Democratic Party’s Elizabeth Warren rolls out her unique plan for ‘how economic patriotism can rein in Wall Street’ in the pitch for the United States 2020 presidential nomination.
Warren triggered the financial sector for being at the feet of concentrated corporate power to line their own pockets while the rest of the economy suffers. ‘Wall Street is looting the economy and Washington is helping them do it,’ Warren wrote on medium.com.
Private equity sits at the centre of Warren’s campaign plan wherein she put across her proposal to transform the private equity industry through strict legal amendments that could fuel up the investment in high-productivity manufacturing companies and boost Wall Street help American families.
Former Harvard law professor, Ms Warren called Private Equity Sector a poster child for financial companies that suck value out of the nation’s economy. She highlighted the whims and fancies of private equities that concentrate on investing in companies that have lots of collateral to lend against without considering their low-productivity levels, which eventually harms the overall economic growth of the nation.
Her new rules are to be the watchdog of companies’ debts that will hook the private equities for the downside performance of the companies they invest in so that they mint money only if the companies they control grow and flourish. This would curb the game of big profit that private equities play and then walk away from the damages with millions of dollars in the face of fees and payouts routed through non-interest income.
Ms Warren’s proposal also touched upon the regulation to ensure that private equities are held accountable for certain pension obligations so that retirement funds of the employees remain safe and secured. The new plans of Warren also focus on protecting employee’s interest at the time companies goes into bankruptcy, under which some modifications in bankruptcy rules would put the employees at the forefront for receiving their dues and payments when the company gets bust and debar executives from padding their own pockets via special bonuses.
These plans outline Warren’s commitment to bring a fundamental change in the government’s approach so that workers and middle-class prosperity are at the centric point of economic growth, ahead of multinational profits and Wall Street bonuses.
Warren further debunked the common belief that profit at Wall Street always helps the economy. She highlighted the breathtaking profits of the financial sector that have grown from 10% to 25% of total corporate gains but how the generation still remains stuck in stagnant wages and sluggish economic growth of America.
Democratic’s Warren took a dig at Republican’s Donald Trump on the deregulation of the financial industry under his administration at the chair of US’ president.
In her campaign plan, Warren stated ‘We should reverse the Trump-era weakening of rules on capital, liquidity, leverage, and resolution-planning for big banks.’
Warren asserted that Trump-appointed regulators have been playing around the rules for big banks to place them at productive ends and make the financial system safer, but these overlooked regulations have been blocking the potential for broader economic growth.
She stated that the ‘regulators hope that nobody understands these technical rules well enough to push back. Well I do understand them.’
To turn the tables other way round, Warren expressed her intention to appoint regulators who will reverse these rollbacks and reorient it to serve the wider economy. The core purpose of Ms Warren’s plan is to connect savers with borrowers at an enhanced pace and efficient level through increasing the access of basic banking facilities.
Warren also seeks to improve the real-time payment technology for everyday transfers and let Americans get rid of outdated paycheck system. For this purpose, Warren shared her plan to appoint Fed Governors who could catch up and ease the burden for working families in relation to the quick access to their paychecks. She also discussed her plan to roll back the tricks and traps of banks into credit card contracts that creates a lot of confusion among consumers and stuck them and their families with never-ending debts.
However, Warren is more focused to bung the loopholes in private equities, which are in practice to first making huge money through fees and non-interest income and then walking away even if the company succumbs.
Overview of Private Equity Industry:
Private equity is one of the alternative investments class. It broadly includes the investment of capital in the company that is not listed on the public exchange. The investments are backed by the institutional and retail investors who pump-in funds to acquire holdings and/or control of the private companies or the public companies turning private.
The fresh capital is generally utilised to fund the research and development work, installation of new machinery, to carry out mergers and acquisitions, enhance technology or expand working capital and strengthen the balance sheet.
Some of the famous private equity groups in Australia include:
- Next Capital
- Quadrant Private Equity
- Ventnor Capital Pty Ltd
- Crescent Capital Partners
- Prostar Capital
- Advent Private Capital
After the 2008 financial crisis, a lot of traction was recorded in the real estate private equity that led to the deployment of funds in commercial real estate and real estate investment trusts (REIT). It was because of the fact that real estate funds need higher minimum capital for investment relative to other categories of funding, which in turn locks the investor funds for a long time and also ensure significant security.
With this backdrop of the private equity industry, Warren stated that private equities drive companies in their accord to earn high ‘management’ and ‘consulting fees’, short-term gains through the sale of assets and dividend payments. To eliminate all this, Warren intends to restrain the ability of private equities to control the company through legal changes. She also stated her plan to change the ‘tax rule so that private equity firms don’t get sweetheart tax rates on all the debt they put on the companies they buy.’
In the concluding lines, Warren stated ‘I want wages to go up, small businesses to thrive, and the economy to grow faster.’ To achieve that, Ms Warren promised to stop the looting cloaked under the legal system and ensure that Wall Street serves the rest of the economy rather than letting it go other way round.
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