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Will Elizabeth Warren Go to War Against Big Banks?


As a member of the Senate's Banking Committee, Warren would have a hand in crafting new rules or closing perceived gaps in existing ones.

Still, Warren's opponents may be wrong to view her as anti-bank. She isn't talking publicly about what she may do specifically in her new role as Senator and in her possible future position as a member of the Banking Committee. Still, looking back to a conversation I had with her in the summer of 2009, there are some interesting indicators.

First of all, she was adamant that she wants a free market to work; that legislation should achieve that. One of the problems with the system leading up to the financial crisis was that "the market was broken," she argued. The evidence of that, Warren says, could be seen in banks' efforts to obscure the fact that mortgage and credit card contracts were set up to be hard for the average consumer to understand – and to maximize banks' profits.

Multi-million dollar advertising campaigns by the big banks reinforced their dominance in the market and ensured that the playing field between big and small banks was anything but level. In that kind of environment, with banks focused on creating "tricks and traps buried in the fine print" for consumers, it's hard for financial institutions to create genuinely innovative financial products that are useful for consumers and can generate profits for their creators. Smaller banks, community banks and credit unions are the victims of this system.

Odds are that the advocates of breaking up the biggest banks will find in Warren one of their most powerful supporters. But they shouldn't expect her to initiate legislation aimed at forcing the likes of JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) to unwind themselves within the next year or two. Warren is smart enough to know how to operate in Washington and to realize that before pushing through any radical plans she'll need to forge new alliances with those who today view her as a liberal who views any new regulation as a good thing.

Her ability to do that is likely to be a risk in the eyes of Wall Street, as is the fact that rather than focusing narrowly on specific agenda items – taxing carried interest, implementing the Volcker rule or Dodd-Frank provisions – she is likely to emphasize a broad mission: reminding the public and her new Senate colleagues that Wall Street's goal is to serve Main Street, not profit while the broader public struggles. "We're Americans," Warren told the convention last summer. "We celebrate success. We just don't want the game to be rigged."

Editor's Note: This article by Suzanne McGee originally appeared on The Fiscal Times.

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