“A Republican Senate would not take up Wall Street deregulation now,” says Dennis Kelleher, president and CEO of Better Markets, a watchdog organization that monitors Wall Street’s influence in Washington. “Nobody wants to be seen as siding with the big Wall Street banks.” Not even the big banks. Executives at Citigroup, JPMorgan, Goldman Sachs, Bank of America, and other financial institutions declined to be interviewed for this story. Even the head of the Securities Industry and Financial Markets Association, or SIFMA, a lobbying group for the securities industry, wouldn’t discuss Warren publicly. “It would be foolish for financial institutions to get into a head-to-head with Senator Warren,” says Tony Fratto, a former Treasury official who is now a partner at the public-affairs consulting firm Hamilton Place Strategies. “It’s exactly what she wants, and it’s a debate you can’t win.” Dodd-Frank has transformed Wall Street. The law created hundreds of new rules, which are enforced by more than a dozen regulatory agencies. One of them is the Consumer Financial Protection Bureau, first envisioned by Warren while she was still a law professor at Harvard University. It’s tougher to get up to no good these days. It’s also tougher to make a buck. Higher capital requirements and compliance costs are reshaping the industry. Banks are shedding operations that under the new rules are no longer worth the trouble. They’ve laid off thousands of traders, analysts, investment bankers, and support staff. At the same time, they’re hiring armies of compliance officers. “It affects almost everything we do,” Lloyd Blankfein, CEO of Goldman Sachs, told Bloomberg in January. “I can’t think about our technology spend without thinking of the number of heads I have to hire to build the systems to comply with the new regulatory reporting functions.” “The United States is at risk of losing its status as the world’s capital markets leader,” Daniel Gallagher, a commissioner at the Securities and Exchange Commission, said in a speech in January. “I see it everywhere: Rather than thinking creatively about ways to promote capital formation, legislators and regulators are layering on law after law, regulation after regulation—strangling entrepreneurs, their enterprises, and, of course, their employees and customers. We are not even resting on our laurels; we are actively throwing those laurels on a bonfire.” Still, at this point, executives from the big banks tell Bloomberg they want the Dodd-Frank wars to be over; they’re digesting the new rules, and the costs, and trying to get back to making money. For Warren, the fight is definitely not over. In April, in a speech titled “The Unfinished Business of Financial Reform,” she laid out how she hopes to move her agenda forward. Among other things, she called for the breakup of the big banks; they are still too big to fail, she said, and bailing them out of the next crisis would cost billions. And she wants jail time for managers who violate the law. “It’s time to stop recidivism in financial crimes and to end the ‘slap on the wrist’ culture that exists at the Justice Department and the SEC,” Warren said. An important part of her legislative agenda is the 21st Century Glass-Steagall Act, which she and three co-sponsors introduced in 2013. The bill is a modern version of the 1933 law that split commercial and investment banks. (The original Glass-Steagall was effectively repealed in 1999.) So far, 21st Century Glass-Steagall hasn’t gained traction on Capitol Hill, but for Wall Street, this will be one to watch. ... “There are only two things I’m looking for from the biggest financial institutions in this country,” Warren says one cool spring night in New York. She’s standing before a packed crowd on the fourth floor of a Barnes & Noble bookstore on 17th Street. She’s come here, while the Senate is in recess, to promote the paperback version of her autobiography, A Fighting Chance. Dressed in black slacks and a purple blazer, her glasses perched on her nose, she looks like the law professor she once was. But she’s anything but bookish. She’s a great speaker. She recounts her girlhood in Oklahoma and her chaotic days as a young mother grinding through law school in a way that makes you feel as if you know her. She has a warm, easy smile. She tells jokes, laughs at herself. She has one very funny anecdote about nearly burning down her kitchen trying to make toast. At one point during her talk, reggae music inexplicably starts blasting through the bookstore—and she begins dancing to the beat. Those two things she wants from the banks: “No. 1, I don’t think they ought to be able to cheat people,” Warren says. “Second thing, I don’t think they ought to be able to risk destroying this economy. Too big to fail has got to end.” The room erupts. This is what Warren does better than anyone else: laying out the fight. There are good guys and bad guys—so pick a side. This helped win her an election. It draws crowds, produces YouTube hits, and sells books. Warren’s arguments tap into very real worries. Wages are stagnating, and the gap between rich and poor is widening. Since the beginning of 2013, the world’s richest 100 people have gained $378 billion, according to the Bloomberg Billionaires Index. In an economic system that feels unfair and imbalanced, a lot of people are going to look for villains. Bankers make good ones. “We’ve given her a very easy target,” concedes one banking executive who asked not to be identified for fear of backlash against his institution. A story Warren tells in her autobiography shows how expertly she can deliver a bad guy. In 2013, she writes, she had a meeting with Jamie Dimon, CEO of JPMorgan. They argued over the powers of the CFPB, she says, and at one point she told him that if JPMorgan wasn’t careful, it could end up in violation of the law. He replied, according to her: “So hit me with a fine. We can afford it.” A JPMorgan spokesman says Warren’s account is inaccurate. Still, that’s almost beside the point. “She is perceived as the white hat,” says Tony Fratto. Warren isn’t the only politician tapping into the public’s frustration and anger at the financial system. Other lawmakers have been vocal supporters of tighter regulation. David Vitter, a Republican senator from Louisiana, sided with Warren and other Democrats in December in their fight against Citi. “I know it surprised a lot of people,” he says, explaining that he also fears the risks posed by large institutions. “Too big to fail is alive and well.” In late April, Bloomberg reported that Vitter and Warren were working together on another piece of legislation, this one designed to curb the authority of the Fed to bail out banks in a crisis. John McCain, the senator from Arizona and former Republican presidential candidate, is a co-sponsor of the 21st Century Glass-Steagall Act, along with Democrat Maria Cantwell and independent Angus King. Last fall, Clinton tried to mimic Warren’s populism, declaring in a speech, “Don’t let anybody tell you that it’s corporations and businesses that create jobs.” This was way off the mark Warren hit when she famously argued during her Senate campaign in 2011 that businesses owe some part of their success to citizens and to the government. (Obama echoed Warren’s rhetoric in his 2012 “you didn’t build that” speech.) The Warren version is worth examining. It gives, in plain language, her view of American capitalism: “You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.” ... On a cold winter day in Washington, a group of community bankers and credit union managers has traveled from across the country—Nevada, Georgia, South Carolina, New York—to testify before Warren and the other lawmakers who sit on the Senate Banking Committee. These guys are not Wall Street. They fund the local grocer or barber; they put people in their first homes. They’ve come here for help. They say the Dodd-Frank rules meant to control the big banks are in fact crushing little ones. “Congress and regulators ask a lot of small, not-for-profit financial institutions when they tell them to comply with the same rules as JPMorgan, Bank of America, and Citibank,” Wally Murray, CEO of the Greater Nevada Credit Union, tells the senators. He points out that credit unions are now subject to more than 190 rule changes directed by some three dozen government agencies. Coming at regulation through small banks is probably the banking industry’s best shot at rallying public support to repeal more of Dodd-Frank. Warren knows this, and so she listens with particular interest to the testimony of R. Daniel Blanton, a community banker from Augusta, Georgia. “My bank doesn’t represent a risk to anybody,” he says. What draws Warren to him, though, isn’t his take on tough times in small-town Georgia. It’s his position as chairman-elect of the American Bankers Association, the trade group that is one of her oldest and toughest adversaries. Warren has accused the ABA of using the little banks it represents as fronts for the bigger ones it also represents. “We’ve heard a lot today about how smaller banks are being smothered by unnecessary regulation, supposedly because of Dodd-Frank rules,” Warren says to Blanton after he finishes his testimony. “But a lot of the time, the legal changes they are asking for aren’t really about helping community banks.” https://www.youtube.com/watch?v=iLjIuwTbBXU The tension level in the room ratchets up. What had been a humdrum hearing is about to become news. Those who spend time in banking hearings know the signs. Reporters and photographers are ready for exactly these moments. “All the cameras turn. You hear click-click. I tease her and say, ‘I’m just trying to get out of your shot,’” says Senator Heidi Heitkamp of North Dakota, a fellow Democrat who has the seat next to Warren’s in the committee room. Warren begins by asking Blanton a series of increasingly uncomfortable questions. She asks for specifics on data and metrics that the banker, caught off guard, can’t provide. He looks flustered. At one point, Warren asks him to explain how a rules change he is recommending would affect not just his bank but also Wells Fargo, JPMorgan, and Citi. He throws up his hands and shakes his head, unable to answer her. “Maybe you can get back to me,” Warren tells Blanton coolly. The exchange makes instant headlines. “Watch Elizabeth Warren Put a Banker in His Place,” a progressive website trumpets, with a video link to the testimony. Almost immediately after the hearing, Blanton’s e-mail begins filling up with people who’d watched it. “I had no idea so many people watched C-SPAN,” he says. Days later, back in Georgia, he can’t shake the encounter: “I keep thinking now of the things I should have said,” he says. “You know how that happens?” Warren is moving on. In April, she lobbed a new attack at the White House over its refusal to provide details on negotiations over the Trans-Pacific Partnership. “The government doesn’t want you to read this massive new trade agreement. It’s top-secret,” she wrote on her website. “We’ve all seen the tricks and traps that corporations hide in the fine print of contracts. We’ve all seen the provisions they slip into legislation to rig the game in their favor. Now just imagine what they have done working behind closed doors with TPP. We can’t keep the American people in the dark.” This story appears in the June 2015 issue of Bloomberg Markets. More from Bloomberg.com
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