Elizabeth Warren on crypto, the Fed and Lael Brainard

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Jan 26, 2023 View in browser   By Zachary Warmbrodt Presented by U.S. Bank Editor's note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. Sen. Elizabeth Warren (D-Mass.) is kicking off 2023 with a big focus on crypto, outlining in a speech this week where regulators and lawmakers need to strengthen safeguards around the digital asset market. MM caught up with Warren Wednesday afternoon on her crypto plans, as well as her latest views on the pace of Fed rate hikes and President Joe Biden's potential pick to lead his National Economic Council. Warren's next move on crypto is to re-introduce a bill with GOP Sen. Roger Marshall (Kan.) to crack down on crypto money laundering. Warren said it's her "main focus" in terms of crypto legislation. At this point, she's not floating a bill to rework consumer protections — an area where she believes regulators can already make a difference. She's taking a piecemeal legislative approach rather than introducing a sweeping plan that covers the whole landscape of crypto issues. "There are two very different kinds of crypto problems. One is consumer fraud. That's what we've seen when FTX and other exchanges collapsed. It's part of the pump and dump and rug pulls, and all the other ways that customers get cheated. There are a lot of regulatory tools out there already to deal with that. We need regulators to use those tools, and Congress needs to make sure that those regulators have the resources they need to be an effective cop on the beat." "Money laundering is in a different space. It's not nearly as visible to the public. It occurs in the darkest shadows of the crypto world, but its impact on our national security and law enforcement is immense. … The current legal structure essentially holds up a giant sign over crypto that says, money laundering done here." Warren's pitch: Same risk, same regulation — "This is not about inventing any new form of anti-money laundering rules. This is about applying exactly the same set of rules that apply across every other financial industry." The bipartisan backstory — Warren said she called Marshall after watching him ask about crypto's use by drug traffickers, rogue nations and terrorists at a December Senate Agriculture hearing. "I heard his questions and thought, there's the partner I need to get a meaningful anti-money laundering bill through." Warren sees a potential 'soft landing' if the Fed slows down — She has criticized the Fed's rate hike campaign because of the potential damage it could do to workers and the economy. She believes it's still possible to avoid a serious recession. "I'm most focused on what the Fed does next. It may be possible to pull out a soft landing — not withstanding the extreme rate increases the Fed has imposed on our economy — but that's true only if the Fed slows down dramatically on the approach it's taken over the past few months. "Early indications are that inflation is subsiding. So we need the Fed to take yes for an answer and stop jacking up interest rates at an historically high rate." On Fed Vice Chair Lael Brainard potentially leading Biden's NEC — "Brian Deese has been a terrific NEC director and has served President Biden well. Lael Brainard is a very thoughtful economist. But what matters most is the president's vision and momentum. Over the past two years, the president has waded into important fights on behalf of the American people and he's delivered. … So long as he and his economic team keep that up for the next two years, our country will be in good shape." Happy birthday, Speaker McCarthy — It's just Thursday for the rest of us. Please send tips to zwarmbrodt@politico.com and ssutton@politico.com. A message from U.S. Bank: At U.S. Bank, we think of ourselves as a neighborhood bank in thousands of neighborhoods across America even though we're the fifth largest bank in the nation. From supporting veterans to helping more Americans finance their dreams, U.S. Bank is truly small enough to care, and big enough to make a difference. Learn More   Driving the Day The Commerce Department releases its first estimate of fourth-quarter GDP at 8:30 a.m… The Labor Department releases jobless claims data at 8:30 a.m. … President Joe Biden talks about his economic policy wins and threats he sees from House Republicans at 2 p.m. … NYSE is first oversight target for Financial Services Republicans – Incoming House Financial Services Oversight and Investigations Chair Bill Huizenga (R-Mich.) plans to press New York Stock Exchange for information on the glitch that disrupted trading Tuesday, the Michigan Republican told our Eleanor Mueller. "NYSE is now saying that their technical glitch was a, quote, manual error," Huizenga said in an interview. "What does that mean? So we're preparing a letter." "That is a really relevant part … of what this oversight is," he added. "You have a problem; what was that problem? It doesn't mean there was a regulatory action or enforcement action taken against it necessarily, but it was very relevant to what was going on." "So let's just simply ask the question. It doesn't mean we have to have a hearing; let's send a letter, and get a timely response." — NYSE said the problem was related to an error involving its disaster recovery systems, the FT reports. — Charles Schwab knocked NYSE over the glitch. It blasted the Big Board for not owning up to "an obvious mistake" that the brokerage said raises doubts about the SEC's plan to get more investors' orders filled on exchanges. First look: Kim, Green seek Taiwan role at IMF with new bill — Reps. Young Kim (R-Calif.) and Al Green (D-Texas) are introducing a bill today that would require the U.S. governor of the IMF — Treasury — to support Taiwan's admission as a member of the fund. Kim and Green will be members of House Financial Services this Congress. Check out the bill text here. "As the 21st largest economy in the world and the 10th largest goods trading partner of the United States, Taiwan deserves a seat at the IMF," Kim said in a statement. AOC era ends at House Financial Services— Rep. Alexandria Ocasio-Cortez (D-N.Y.) will no longer serve on the House Financial Services Committee, after Democrats lost seats and she sought to keep a spot on House Oversight, Eleanor reports. Ocasio-Cortez follows Rep. Katie Porter (D-Calif.), another high-profile progressive elected in 2018, who left the panel in the last Congress. They made a big splash when they joined in 2019 with Squad members Rashida Tlaib (D-Mich.) and Ayanna Pressley (D-Mass.). They sometimes clashed with then-Chair Maxine Waters. Other Democrats who will not be returning to House Financial Services include Reps. Jake Auchincloss of Massachusetts, Chuy García of Illinois and Alma Adams of North Carolina. — In other committee happenings, Fox News host Tucker Carlson blasted Financial Services Chair Patrick McHenry (R-N.C.) for putting diversity and inclusion under the jurisdiction of the panel's subcommittees. Carlson said McHenry declined to appear on the show. Manchin upbeat after McCarthy debt limit meeting— Sen. Joe Manchin (D-W.Va.) said House Speaker Kevin McCarthy agreed with him not to touch Social Security, Medicare and Medicaid when the two met to talk about potential debt limit negotiations, POLITICO's Burgess Everett reports. "He was very receptive and wants to negotiate and wants to sit down and talk," Manchin said. "My sense is Kevin McCarthy wants this place to work."   A message from U.S. Bank:   — Senate conservatives back House GOP on debt limit – From Eleanor: Sens. Ron Johnson (Wis.), Ted Cruz (Texas) and Rand Paul (Ky.) held a press conference Wednesday to pledge support for House Republicans pushing for spending cuts in exchange for a debt limit increase. "We want to convey to our House colleagues that we respect what they've done; they've got a big task ahead of them; we want to do everything we can to support their efforts, but also encourage them," Johnson said. "They have to pass these things, with Republican votes." Brainard to NEC?— Federal Reserve Vice Chair Lael Brainard is a contender to lead Biden's National Economic Council when Director Brian Deese steps down, the Washington Post reported. Recruiting Brainard would create an opening at the Fed. The WSJ reports that some in the White House believe that moving her to the administration would be worth a Fed confirmation fight because of the need for a strong NEC chief heading into a critical year for the economy. Housing demand sees uptick— New data from Redfin shows pending sales of U.S. homes rising for the first time in more than a year, with other measures of demand also up, according to Bloomberg. "Redfin cautioned that the situation varies from city to city and the market is still quieter than during the pandemic boom."   JOIN POLITICO ON 2/9 TO HEAR FROM AMERICA'S GOVERNORS: In a divided Congress, more legislative and policy enforcement will shift to the states, meaning governors will take a leading role in setting the agenda for the nation. Join POLITICO on Thursday, Feb. 9 at World Wide Technology's D.C. Innovation Center for The Fifty: America's Governors, where we will examine where innovations are taking shape and new regulatory red lines, the future of reproductive health, and how climate change is being addressed across a series of one-on-one interviews. REGISTER HERE.     Regulatory Corner Treasury targets Russians investing in U.S. real estate– The Financial Crimes Enforcement Network issued an alert Wednesday warning financial firms to be on the lookout for Russians trying to evade sanctions by putting money into commercial real estate in the U.S., according to Bloomberg. Banks, fintechs draw battle lines over data access — MM's Sam Sutton reports that banks and fintechs are at odds over what types of customer accounts and financial institutions should have to adhere to upcoming consumer data sharing rules from the CFPB. Trade groups have begun publishing lengthy comment letters in an attempt to influence the bureau's work on the proposal implementing Dodd-Frank's Section 1033. Crypto CFTC's Johnson warns about future of FTX derivatives arm — CFTC Commissioner Kristin Johnson is raising alarms over FTX's plan to sell off its regulated derivatives platform LedgerX, which survived the crypto exchange's collapse. LedgerX has been registered with the CFTC since 2017 – well before FTX's 2021 acquisition of the business. Johnson told Sam that the agency has no say in a sales process, which she said could provide a back door for bad actors to access regulated markets. Johnson is calling for the CFTC to issue new rules that would give the agency greater say in mergers involving firms under its jurisdiction. She's also urging lawmakers to include similar language in any upcoming crypto legislation. "It's completely unacceptable that we're not allowed to have more of a role in this process," she said. "We have so little influence in the sale of a licensed entity."   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don't miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     Fly Around Treasury denies GOP request for Hunter Biden records— Bloomberg: "The US Treasury Department refused Wednesday to provide House Republicans any suspicious activity reports it may have on foreign banking and other business transactions by Hunter Biden and other members of President Joe Biden's family." Bank of Canada signals pause on rate hikes— Reuters: "The Bank of Canada on Wednesday hiked its key interest rate to 4.5%, the highest level in 15 years, and became the first major central bank fighting global inflation to say it would likely hold off on further increases for now." Germany expects economic growth– WSJ: "The German economy will grow this year and might even avoid a shallow recession in the short term, the government said on Wednesday, the latest sign of brightening growth prospects in Europe despite the shock of Russia's invasion of Ukraine." People moves — From Sam: Andreessen Horowitz's crypto arm has registered Collin McCune as its first lobbyist. McCune, a former top aide to House Financial Services Chair Patrick McHenry (R-N.C.), joined the venture capital giant last year as its head of government affairs. A message from U.S. Bank: At Minnesota-based U.S. Bank, community is everything. Alongside banking services, U.S. Bank helps its over one million small business customers access programs to help them manage unique challenges. With the aim of increasing home ownership, U.S. Bank has provided more than $951 million in affordable housing lending and helped fund nearly 30,000 affordable housing units. And in honor of those who have served, U.S. Bank regularly donates mortgage-free homes, vehicles, and home repairs to military veterans. In 2021, the bank launched Operation Always Remember, giving veterans gift cards for gas, clothing, and restaurants. U.S. Bank. Small enough to care, and big enough to make a difference. Learn More     Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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