“For decades, Washington has lived by a simple rule: if it’s good for Wall Street, it’s good for the economy,” she wrote recently. “To raise wages, help small businesses, and spur economic growth, we need to shut down the Wall Street giveaways and rein in the financial industry, so it stops sucking money out of the rest of the economy.”
In the past, Wall Street did not take Warren especially seriously, says Charles Gabriel, president of Capital Alpha, which advises a number of major institutional investors. However, the faltering Biden campaign has changed the landscape.
“There don’t seem to be strong moderate candidates, and there was always a feeling that Biden was low energy and his campaign would risk flaming out,” Gabriel says. “But there has also been false confidence that Warren and Sanders would balance off against each other, splitting the liberal vote deep into the campaign.
“And that perceptions of Biden’s electability would help him long enough to prevail. That premise seems to be flagging much sooner than anyone would have thought.”
Gabriel has taken a number of calls from clients alarmed by what a Warren presidency might mean for investors.
“She is like a dagger pointed at Wall Street. She has attacked Wall Street for being corrupt. Some of the things she has written about private equity have been astounding. There are all kinds of reasons why people have been a bit freaked out by Warren.
“Wall Street does not like being villainised and I think it is most concerned that Trump’s deregulatory agenda will be eroded fairly quickly.”
Should Warren win, observers believe she will put allies in place in key positions, such as the Federal Reserve. How quickly she could implement the rest of her agenda depends on whether the Democrats are able to take control of the Senate. Should the Republicans retain control, Mitch McConnell could mire Warren in a legislative morass. The Massachusetts senator forged her political reputation in the wake of the 2008 financial crash. An expert on bankruptcy, she helped establish the Consumer Financial Protection Bureau, designed to safeguard middle class families from what she regarded as the predatory practices of Wall Street. Brandon Barford, a partner at Washington-based Beacon Policy Advisors, believes she will go much further than just targeting banks and payday lenders.
“Investors primarily think her focus is financial services. That is not the case at all. If she becomes president, she will mimic Trump, with a lot of aggressive executive orders early on. What we are talking about here is a fundamental reworking of the system.
“Take the ruthlessness of the Trump administration and mix it with far more consistent politics – that is what you get with Elizabeth Warren. She will advance her agenda in a far more skilful and disciplined way.”
Dec Mullarkey of SLC Management, which has assets worth $US168 billion ($250 billion), believes a Warren administration would deliver a jolt to the markets. “Under Warren’s progressive agenda, the equity market would go through a significant correction, as most of her favoured policies would significantly constrain existing business models in major sectors. She has pledged to roll back Trump’s corporate tax breaks and favours a heavy hand in regulating a broad range of US sectors.”
Tim Anderson, managing director of TJM Investments, is more blunt in his assessment: “I think her policies would be very destructive for the US economy.
“If she is nominated, she is going to have major problems raising money from corporate interests who want to maintain the free market economy.”
Her ultra-progressive agenda will present a challenge for her party’s many friends on Wall Street who might find themselves having to choose between their wallets and their social consciences.
According to the Centre for Responsive Politics, the securities and investment industry has been generous to the Democrats, donating almost $US100 million to the party last year – about $US10 million more than the Republicans raked in.
“There are more closet supporters for Elizabeth Warren on Wall Street than people realise,” says Charles Myers, chairman of Signum Global Advisors, which numbers financial institutions and multinational firms among its clients.
In any case, he says, there may be less to fear from Warren – who on the campaign has insisted she was a “capitalist to my bones” – than self-proclaimed socialist Bernie Sanders.
With the Democrats facing a tough battle to win control of the Senate, Warren’s freedom to manoeuvre could be restricted.
“She will have to govern as a centrist. She won’t get Medicare for All, the Green New Deal and the wealth tax through the Senate,” Myers says.
“Legislatively she won’t get much through, but with executive orders she will snap back much of Trump’s deregulatory agenda. I think the market is already starting to price in some of the risk of a Warren administration. Everyone assumes the big risk is to financial services, but the energy sector could be vulnerable to new environmental regulations.”
Big Tech could also be at risk from her pledge to break the industry up, Myers adds.
Others on Wall Street have been more sanguine about what 2020 might bring. “We are politically agnostic – we will deal with whatever the electorate gives us,” says John Davis of Royce Funds, a boutique investment house in New York. “People in the past were nervous about Clinton and Obama, but Wall Street did fine under their administrations.”
But underpinning the election is the overall political direction of travel in the US, according to Charles Gabriel.
A Warren win would demonstrate that the country has moved irrevocably to the Left, Gabriel adds:
“It would mean that Trump was just a detour.”