On a cool fall Friday morning at the Kellogg’s store on Union Square in Manhattan, a group of entrepreneurs, consultants and investment bankers are gathered for a networking breakfast.
When the conversation turns political, the event’s host, venture capitalist Charlie O’Donnell, isn’t shy about expounding on why he wants Elizabeth Warren to be the country’s next president. Fundamentally, he believes in her economic message: A more equitable society can go hand in glove with a robust free market.
“There’s so much untapped potential in our economy, if only people could get to a more stable place from health care, from education,” says Mr. O’Donnell, head of Brooklyn Bridge Ventures, who has canvassed in Park Slope for Ms. Warren’s campaign. “The average worker has not had an opportunity to participate in the growth of the overall pie.”
The Massachusetts senator’s presidential bid – built around higher taxes for the rich and tougher regulations for the financial sector – has sent corporate titans into fits of apoplexy and prompted dire warnings of economic perdition.
But some of those at the heart of American capitalism, such as Mr. O’Donnell, actually agree with her.
Income inequality is holding the country back, they argue, and a lack of regulations on the financial sector risks a repeat of the Great Recession. Where others on Wall Street see a dangerous reformer, they say she is a welcome disrupter. And her candidacy is a sign of the country’s turbulent politics reaching into the very centre of the global economy.
Ms. Warren has consistently polled among the top four contenders for the Democratic nomination, alongside fellow leftist Bernie Sanders and more moderate candidates Joe Biden and Pete Buttigieg. She will meet them on the debate stage Tuesday for one final joust before the first test of the race in the Iowa caucuses. With the field of candidates fragmented and the mood of voters volatile, it could be months before the race is settled.
The former Harvard Law professor has had an unusual political rise. Once a pro-big-business registered Republican, Ms. Warren’s academic research into financial-industry abuses bankrupting average Americans pushed her politics left. She set up the Consumer Financial Protection Bureau during the presidency of Barack Obama, then became a household name in the Senate thanks to viral clips of her grilling banking executives on their business practices.
Now, her campaign for the White House pledges tax hikes on rich people and corporations, along with free university tuition and single-payer health care.
Among other things, Ms. Warren is proposing a wealth tax of 2 per cent on anyone with a net worth of more than US$50-million and 6 per cent for billionaires; taxing capital gains annually; closing a loophole that allows financiers to pay lower tax on carried interest; and putting restrictions on the private-equity industry.
Unlike Mr. Sanders, a self-avowed socialist, Ms. Warren still identifies as a capitalist. Sweeping progressive reforms, she contends, are fully compatible with the free-enterprise system.
“Despite our being the strongest and wealthiest country in the history of the world, our democracy is paralyzed. And why? Because giant corporations have bought off our government,” Ms. Warren declared in a typical stump speech in New York this fall. “That’s corruption plain and simple.”
The country’s wealthiest have queued up to hit back.
Investor Paul Tudor Jones has warned that the stock market would fall by 25 per cent and economic growth would be cut in half if Ms. Warren were elected. Hedge-fund manager Leon Cooperman cried on live television as he accused her of unfairly painting billionaires as bad people. Michael Bloomberg has even entered the Democratic contest explicitly to stop the party’s leftward lurch.
Wall Street has had it pretty good under Donald Trump: The President rolled back some of the regulations imposed in the wake of the 2008 financial crisis and signed a tax-cut package that disproportionately favoured the wealthy. The past three years have seen regular stock-market gains.
Still, Mr. Trump’s trade wars have caused persistent uncertainty for investors, and his chaotic decision-making style has undermined the predictability that businesses crave. All the more reason, say moderate Democrats, to go with a more centrist figure such as Mr. Biden or Mr. Buttigieg.
“The only criticism they might have about Biden is that he’s not going to rock the boat. But the boat has been rocked. We have to plug the holes,” says Mitch Draizin, a long-time Wall Street executive and fundraiser for progressive causes.
Sitting in his 62nd-floor corner-unit condominium in Midtown, where floor-to-ceiling windows offer expansive views over the East River, Mr. Draizin roughly represents the consensus of New York’s Democratic establishment.
Ms. Warren’s policies, he argues, are impractical. Wealth tax? Hard to collect, because so much of the money is in assets such as real estate and art. A single-payer, medicare-for-all health-care system? That would “bankrupt the country” and anger people who already like their private-insurance plans.
“We don’t understand what Warren is doing. It’s so dysfunctional," Mr. Draizin says. “It just financially doesn’t work and I think it’s just sort of counter to the culture, to the American culture.”
But he has little time for Mr. Bloomberg’s entry to the race: The former New York mayor’s belated repudiation of stop-and-frisk – a police tactic riven with racial profiling – is too little to salvage his reputation for caring less about marginalized people than about wealthy gentrifiers. To illustrate his point, Mr. Draizin points across to Roosevelt Island, which houses the elite Cornell Tech that Mr. Bloomberg worked to bring to the city.
“That’s really what he focused on, which is fine, but we have eight million people living here, eighty per cent of which need education, and don’t need to be stopped and frisked,” Mr. Draizin says. “He’s going to get less than zero minority votes. He’ll get the plutocrats.”
Robert Wolf, a veteran banker and former adviser to Mr. Obama, says Ms. Warren is correct on a macro level but her platform is too ambitious to actually get done.
“It’s critical that whoever our candidate is, that they have an economic message: How people think about wages and skills and mobility and income inequality,” he says. “But those are all themes, and you have to show you have a plan that can be executable. My concern with Elizabeth Warren and Bernie Sanders today is I don’t think their plans can be executable.”
Such arguments hold little weight for Ms. Warren’s supporters, who contend the system is so broken that there is no harm aiming for major reforms.
“You may as well get caught trying,” says Tamar Katz, a former investment banker at Citigroup. “On a wealth tax, if worst comes to worst, it doesn’t work … but what’s out there right now doesn’t work. It’s unsustainable.”
For Ms. Katz, Ms. Warren’s criticisms of the financial sector ring true to her own experience. When she worked in the industry, for instance, Ms. Katz was involved in deals that saw investment banks buy houses out of receivership and then push up rents higher than inflation to maximize returns.
“The reason why I like Elizabeth Warren is that she was one of the first people who was able to put into words my frustrations with what I saw on Wall Street,” she says. “This idea of gaining at the expense of other people.”
Ms. Katz says it’s also clear from Ms. Warren’s career and the level of detail she’s included in her policy proposals that she has a deep understanding of the industry she seeks to overhaul.
“If you gave everyone on Wall Street some truth serum, their fear of Elizabeth Warren is that she actually gets the markets,” Ms. Katz says. “A lot of times, politicians don’t have that much background in the economy and so there’s an opportunity for bankers to come in and inform their worldview. I think Elizabeth Warren will not only reject that, but she knows it better herself.”
Brent Jerolimic says his two decades in the finance industry have allowed him to see enough ups and downs to appreciate the value of regulations. Wealth redistribution can also be a good thing, he argues, if it stimulates consumer spending in the lower echelons of the economy. He has been donating to Ms. Warren since her first Senate campaign in 2012.
“I like that she’s a capitalist, but she’s a responsible capitalist with a fair take on regulations. Too much deregulation just facilitates the greed factor and it can snowball out of control,” says Mr. Jerolimic, currently a fintech consultant at Certent and previously a UBS director. “It’s good to have guidelines and rules.”
Bruce Heyman, a former Goldman Sachs executive, has helped raise funds for Mr. Biden and Amy Klobuchar, another of Ms. Warren’s moderate rivals. But he agrees with much of the Massachusetts senator’s message and warns that the sector has to take it more seriously.
“Some part of her conversation is clearly causing anxiety among specific people on Wall Street, and I would only recommend to my former colleagues and others to take a step back … this gap between the haves and the have-nots has gotten too wide,” says Mr. Heyman, a former ambassador to Canada and major fundraiser for Mr. Obama. “She is saying a lot of truth here that is not being received as well on Wall Street as it probably should be.”
Whether Wall Street even matters in the race is another question. The theoretical monetary advantage its benediction should confer hasn’t materialized: Neither Ms. Warren nor Mr. Sanders is doing corporate fundraisers, but both have nonetheless managed to rake in more donations than either Mr. Buttigieg or Mr. Biden, mostly in small-dollar contributions from ordinary supporters.
And Ms. Warren has used the approbation of the rich to her rhetorical advantage. After Mr. Cooperman wept on MSNBC, for instance, her campaign mocked him by selling coffee mugs emblazoned with the slogan “Billionaire Tears.” The tagline on her website invited donors to “savour a warm, slightly salty beverage” while contemplating “all the good a wealth tax could do.”
Barry Ritholtz, a money manager and business pundit, says the hand-wringing over Ms. Warren’s effect on the financial system is also overblown. In previous election cycles, he points out, prognosticators claimed that the volatile Mr. Trump would crash the stock market and the pro-business George W. Bush would be great for the economy. Both predictions turned out to be dead wrong.
“Not to pour cold water on this entire thing, but it’s much ado about nothing,” he says.
Even so, the disagreements over her rise are all too earnest in the place that more than any other represents the American, and global, free-market system.
At a dinner this fall for the New York chapter of the National Venture Capital Association, Mr. O’Donnell recounts, one speaker cheered the organization’s efforts to preserve the tax break on carried interest. Mr. O’Donnell raised his hand and pushed back, questioning both the ethics of the loophole and of profiting off companies such as Uber and TaskRabbit that fuel precarious work in the gig economy.
“Should we be asking if that’s fair? … Can I defend the carried-interest loophole to someone who asks me why I should pay less tax on my gains than a teacher? No,” he says he told the gathering.
And he dismisses criticisms that Ms. Warren’s policy ambition is a drawback. What could be more capitalist, after all, than disruptive change.
“I want somebody going in being like, ‘Here’s my lofty goal,’ and then you’ve got to negotiate or work your way around it. I still think you’re going to end up accomplishing more than if you went in going, ‘Hey, can I just have this tiny little change,’ ” he says. “That’s what VCs are supposed to be backing: big, disruptive ideas – not small incremental things, not moderation.”