No, No, No. Elizabeth Warren Is Not a Socialist

(Bloomberg Opinion) — A press release from 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 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 Senator Bernie Sanders as a “socialist.” She is nothing of the sort. As she consistently says, “I believe in markets.” She just wants them to work better. Her stance towards Wall Street reminds me of Franklin Roosevelt’s, who came into office in 1933, with banks failing and the country struggling through the 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.