Elizabeth Warren has some unfinished business with Wall Street.
The Massachusetts Senator is calling for changes in tax law designed to hit banks where it hurts: executive compensation, leverage and high-frequency trading.
In a speech Wednesday in Washington, Warren, a Democrat, charged that Republicans are hindering the implementation of reforms put in place after the 2008 financial crisis. But she was equally hard on government regulators, including the Securities and Exchange Commission, Department of Justice and Federal Reserve.
"The bottom line is that the culture of cheating on Wall Street didn't stop with the 2008 crash," she said. "When cops don't do their job, cheaters prosper and honest businesses lose out."
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Warren reiterated that banks deemed too big to fail need to be broken up. She wants to force financial firms that have federal deposit insurance to be limited to "boring banking." Banks that want to take risks are free to do so, she said, but taxpayers should not be on the hook for their mistakes.
Warren also called on Congress to limit the Federal Reserve's ability to provide emergency loans to banks that get into trouble, saying Wall Street sees the Fed as its "personal piggy bank."
In addition, she wants the Department of Justice to stop offering "deferred prosecution" agreements to banks that break the law, which she compared to a "slap on the wrist," and a request to "please don't do it again."
But making the financial system safe and fair will also require changes to the tax code, Warren said.
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Under the 2010 Dodd-Frank financial reforms, the SEC has the power to regulate executive compensation, but the commission has yet to finish writing those rules.
"The SEC needs to get its act together," said Warren. "But we can't sit on our hands on this issue any longer."
Warren said corporations are taxed for any executive compensation over $1 million, unless it is in the form a "performance-based bonus," which makes up the bulk of most CEO pay. Closing this loophole, she said, would "stop pushing companies to reward short-term thinking."
Warren also wants to change tax laws that she says give financial firms an incentive to take on debt, rather than raising capital in the stock market.
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"Financial firms can write off every dollar of interest they pay on their debts, but financing themselves thorough equity requires them to pay taxes on dividends," she said.
Warren called for a transaction tax on firms that use computer-based trading systems to make rapid-fire transactions. She said taxing so-called high-frequency trading would make the market less volatile and give smaller investors a fighting chance.
"Together, changes like these can make a real difference," Warren concluded. "They can help protect hard-working families from cheats and liars. They can help rein in the lawless practices that are still too common on Wall Street."
