Elizabeth Warren’s Hypocrisy on Financial Regulation: Part 1

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As far as politicians’ transgressions go, I usually don’t get that riled up about hypocrisy. In the course of voting on and debating so many issues, lawmakers are bound to take some stances that are inconsistent with previous positions. Plus, I can respect a genuine change of mind and change of heart even if not explicitly acknowledged.

But the hypocrisy of Sen. Elizabeth Warren (D-MA) in her introduction of the so-called Accountable Capitalism Act—and of progressives who are cheering the legislation on—is so blatant it is almost making my hair stand on end.

I’ll have much more to say on the legislation in the coming days, but let’s start with the first of three ways this monstrosity of a bill contradicts some of the oft-heard talking points of Warren and fellow progressives.

Regulations are needed to “protect” shareholders and investors from being cheated out of their earnings. Instead, apparently, politicians should cheat shareholders and divert a firm’s earnings to favorite “stakeholders.”

Both the headline of Warren’s October 15 op-ed in The Wall Street Journal—entitled “Companies Shouldn’t Be Accountable Only to Shareholders”—and the text of her article make it clear that she thinks shareholders should be much lower on the food chain in business and politics than they are.

“The obsession with maximizing shareholder returns effectively means America’s biggest companies have dedicated themselves to making to making the rich even richer,” she writes. Warren never gives a source for her statistic that “the wealthiest 10% of U.S. households own 84% of American-held shares,” but even if accurate, this figure doesn’t tell the whole story. Just because the top 10% may own 84 % of shares of stocks doesn’t mean that stocks aren’t a substantial portion of the individual assets of the remaining 90 percent. And stocks are also owned by institutional investors, such as pension funds and mutual funds, which serve middle-class and blue collar savers and retirees.

Warren seemed to recognize this widespread ownership of stocks when she was urging the Trump Department of Labor (DOL) not to delay the Obama DOL’s “fiduciary rule,” a massively costly investor “protection” regulation. “Such a delay would endanger billions of dollars in Americans’ hard-earned retirement savings,” Warren wrote to Secretary of Labor Alex Acosta.

The rule’s aim was to protect investors from “conflicts of interests” of financial professionals that the Obama DOL claimed could reduce return on investment. “Millions of Americans diligently save for a secure retirement, only to have their hard-earned savings squandered by conflicted advisers to the tune of $17 billion per year,” she asserted.

That $17 billion figure that Warren cited, or even whether alleged conflicts such as broker commissions from funds reduce investor return at all, is heavily disputed. The regulation itself was recently thrown out by the Fifth Circuit Court of Appeals for being “arbitrary and capricious.” But the real irony is that the same politico who championed this paternalistic rule in the name of stopping “conflicts of interests” that hurt investors is in her new bill explicitly introducing conflicts of interest that will reduce shareholder return.

Warren writes in her Wall Street Journal op-ed that the new federal charter in her bill for corporations with more than $1 billion in annual revenue “requires corporate directors to consider the interest of all major corporate stakeholders—not only shareholders—in company decisions.” Warren acknowledges that giving unions, employees and other various “stakeholders” with agendas a voice on par with those who have made the investments to build the company will result in sharply reduced shareholder return.

But she is pleased as punch with this likely outcome, even though her own figure pinpointing shareholder loss from her bill easily tops that of the supposed loss of $17 billion from shareholders’ nest eggs that Warren and other cited to justify the Obama DOL’s fiduciary rule. She writes glowingly of the four decades after World War II, when “shareholders on net contributed more than $250 billion to U.S. companies.”  

From now on, when Warren and those supporting this bill champion Sarbanes-Oxley, Dodd-Frank or any policies that shower entrepreneurs with red tape under the guise that these rules help prevent shareholders from getting ripped off, it should be thrown in their faces that they support the ultimate shareholder rip-off: the embezzlement of shareholder money by politically-favored “stakeholders.”

As Competitive Enterprise Institute founder Fred L Smith, Jr., put it so eloquently more than 20 years ago, “To blur this shareholder/stakeholder distinction—to endorse a form of ‘This firm is your firm, This firm is my firm’ collectivism—is to undermine the basis of modern society, to threaten our future by returning to our tribal past.”

Coming soon, I’ll examine contradictions #2 and #3 of Warren’s “batty proposal,” as National Review’s Kevin Williamson rightly puts it. Sneak preview for contradiction two: “Federalism is fine for smoking a joint, but not for forming a corporation.”