.
Ah, but Elizabeth Warren — she’d be a disaster for stocks! After all, she wants to force private equity firms to take more responsibility for the workers whose companies they take over; to cancel student debt that is putting college graduates behind the eight ball; to recreate the Glass-Steagall Act and once again separate investment and commercial banking; and to eliminate the “tricks and traps” that the financial services industry often uses to stick consumers with excessive fees. Oh, and let’s not forget: Warren wants to impose a 2% tax on any household with a net worth over $50 million and a 3% tax on households worth over $1 billion. That’s gotta be a stock market killer. Right?
I understand that markets are central to Wall Street, but it’s a bit much when it tends to view everything through the prism of stocks and bonds. If World War III were to break out, you half expect Wall Street strategists to react with notes asking, “What does it mean for the market?” (Which they would, of course; that’s a fundamental part of their job. I’m simply asking that they take other forces into account as well.) In this case, what the anti-Warren Democrats are really saying is that they would prefer a president who has divided and destabilized the country — and whose phone call to Ukraine’s president was so far outside the bounds that he is likely to be impeached — than a president who would prevent them from gouging customers and taxing some of their wealth. That’s a pretty sorry commentary.
Wall Street often lumps Warren together with Sen. Bernie Sanders as a “socialist.” She is nothing of the sort. She consistently says, “I believe in markets.” She just wants them to work better. With her stance toward Wall Street, she reminds me of President Franklin Roosevelt, who came into office in 1933, with banks failing and the country struggling through the Great Depression. By the time he died in 1945, bank customers had federal deposit insurance; commercial banks and investment banks had been separated; and the Securities and Exchange Commission had been created to regulate the markets. These three measures did a great deal to restore Americans’ faith in the nation’s financial system. But, of course, Wall Street hated Roosevelt too.
(Warren’s reaction to her Wall Street critics also echoes Roosevelt’s. In a speech he made in 1936, referring to his critics in the financial industry, Roosevelt said, “They are unanimous in their hate for me — and I welcome their hatred.” After Cramer made his “She’s gotta be stopped” comment, Warren treated it like a campaign ad, posting the video on Twitter and writing, “I’m Elizabeth Warren and I approve this message.”)
Big corporate tax cuts notwithstanding, Trump has been no friend to business. Think about it: He has placed pointless tariffs on goods from countries we’ve had good trading relationships with for decades. He has started a counterproductive trade war with China. His anti-immigration policy hurts everything from tech companies to poultry farms. He has consistently issued threats against Amazon because its chief executive, Jeff Bezos, owns The Washington Post. He has turned the Justice Department’s antitrust division into a weapon that rewards his friends and attacks his enemies. Even his deregulatory efforts can be harmful. Oil companies don’t want looser methane rules, and car companies don’t want lower gas emissions regulations — both of which the Trump administration has proposed.
According to Bloomberg News, Jeffrey Gundlach, the billionaire bond guru, predicts the chances of a recession in 2020 have risen to 75%. Suppose there is a recession next year. Do you trust Trump and his economic team to take the right steps to soften the economic blow it will deal the country? I certainly don’t.
But Warren? Does anyone doubt that she will be surrounded with economists who know what they are doing, as opposed to, say, Peter Navarro, who has helped the White House bungle its trade policy with China? Yes, they will be “progressive” economists in the Joe Stiglitz mold, but that also means they will care more about the effects of a recession on the middle class than on Wall Street bankers.
It’s true that many of the proposals Warren has put forward, if passed into law, would restrict what bankers can do to generate profits. They would also make them a little less rich. But those same proposals could well restore Americans’ faith in the financial industry — faith that has been largely absent since the financial crisis. And a 3% billionaire tax would allow people to see that someone in government is finally doing something to mitigate income inequality.
Jamie Dimon, the chief executive of JP Morgan Chase & Co., once said of Warren, “I don’t know that she fully understands the global banking system.” He got it exactly backward. The reason Wall Street fears her is that she understands it all too well.
That may not offer much comfort for Wall Street executives — including those Democrats who say they prefer Trump. But it ought to be great comfort to the rest of us.