June 25, 2018
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Want to Fix Wall Street? Elizabeth Warren Should Join Goldman Sachs

By William D. Cohan, Special to the BDN

Several weeks removed from the political reality that cost her a job as one of the nation’s best-known — and controversial — advocates for consumers and the middle class, Elizabeth Warren now officially wants to return to Washington as the junior senator from Massachusetts. But if she is really serious about wanting to help working Americans and reform Wall Street, Warren should consider a different line of work: She should get a job as a partner at Goldman Sachs.

The idea isn’t as crazy as it sounds. First of all, the genuine financial reform that many people hoped would occur after the near-catastrophe of three years ago has failed to materialize in any meaningful way, notwithstanding the 2,200-page Dodd-Frank law. What’s clearer than ever is that much of the status quo has been restored on Wall Street — albeit with fewer firms — and that, with the much-needed oversight of regulators, the financial sector itself needs to take the lead in regaining trust and respect at home and around the world. That’s where Warren can make a real difference, once she abandons her Senate run.

The Senate campaign will not be easy for Warren. Not only has she never before run for public office, the 62-year-old Harvard law professor also will have to figure out how to get past at least seven other announced candidates, including experienced state and local politicians, and win the Democratic primary, which is a year away. Then, in November 2012, she would have to defeat the incumbent, Republican Sen. Scott Brown, who seems to have everything the folksy Warren lacks: a light political touch, charisma in abundance, a $10 million war chest thanks to Wall Street’s largesse, and his own hilarious “Saturday Night Live” sketch. At the moment, the people of Massachusetts seem to like Brown, too. In a recent Boston Globe poll, 49 percent of respondents had a favorable opinion of him, while 26 percent viewed him unfavorably, making Brown the most popular major politician in the state.

Warren is nothing if not intrepid. She spent Wednesday, her first day on the campaign trail, crisscrossing Massachusetts in an effort to prove that she has the determination for the contest. She is clearly trying to be the anti-Martha Coakley, the state attorney general whose lackluster campaign contributed to her loss to Brown in the 2010 special election to fill the seat held for 47 years by the late Ted Kennedy.

Warren’s political message seems to be that she will fight hard to protect those without a voice, something she had hoped to do as head of the Consumer Financial Protection Bureau, the agency created by Dodd-Frank at her specific urging — thanks to an article she wrote a few years earlier — and with her in mind as its leader. But her occasionally abrasive style reportedly got on the nerves of Republican lawmakers, Wall Street lobbyists and officials in the Obama administration. Of course, there was more to the battle than just Warren’s style; in early May, a group of 44 Republican senators vowed to block any nominee to head the bureau until it was substantially revamped to have fewer teeth. Richard Cordray, Obama’s choice to head the agency, is still awaiting Senate confirmation.

“Middle-class families have been chipped at, hacked at, squeezed and hammered for a generation now,” Warren said in a brief and earnest video used to kick off her campaign. “And I don’t think Washington gets it. Washington is rigged for big corporations that hire armies of lobbyists.” It’s an insurgent’s heartfelt message, the kind that all too often seems to get swallowed up in the Senate chamber.

But even if she were to become the first female senator in Massachusetts’ history, is the Senate really the place for a self-proclaimed firebrand like Warren? Is that where she would be most effective in accomplishing the Wall Street reform that she preaches, the type of changes that she is putting at the center of her campaign? The answer is no.

There is little chance that Warren would be able to bring a majority of her fellow senators, to say nothing of a majority of a radically conservative House of Representatives, around to her anti-Wall Street positions. More and more members of Congress are talking about gutting the already watered-down Dodd-Frank law, which could be rendered all but worthless in ending the one-sided risk-taking in which Wall Street has specialized for the past generation and that has dragged the world’s financial system into one crisis after another.

If Warren truly wants financial reform, she must take her fight directly to Wall Street. She should angle for a partner position at Goldman Sachs. There, she could push from the inside to institute the kinds of changes to the firm’s business plan, its ethics and its compensation structure that would set a new standard of behavior across the financial industry. While Goldman has taken any number of hits to its reputation during the past few years — some deserved, some not — it remains the industry leader, and others will eventually have to follow it. That’s why Warren belongs there .

Certainly, she is well-qualified for a coveted seat at Goldman, which occasionally hires partners with her nontraditional background. She is a longtime law professor at Harvard and has written nine books, including two best sellers. She has been a counselor to the president of the United States (always a plus at the uber-connected Goldman Sachs). She has written thoughtfully and persuasively about the dangers of unregulated financial innovation — once asking famously why consumers are better protected from the dangers of a toaster than from the dangers of an adjustable-rate mortgage. And she has put her brand on the first new government agency to come along in years.

As the daughter of an Oklahoma store employee who suffered a debilitating heart attack when she was 12 years old, she also has the kind of modest upbringing and up-by-your-bootstraps resume shared by most of Goldman’s top executives. There is also a department at Goldman, run by former Washington insider John F.W. Rogers, that spends its time worrying about the firm’s media and governmental relations and about how best to deploy its vast charitable giving. Warren would be a perfect fit in Rogers’ solar system.

Goldman could use Warren’s help in designing a new Wall Street that returns to its primary mission of raising capital for companies the world over, wherever and whenever they need it. The firm could abandon for good the kinds of proprietary risk-taking that have gotten the markets into so much trouble. With Warren on board, Goldman could help fix Wall Street’s dysfunctional compensation system, which rewards bankers and traders for taking big risks with other people’s money. As it stands now — even after the passage of the Dodd-Frank law — if the risks pay off, the bankers are paid millions; if the bets fail, the American people pick up the tab.

Warren could help remind Wall Street of the importance of taking responsibility for one’s actions and being held accountable for them. That used to be the standard in the days of Wall Street’s private partnerships, where each partner had his net worth on the line every day.

Warren could help Goldman make sure that if it decides to bet big that a group of securities will lose value, it doesn’t continue to sell those same securities at full value to investors all over the world. She could teach the firm about not taking the confidential information of its clients and counterparties and using it to trade for its own account.

Goldman believes that it can manage the many inherent conflicts within its offices. Warren could remind her new partners that sometimes the most prudent — if less lucrative — action an investment bank can take is to decline a piece of business that doesn’t meet its standards. She could also help Goldman remember its long-forgotten No. 1 corporate commandment: “Our clients’ interests always come first.”

Working at Goldman Sachs is probably anathema to everything Elizabeth Warren aspires to and believes in. But that’s where we need her most.

William D. Cohan, a columnist for Bloomberg View, is the author of “Money and Power: How Goldman Sachs Came to Rule the World” and “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.”

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