Warren: We're not done with Wall Street

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Sen. Elizabeth WarrenElizabeth Ann WarrenDemocrats opposed to Pelosi lack challenger to topple her More Massachusetts Voters Prefer Deval Patrick for President than Elizabeth Warren Trump's trade war — firing all cannons or closing the portholes? MORE (D-Mass.) laid out an ambitious legislative and regulatory blueprint for further curbs on the financial sector Wednesday.

Accusing Republicans of engaging in “pure crony capitalism” by trying to relax rules on Wall Street, Warren is pushing for reform that goes further than the 2010 Dodd-Frank Act, laying out several legislative steps Congress should take.

“Dodd-Frank made some real progress,” she said in remarks delivered in Washington. “But there is more work to be done.”

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The big-bank critic has been no stranger to financial regulatory issues, but her remarks Wednesday mark her broadest plan yet for overhauling how the government monitors Wall Street, covering everything from high-frequency trading to how bank CEOs take home a paycheck.

She proposed a new tax on financial traders and a law to discourage banks from handing out performance-based pay. And she wants action to make it less worthwhile for banks to take on large amounts of debt, and to apply tough rules to  the currently unregulated “shadow banking” system.

She also blasted regulators in her remarks, accusing them of taking a light touch with the nation’s biggest banks and urging them to take on some of the top names in finance and the people who run them.

Warren’s plan is unlikely to gain traction in the current Congress, where Republicans that control the House and Senate are working to relax existing rules, rather than impose new ones.

But Warren’s ability to command attention from a legion of loyal followers gives her sway among Democrats as they debate the party’s trajectory on the financial sector. Instead of arguing for protecting Dodd-Frank as it currently stands, Warren is pushing for additional steps and calling for those with “political courage” to join her effort.

“Our economy suffers when those who can hire armies of lobbyists and make huge political contributions can decide what the financial cops can and cannot do. Our democracy suffers when Congress puts the interests of a handful of giant banks ahead of the needs of 320 million American citizens,” she said. “If the big banks keep calling the shots, they will own both our economy and our democracy.”

Among specific legislative steps Warren wants to see, she said Congress should impose a tax on every financial transaction, a policy embraced in Europe and by some fellow Democrats. She argued such a step would kill high-frequency traders who rely on “gimmicks that add no value to the economy” to turn a profit.

She also took aim at bank executives’ wallets, calling on Congress to change the tax code so performance-based pay is no longer tax deductible for banks. Warren argued that encouraging banks to pay executives based on their performance encourages a short-sighted approach that encourages risk-taking and makes long-term projects undesirable.

Elsewhere in the tax code, Warren said, lawmakers could discourage banks from taking on large amounts of debt by limiting deductions on interest paid on that debt. Such a move would encourage banks to use more equity instead of debt, which carries less risk but not the same tax perks.

Warren also picked a fight with auto dealers, calling on Congress to undo an exemption that prevents the Consumer Financial Protection Bureau(CFPB) from looking into auto loans. She argued that market is rife with markups and “predatory and discriminatory lending practices,” and the CFPB should give those loans the same treatment it now does for everything from student loans to credit cards.

Warren also excoriated financial regulators for taking what she sees as a soft approach toward the financial sector. She accused the Justice Department and the Securities and Exchange Commission of being infected by a “slap on the wrist culture” that lets financial institutions commit wrongdoing and clear their record by paying a fine.

As she has in the past, she called for the government to take more banks and bankers to trial. She said Congress should pass a law that bars any financial institutions from entering into settlement talks if they are already operating under terms established by a previous deferred prosecution agreement. She also wants to give courts more power to determine if settlements are appropriate.

She called on the Federal Reserve to change its policy and require top Fed governors to sign off on any settlements struck with financial institutions, as opposed to staffers approving them. 

While Republicans working to roll back parts of Dodd-Frank say the law is unfairly restricting the market and hurting consumers as a result, Warren said the reality was just the opposite: that only by imposing tough new rules could the market work for everyone, rather than allowing some to gain an unfair edge because of size or influence.

“The secret to better markets isn’t turning loose the biggest banks to do whatever they want,” she said. “The secret is smarter, more structural regulation that forces everyone to play by the same rules and doesn’t let anyone put the entire economy at risk.”