Elizabeth Warren's New Agenda for Democrats on Financial Reform

The progressive favorite delivered a speech that could become a blueprint for what liberals would want from Democratic candidates in 2016.

For Sen. Elizabeth Warren, the Dodd-Frank financial reform law was an important first step to taming financial markets. On Wednesday, she laid out a series of bold next steps for financial reform that could provide a road map for the Democratic Party in 2016.

Speaking at the Levy Economics Institute of Bard College's 24th Annual Hyman P. Minsky Conference on Wednesday, Warren gave a message that could serve as strong ammunition for Democrats in the future, saying that opponents of financial regulation often pit the argument as between being pro-market and supporting deregulation versus being anti-market and supporting more regulation.

But in her speech, Warren flipped the script to say that supporters of markets should support smart regulation.

"The so-called choice gets it wrong. Rules are not the enemy of markets," she said. "Without basic government regulation, financial markets don't work. People get ripped off, risk-taking explodes and the markets blow up."

By saying smart regulation ensures a fair and competitive market, it could be an ideal campaign talking point for Democrats accused of being anti-market or anti-capitalist.

"Republicans claim loudly and repeatedly that they support competitive markets, but their approach to financial regulation is pure crony capitalism that helps the rich and the powerful protect and expand their power and leaves everyone else behind," Warren said.

Warren used this rhetorical tool as justification for one of her main causes: ending "too big to fail" by breaking up big banks. She proposed doing this through two methods: capping the size of largest financial institutions, and creating a modern version of Glass-Steagall to separate commercial and investment banking. She also proposed limiting emergency lending to troubled institutions by the Federal Reserve.

While this is not surprising, the way Warren delivered the message serves as a model for Democrats. She argued that layering on more rules is necessary when banks are too large, and by limiting the size and scope of them and forcing them to face consequences, it makes it easier for regulators to oversee their actions.

"Too much reliance on a technocratic approach also directly plays into the hands of the big banks," Warren said, since rules that put government against the banks can get diluted in favor of financial institutions. "Big banks can always throw more lawyers at a problem than the government can."

Warren also said simply adding more regulations rather than conducting a structural approach adds to the regulatory burden for community banks and credit unions. This could be an effective argument against Republicans, such as Senate Majority Leader Mitch McConnell, who has said Dodd-Frank has hurt smaller banks. It is easy to see a Democratic candidate could respond by saying: "Then let's break up the banks so we don't burden smaller banks with more rules."

Her rhetoric has been echoed by other Democrats recently, namely when Hillary Clinton slammed the gap between CEO compensation and worker's pay in one of her first appearances on the campaign trail.

Warren's speech laid out a policy solution to executive compensation Wednesday, saying that as it stands, corporations are taxed for executive compensation over $1 million unless it's in the form of a performance-based bonus, which often leads to short-term thinking. "We can close that loophole and stop pushing corporations to reward short-term thinking." The policy proposal is something that can be used by Democrats to go from simply harping about CEO-pay into actually providing a solution on populist grounds.

Some Democrats eyeing 2016 elections already have made proposals similar to Warren's. In her speech, Warren called for instituting a targeted financial transactions tax to target risky activity like high-frequency trading. This is something Rep. Chris Van Hollen, who is running for Maryland's open Senate seat next year, proposed in a similar plan earlier this year.

This is not to say that Democrats still won't be labeled as anti-market or still be the targets of attacks from the financial industry. Last month, Reuters reported that some Wall Street donors were threatening to cut off funding from Senate Democrats because of rhetoric like Warren's and fellow progressive Democratic Sen. Sherrod Brown, who is ranking member of the Senate Banking Committee. The agenda Warren spoke about shows how Democrats might respond.