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Hillary's nuance doesn't play in Wall St bashing

Hillary Clinton continues to have a big Elizabeth Warren problem.

Sure, the Massachusetts Democrat is not running for president but her shadow looms larger over the 2016 Democratic race as her fervent supporters — eager for a heavy Wall Street crackdown — continue to drive Vermont Sen. Bernie Sanders' surge to the top of the polls in early primary states.

Clinton's problem was on clear display this week.

In Davenport, Iowa, Clinton pledged that she would soon unveil a plan to further crack down on abuses in the financial sector. But her comments immediately drew fire from the left as not sufficiently targeted at big banks.

"I'm going to go after risk," Clinton said. "Sometimes risk is associated with bigness of a bank, sometimes risk can be an insurance company, sometimes risk can be in the shadow banking system."

Elizabeth Warren (L) and Hillary Clinton (R).
Getty Images
Elizabeth Warren (L) and Hillary Clinton (R).

It was a another formulation of something Clinton has said many times, that it wasn't just big banks that drove the financial crisis but also risk-taking insurance giants like AIG and smaller investment banks like Lehman Brothers.

It's a nuance that infuriates ardent financial reformers who want to reinstate the Glass-Steagall wall between investment and consumer banking. Clinton has pointedly refused to endorse rebuilding that wall, which came down under her husband's presidency. Sanders and former Maryland Gov. Martin O'Malley both support reinstating Glass-Steagall.

O'Malley's campaign jumped all over Clinton's comments. Deputy campaign manager Lis Smith issued a statement saying "it's disappointing that Secretary Clinton is embracing arguments pushed by the architects of deregulation that big banks did not play a major role in the financial crisis. They, in fact — along with the institutions they aided and abetted, like AIG — were the cause of the collapse."

Smith added that "we need a modernized Glass-Steagall to help reduce risk, the size of too-big-to-fail banks, and the chance of another financial collapse — that's exactly what Gov. O'Malley is pushing for."

Clearly aware of the problem, the Clinton campaign moved swiftly to release a letter from the former secretary of state to all House Democrats urging them to block changes to the structure of the Consumer Financial Protection Bureau contained in a bill recently passed out of the House Financial Services Committee .

"Despite the CFPB's record of delivering results and protecting consumers — or because of it — Republicans remain determined to weaken or even destroy the agency," she wrote, in a letter first reported by POLITICO.


The CFPB letter reflects a key piece of the Clinton campaign strategy when it comes to Wall Street. The candidate is not likely to change her approach to banking reform, focusing on risk rather than size. Instead, they hope to drape themselves in the popular CFPB, repeatedly embracing the agency as the strongest voice to protect consumers from abuses by the financial industry.

It's not clear this strategy will be effective. The anti-Wall Street wing of the Democratic Party has all the momentum and energy and the last thing it wants to hear is nuance when it comes to going after the "banksters."

Clinton channeled some of this in Iowa this week when she talked about the lack of prosecutions following the financial crisis. "We also have to do more to hold individuals accountable for their bad behavior," Clinton said. "People should have gone to jail."

But until she goes full "break up the banks," Clinton will remain disappointing to Warren supporters and vulnerable on her left flank.

But if Clinton were to make a full move left on Wall Street reform she would both alienate many of her big financial backers and further expose herself to charges that she has no core beliefs and will simply tack with the political wind. She faces the same problem with the Trans-Pacific Partnership, which she promoted as secretary of state but now says she is unsure about.

If Clinton comes out against TPP — like she did with the Keystone XL pipeline — it will seem like a craven political calculation.

There is no easy solution to these problems for Clinton. She can only hope to grind it out through the primary season and hope not to sustain too much damage — or actual losses — before winning the nomination.

The bigger issue — and it is unfixable — is that she is a center-left politicians who believes in policy nuance rather than sloganeering in an era of rampant Wall Street-bashing populism.

— Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.