This week, the Warren Campaign put out its plan to “rein in Wall Street” – their words not mine – including some hyper-specific proposals to completely blow up the private equity business model and offer access to plain vanilla banking services directly from the Federal government.
Elizabeth Warren is a much more dangerous candidate for the banking industry than Bernie Sanders ever was, because Warren actually understands how all this stuff works, while Bernie just shouts the loudest. She’s done the research. She’s documented all the ways in which finance acts counterproductively for the economy and channels more of the available wealth to its own executives – in many cases while laying the risk off onto other parties and even regular people.
Her proposals have been designed to deliberately shrink the financial services business in general and its profits in particular. She cites research showing that when financial services grows to be a large enough part of an economy, the benefits of a thriving financial industry begin to reverse themselves and turn into net negatives – via excessive risk taking, fee extracting and anti-consumer empire building.
She reserves the most acute portion of her scorn for the private equity complex, which she sees as being almost wholly and universally arrayed against the interests of the American people.
She cites examples from some of the worst private equity misadventures of the modern era, wherein supermarket and newspaper employees lose their jobs, deals go sour and the executives who have put them together extract their fees and dividends and compensation regardless of the results. The defenders of private equity would retort, “supermarkets and newspapers are going extinct anyway, these job losses and bankruptcies would have happened regardless”, but this does little to justify the acceleration of their deaths via unsustainable debt loads, and nothing to justify the robbing of their graves.
Her plan to deal with PE would result in a sort of economic napalm, burning away every loophole and unfair advantage these funds have and disintegrating their profitability into ash…
My plan would transform the private equity industry and end this looting with a comprehensive set of legal changes, including:
Putting private equity firms on the hook for the debts of companies they buy, making them responsible for the downside of their investments so that they only make money if the companies they control flourish.
Holding private equity firms responsible for certain pension obligations of the companies they buy, so that workers have a better shot of getting the retirement funds they earned.
Eliminating the ability of private equity firms to pay themselves huge monitoring fees and limiting their ability to pay out dividends to line their own pockets.
Changing the tax rules so that private equity firms don’t get sweetheart tax rates on all the debt they put on the companies they buy.
Modifying bankruptcy rules so that when companies go bust, workers have a better shot at getting pay and benefits and executives can’t pocket special bonuses.
Preventing lenders and investment managers from making reckless loans to private equity-owned companies already swimming in debt and then passing along the danger to the market by requiring them to retain some of the risk.
Empowering investors like pension funds with better information about the performance and effects of private equity investments and preventing private equity funds from requiring investors to waive their fiduciary obligations.
Closing the carried interest loophole that lets firm managers pay ultra-low tax rates on the money they loot.
Like a skilled acupuncturist, she knows all the pressure points. Even if you disagree with her violently negative view of finance, you have to admit that she understands and articulates how it works, and how it fails, better than anyone else who has ever run for President.
In a world where Warren becomes the Democratic nominee for President, you would see the entirety of the financial services lobby work furiously to reelect President Trump (and, by extension, Mick Mulvaney), who have done more to deregulate the sector in two and a half years than any President (and advisor) in modern history, including Bill Clinton and Robert Rubin in the mid 90’s.
It is not surprising, then, that centrist or moderate Democrats who work in finance are throwing their support behind Kamala Harris (see here and here) and / or praying for a Joe Biden surge – which would give them comfort in the continuance of the status quo while not having to associate themselves with all the xenophobia, nationalism or outright racism of the Trump 2020 effort.
You can read Warren’s plan to rein in Wall Street below.