A group of Democratic presidential hopefuls — mostly polling in the low single digits— will take the stage tonight with rising first-tier contender Sen. Elizabeth Warren (D-Mass.) for the first debate of the 2020 campaign.
But financial industry pros who have tangled with Warren -- a Wall Street scourge -- have a warning for her rivals hoping for a breakout moment: Attack Warren at your own peril.
Warren, they say from watching her closely over the years, is a force: While her presidential bid has focused on policy proposals -- and she has cultivated an image as an approachable everywoman -- she has for years been a ruthless prosecutor of regulators and finance industry executives when they’ve appeared for testimony before the Senate Banking Committee.
“From the very beginning, she demonstrated a certitude and a prosecutorial style that for the most part doesn’t give anybody a chance to respond: She has strong opinions and she delivers them in a forceful way,” says Charles Gabriel, president of Capital Alpha Partners, a Washington-based investment research firm. “She’s been a force in politics. She strikes fear” into financiers.
Investors demonstrated that fear on Friday, when stocks of some private prison companies dropped by 5 percent after Warren called for a ban on the facilities.
The lesson for fellow White House aspirants, says Ian Katz, Gabriel’s colleague, is to steer clear of Warren’s areas of expertise: “She will come armed with statistics and research on the topic she’s focusing on. The takeaway from that for the debaters is to stay away from the topics she has dug into in the past — too big to fail, anything Wells Fargo, bailouts, oversight of banks, perhaps student debt.”
The Wells Fargo case is emblematic of Warren’s approach to filleting big bank executives she believes have acted inappropriately. When then-Wells Fargo CEO Tim Sloan appeared before the banking panel in October 2017 — his first appearance as chief executive, two weeks before his first anniversary in the job — he ran into a buzz saw of criticism from the Massachusetts Democrat. She quoted Sloan back to himself from earnings calls talking up the bank’s record opening new accounts and depicted him as enabling the bank’s fake account scandal.
“At best you were incompetent, at worst you were complicit, and either way, you should be fired,” she said. “Wells Fargo needs to start over and that won’t happen until the bank rids itself of people like you who led it into this crisis.” Watch it here:
Sloan stepped down in March. The Wall Street Journal editorial board, in a piece titled, “Elizabeth Warren Gets Her Man,” noted the move came a week after Warren and Ohio Sen. Sherrod Brown, the top Democrat on the Banking Committee, wrote to Fed Chair Jerome Powell that “Wells Fargo is fundamentally broken,” and “there is no evidence whatsoever that Mr. Sloan will fix these problems.”
It’s extremely unlikely Warren will subject any of her rivals to the same treatment tonight. For one, the events are fundamentally different: Whereas Warren in a hearing controls the exchange, she will be on equal footing with her rivals in the debate, subject to the debate format and the will of the moderators. And the primary aim of the candidates, Warren included, will be introducing themselves to the widest audience they’ve had in the campaign so far.
“I don’t see her being as aggressive or accusatory as she is in hearings, because her goal here is to contour policy differences between her and the rest of the field, not shine a spotlight on what she views as illegal or inappropriate behavior,” says Isaac Boltansky, director of policy research at Compass Point Research.
And to the extent any rivals try to draw her out, Boltansky said, “I doubt she’s going to take the bait if there are any direct attacks.” Indeed, the event may be little more than a “preseason tune-up” for Warren, since most of the other top-tier candidates won’t take the stage until Thursday night.
From that group, Warren looks likely to clash sooner rather than later with Biden, whom she has a long history of criticizing over his support for a bankruptcy bill that made it harder for consumers to shed debt. In April, shortly after Biden officially declared his candidacy, Warren said he “is on the side of the credit card companies.”
“Her life’s work has been worrying about and fighting for the little guy. That’s what bankruptcy law is,” Better Markets president Dennis Kelleher says. “Biden’s been buck-raking on Wall Street and giving comfort to the comfortable.” What Warren’s performances in Congressional hearings demonstrate, he says, is her ability “to get to a point that’s relatable, understandable and meaningful to a general audience.” Whether she can translate that to the debate stage “will be one of the things that determines whether she stays in the top tier.”
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— Powell defends Fed's independence as it weighs rate cuts. WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell pushed back against [Trump’s] repeated demands for lower interest rates—citing the central bank’s decadeslong independence—while explaining why it might nevertheless cut interest rates soon. 'The independence of the Fed from direct political control is an important institutional feature that has served the country well, served the economy well,' Mr. Powell said in remarks at the Council on Foreign Relations in New York. 'When you see central banks lacking those protections, you see bad things happening—and that includes, by the way, our experience here in the United States.'"
"Still, Mr. Powell said the central bank might cut rates due to a hit to the economic outlook from rising uncertainty by the Trump administration’s trade policies. While the amount of tariffs currently in place against China and other countries 'is not large enough to represent, itself, a major threat to the economy,' Mr. Powell said officials are concerned about and carefully watching for signs of 'a loss of confidence or financial market reaction.'”
Bullard says a quarter-point cut is enough. Bloomberg's Steve Matthews and Kathleen Hays: Federal Reserve Bank of St. Louis President James Bullard said an 'insurance cut' of 25 basis points to interest rates would be enough to protect against a sharper-than-expected slowdown in economic growth. 'I think 50 basis points would be overdone,’ Bullard said in an interview. 'I don’t think the situation really calls for that. But I would be willing to go 25.’'"
— The Fed has some new warning signs from the U.S. economy to consider.
New-home sales fall to five-month low: “Sales of new U.S. homes fell to a five-month low in May, adding to signs of weakness in the sector despite lower mortgage rates,” Bloomberg News’s Katia Dmitrieva reports. “Single-family home sales dropped 7.8% to a 626,000 annualized pace that missed all estimates in Bloomberg’s survey of economists, from an upwardly revised 679,000 rate in April, government data showed Tuesday. The median sales price decreased 2.7% from a year earlier to $308,000.”
And consumer confidence is sliding. WSJ's Harriet Torry: "U.S. optimism about the economy deteriorated in June to its lowest level in 21 months as consumers fretted over escalating trade tensions and a cooling jobs market, according to a monthly barometer of Americans’ mood. The Conference Board, a private research group, said Tuesday its index of consumer confidence fell to 121.5 in June. That was a nearly 10-point drop from 131.3 in May and was the index’s lowest level since September 2017. Economists surveyed by The Wall Street Journal had expected a reading of 131."
— Trump poised to call off new China tariffs. Bloomberg's Jenny Leonard, Shawn Donnan, and Haze Fan: “The U.S. is willing to suspend the next round of tariffs on an additional $300 billion of Chinese imports while Beijing and Washington prepare to resume trade negotiations, people familiar with the plans said. The decision, which is still under consideration, may be announced after a meeting between [Trump] and [Chinese President] Xi Jinping set for Saturday at a Group of 20 summit in Japan. A broad outline of the Trump-Xi agenda was discussed in a phone call Monday between U.S. Trade Representative Robert Lighthizer, and his counterpart in Beijing, Vice Premier Liu He.
"In an interview with CNBC on Wednesday, Treasury Secretary Steven Mnuchin expressed optimism that a deal could be reached by year end, saying the two sides 'were about 90% of the way there and I think there’s a path to complete this,' with a need still for 'the right efforts.'"
— Meanwhile, China’s economy is faltering: “Evidence is piling up that Chinese consumer spending won’t be enough to alone power the country’s economy past its trade trouble with the U.S.,” the Wall Street Journal’s James T. Areddy reports.
“Demand for apartments, cars and even fruit is slackening. Online sales continue to boom, but buying habits are growing cautious and shifting toward household staples such as milk. Sliding prices for many consumer items and falling imports likewise point to cooling demand."
— Rural carriers look elsewhere amid Huawei’s troubles: “About a dozen rural U.S. telecom carriers that depend on Huawei for network gear are in discussions with its biggest rivals, Ericsson and Nokia, to replace their Chinese equipment, sources familiar with the matter said,” Reuters’s Tarmo Virki and Angela Moon report.
“The talks are critical for small carriers that have relied on Huawei Technologies Co Ltd or ZTE Corp for inexpensive, high-quality mobile network gear in recent years even as the big U.S. telecom companies shunned the Chinese firm. The U.S. government has labeled Huawei a security threat and effectively banned U.S. companies from doing business with Huawei.”
But some U.S. tech companies are sidestepping the ban. NYT's Paul Mozur and Cecilia Kang: "United States chip makers are still selling millions of dollars of products to Huawei despite a Trump administration ban on the sale of American technology to the Chinese telecommunications giant, according to four people with knowledge of the sales. Industry leaders including Intel and Micron have found ways to avoid labeling goods as American-made, said the people, who spoke on the condition they not be named because they were not authorized to disclose the sales."
— Malpass breaks with Trump on climate change: “ . . . So far there has been relief — even cautious optimism — among World Bank staff and the development community about [new World Bank president David] Malpass, who has gone out of his way to provide reassurance that he is not planning to gut the bank’s personnel, alienate China or slash funding for climate change initiatives,” my colleague Heather Long reports.
“A Republican, Malpass stressed that faster global growth is a top goal and that most countries would benefit from more competition and less red tape, a similar economic message to Trump’s. Malpass is also not a fan of mass migration, arguing the goal should be to improve poor or war-torn countries enough so people will want to stay put, including in Central America. But Malpass appears to have broken from Trump by embracing the World Bank’s work to help poor countries address climate change and by expressing a desire to partner more with other global organizations, including initiatives led by China.”
— AbbVie strikes deal to buy Allergan: “AbbVie Inc. agreed to buy Allergan PLC for about $63 billion, as the two big drugmakers bet a combination will deliver new sources of growth they have struggled to find on their own,” the WSJ’s Cara Lombardo, Jonathan D. Rockoff and Dana Cimilluca report.
“The takeover is worth about $188 a share in cash and stock, the companies said in a statement. The price represents a 45% premium over Allergan’s closing share price Monday of $129.57. If not for a surge in the shares in recent days on expectations for a breakup of the company, the premium would be even bigger.”
— In world first, Facebook to give data on hate speech suspects to courts: “In a world first, Facebook has agreed to hand over the identification data of French users suspected of hate speech on its platform to judges, France’s minister for digital affairs Cedric O said on Tuesday,” Reuters’s Mathieu Rosemain reports.
“The decision by the world’s biggest social media network comes after successive meetings between [Mark] Zuckerberg and Macron, who wants to take a leading role globally on the regulation of hate speech and the spread of false information online.”
— Robots set to eliminate 20 million manufacturing jobs worldwide. Bloomberg's Catherine Bosley: "Robots are on track to wipe out almost a tenth of the world’s manufacturing jobs with the brunt borne by lower-income areas in developed nations, Oxford Economics says.While automation should boost the economy as a whole, it is likely to create greater inequality as employment losses are concentrated in certain industries and countries. Manufacturing could lose 20 million positions by 2030, making the sector 8.5% smaller than 'if robots were not remaking the market,' according to the research firm’s report."
— “Is there a big short in bitcoin?”: “Hedge funds and other big traders are betting that bitcoin will fall, even as the digital currency has risen above $11,000 on a new wave of crypto-optimism,” the WSJ’s Alexander Osipovich reports.
“That is the picture that emerges from bitcoin futures listed on CME Group Inc., the biggest U.S. exchange operator. Futures are contracts that let traders bet on whether an asset — in this case, bitcoin — will rise or fall.”
— Federal debt set to reach highest levels since WWIl: “The federal debt is set to rise over the coming decades to the highest levels since World War II, as falling tax revenue and increased spending look likely to worsen the nation’s fiscal outlook, according to a report released Tuesday by the Congressional Budget Office,” my colleague Jeff Stein reports.
“Decreasing federal tax revenue is expected to widen the nation’s deficit, particularly in the short term. In 2017, federal tax revenue amounted to 17.3 percent of the nation’s GDP. In 2019, two years after passage of [Trump’s] $1.5 trillion tax cut, that number fell to 16.5 percent. But spending is the bigger problem in the long term, with the CBO expecting it to rise from 20.7 percent of GDP this year to 27.1 percent by 2049. Much of that increase is driven by higher health-care costs, with ballooning charges and the nation’s aging population expected to drive up spending on Medicare, the nation’s health insurance program for senior citizens.”
— SALT cap sparks debate over middle class: “The debate about the cap on federal deductions for state and local taxes has flipped the tables for lawmakers: Democrats are advocating for a large cut that would primarily benefit the wealthy. Republicans say no way,” Bloomberg News’s Laura Davison reports.
“The partisan squabbles over the SALT deduction put Republicans in a different position than they were for much of the past two years as they crafted, debated and defended their 2017 tax overhaul. Democrats say — and polls show that many people also believe — that the law did too much to benefit corporations and the wealthy. Democrats are now pushing to undo the law’s $10,000 cap on SALT deductions. More than half the benefit of removing that cap would go to those making $1 million, totaling a collective $40.4 billion annual windfall, according to numbers released Monday by the Joint Committee on Taxation.”
— U.S. prosecutors join global crackdown on insider trading. Bloomberg's Franz Wild, Aaron Kirchfeld, and Alan Katz: "U.S. prosecutors are investigating an international network of traders suspected of infiltrating banks and companies to glean confidential information on megadeals, according to people familiar with the matter. The probe by prosecutors at the U.S. Attorney’s Office for the Southern District of New York is focusing on a group of stock pickers in Europe and the Middle East who have made tens of millions of dollars trading ahead of media reports about takeover talks or merger announcements by companies, according to the people, who asked not to be identified because the matter isn’t public. The investigation is part of a years-long multinational effort, with U.S., U.K. and French prosecutors operating on parallel tracks."
What to expect from Democrats on the crowded debate stage: