Consumer Confidence

Elizabeth Warren
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Watch Out Wall Street — Elizabeth Warren Is Coming!

Elizabeth Warren was nominated to be the first-ever director of the Consumer Financial Protection Bureau formed under Dodd-Frank. But Republicans disliked her so much they filibustered her appointment into oblivion.

Now Elizabeth Warren is headed to D.C. as a senator from Massachusetts in 2013; she holds a decisive 8-percentage-point edge over incumbent Scott Brown with 91% of precincts reporting early Wednesday.

Look out, Wall Street.

Warren ran on a platform that should be old hat to anyone who has followed politics for the past two years. It included:

  • Ending tax breaks for the wealthy: Specifically, roll back the George W. Bush tax cuts for top earners.
  • Closing tax loopholes for corporations: Including eliminating breaks for American oil companies.
  • Enacting harsher regulations for banks: In her own campaign literature, Warren said, “We need to demand that the Justice Department, our state Attorneys General, and federal regulators do more to push back on the big banks and their lobbyists.”

Warren also ran on a host of other local issues — regional fishing policies and local education plans, for instance. But for investors, these three are the most telling.

You may wonder what the big deal is. Elizabeth Warren is only one woman — and Republicans still control the House, so it’s not like thorny legislation will be sailing through Congress.

But the thing is, Elizabeth Warren is much more than one senator from Massachusetts. She could very well become the standard-bearer for Democrats in the 113th Congress.

Warren is an outsider with little Beltway experience but strong connections to consumers and “little people.” She’s unapologetic in her criticism of powerful banks and weak regulators. And most important, she was marginalized by the Republican establishment — but she connected with voters, the national Democratic campaign machine and mainstream media that cast her as at least an equal proxy for the left’s policy vision as President Obama’s own re-election campaign.

And she won. That means Democrats are empowered to believe in Warren’s kind of vision and apply it across the board.

The right is obviously strongly opposed to the Democrats’ notion of helping middle- and lower-class Americans at the cost of the rich and big businesses. That is their right, and many would say their obligation. They surely won’t cave, especially holding power in the House, but since the votes didn’t fall in their favor and their power dipped slightly in both chambers … well, you have to wonder if it’s good for the party to simply stick to their guns and fight harder.

It all adds up to momentum shifting toward the Democrats, with Elizabeth Warren as their polestar in the legislative branch.

On Financials: How to Invest

One final note, specific to investors: This potential policy push from the left doesn’t mean big banks like Bank of America (NYSE:BAC), Citigroup (NYSE:C) or JP Morgan Chase (NYSE:JPM) are doomed. In spring of 2011, I actually got to meet Elizabeth Warren with a group of other financial journalists, and asked a few questions about Wall Street reform and bank profitability — and her answers were anything but hostile toward the financial industry.

My favorite part of our exchange was this analogy between bank regulators and the FDA. Here’s some of what Warren told me:

“Before the FDA, owning a bathtub and seven boxes of chemicals meant you were a pharmaceutical company, and could put anything out that you claimed. So the FDA says, ‘If you make aspirin, it has to be aspirin.’ Who did that work for? It didn’t work for those who were selling snake oil, folks who said, ‘We’ll put it in a bottle and hope it doesn’t hurt you.’ But it didn’t hurt people. It actually worked and consumers learned they could trust drug companies.”

In other words, the banks selling snake oil will be put out of business. But reputable institutions that do right by their consumers with useful products will thrive. This overhang may indeed weigh on the big banks, but could allow smaller regionals to compete with a scale and effectiveness previously beyond their reach.

I think we can all agree that Wall Street — and big banks in particular — would benefit from a little more trust these days. And shrewd Republicans may want to latch on to this “more competitive market” concept rather than simply rail against regulation at all costs.

Aside from preventing another financial crisis and serving consumers better, this kind of position may be very good politics when it comes time for Republicans to keep their jobs come Election Day 2014.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP

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