A Financial Times reporter who is clearly no Elizabeth Warren fan says that the Massachusetts senator will be able to thwart Hillary Clinton’s Wall Street backers who expect to regulatory breaks if she becomes President. As John Dizard wrote over the weekend:
Cynics, including most of the US public, figure that Wall Street will have bought the next Democratic administration. They are wrong. Contrary to what you might expect from historical experience, Wall Street is going to get little, if anything, for its money…
But while Mrs Clinton may be president, the sheriff of Wall Street will be Senator Elizabeth Warren. The senator, her progressive allies and her policy wonk followers have a lot to say about the financial sector. And not the sort of sugary reassurances you hear at high-end fundraisers.
The key to the progressives’ Wall Street strategy is that it is not centred on a list of legislative proposals, but on databases of prospective appointees to regulatory and administrative positions. The Warren-istas understand that the Republicans are likely to have just around half of the Senate, and are likely to retain control of the House. The bad news, for Ms Warren’s supporters, is that new laws will be hard to pass. The good news is that the existing laws, including Dodd-Frank and the SEC’s governing legislation, already give future appointees all the authority they will need.
Dizard’s assessment of Warren’s clout is based on her having blocked the Administration’s nomination of Lazard mergers & acquisitions banker Antonio Weiss as Treasury undersecretary of domestic finance. Dizard misrepresents the reasons for Warren’s opposition: it wasn’t that she didn’t believe in “Wall Street experience” for roles where that might be germane. It was that Weiss’ qualifications for the post were solely that he’d been a heavyweight Obama fundraiser, and that he was therefor representative of a cronyistic relationship between Big Finance and the Democratic Party. As we wrote in late 2014:
Warren’s grounds for objecting to Weiss were straightforward: his experience was no fit for the requirements of his proposed Treasury role. On top of that, he had been involved in and therefore profited from acquisitions called inversions that Treasury opposes because they reduce the taxes paid by the acquirer, which uses the acquired company to move its headquarters to a lower-tax jurisdiction…
Warren upped the ante in a speech on Tuesday, making Weiss, who is now head of investment banking at Lazard, a symbol of what is wrong with the relationship between the government and Big Finance: that of far too much coziness between the large, influential players and financial regulators. And in sharpening and further documenting her critique, she has put the Robert Rubin wing of the Democratic party in her crosshairs.
Warren won her fight against the Administration, with only blogger on her side, against the Mighty Wurlitzer of the New York Times, the Washington Post, and the Wall Street Journal all playing the same hymnal. She had the better argument and more and more Senators were coming around to her point of view. Weiss withdrew.
But, reasonable readers might say, that was one fight over a second-tier official post. Why should one believe that Clinton won’t get her way on the banking front, at least a lot of the time?
The fact is that Wall Street wields a lot less power than it did in Washington a few years ago. The big banks are not held in the same esteem that they one were. Even though no executives went to jail, years of scandals, stories on market-rigging, and multi-billoin fines have made it amply clear that financiers don’t behave well when left to their own devices. Deregulation, which was once something all sophisticated-seeming policy wonks supported, is no longer fashionable, and is a tough sell on the banking front. And while the big finance players still remain too big to fail, they are subject to much more in the way of regulations and compliance than they were pre-crisis. In other words, they’ve lost the ideological battle that they are so obviously indispensable and that their activities require so much technical expertise that supervising them closely would be a bad idea.
But why is it reasonable to think that Warren can prevail against a bank-friendly President Clinton? Hillary seems to have been able to coast on the brand fumes of her husband’s support of bank deregulation and installation of Bob Rubin and his acolytes in powerful government positions. Despite being a favored recipient of Wall Street largesse, Hillary has not done all that much for the industry. Her efforts as a New York senator were perfunctory. Her passion is foreign policy (gah). Domestically, Silicon Valley in general and Google in particular is far more important to her than anyone in finance. She’d deploy a lot of energy fighting Warren without much upside. That doesn’t mean that Clinton won’t go a few rounds against Warren to show she made an effort. Thus the game will be to see what Clinton has to deliver in the way of nominees to key regulatory posts. Clinton may go the route of trying to serve up candidates that are minimally acceptable, or look on paper to have some progressive sympathies, but are Vichy Left stooges.
And there is a perverse irony at work. Even though Warren looked to have been played by Clinton when her operatives messaged idea of a Warren vice presidency hard and Warren went after Trump with considerable zeal, Warren did get some benefits. The media treating her as a powerful player and designated attack dog against Trump gave Warren a lot of media play, reinforcing her status.
Skeptics will say, correctly, that Obama could have brought Wall Street to heel at the start of his Administration, and that financial firms remain too large and the banking industry needs to shrink much further. While that is true, that moment passed and as a result, we are having to make progress the slow, hard way. Warren’s skills as a bureaucratic infighter, a communicator, and a policy wonk are enabling her and her allies to methodically cut the financial services industry down to size.