WHEN: Today, Thursday, January 28th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC interview with Senator Elizabeth Warren (D-Mass.) to discuss the recent stock-trading frenzy on CNBC's "Closing Bell" (M-F, 3PM-5PM ET) today, Thursday, January 28th. Following are links to video on CNBC.com:
All references must be sourced to CNBC.
WILFRED FROST: Now the recent frenzy of retail trading activity and subsequent restrictions placed on trading by brokerages like Robinhood and interactive brokers has caught the attention of many elected officials some of whom are calling for increased regulation and oversight. Senator Elizabeth Warren weighed in tweeting yesterday quote, "The same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price. It's long past time for the SEC and other financial regulators to wake up and do their jobs." And joining us now for a First on CNBC interview is Senator Elizabeth Warren, democratic senator from Massachusetts. Senator Warren thanks so much for joining us, good afternoon to you.
SENATOR ELIZABETH WARREN: It's good to see you. Thank you for having me.
FROST: So, talk us through what you meant by the content of that tweet, what do you think has been wrong in the actions of the last week or two and what do regulators need to do to stop it.
WARREN: So look, the first part of this is we all see what's happening with GameStop. There are rich people on both sides of this, people who are trying it appears to manipulate this market and that's what we don't know the details of. For a long time now, the SEC has pulled back and not made sure that we have an honest market. The whole point of having a stock market is so that people across this country around the world can invest in businesses help create that capital accumulation so businesses have the money they need to grow and to prosper. Instead, what has happened is it's turned into a casino so that market manipulators come in and they drive markets up or down and make a profit on it. It's, it's called the gamification of the market. And all of a sudden, the billionaires and some hedge funds are yelling because they're not the ones, the only ones who make money when the manipulation works. But remember the other half of this, there are going to be a lot of people who are going to lose money around this, a lot of money that they can't afford to lose. This is why we need an SEC that has clear rules about market manipulation and then has the backbone to go in and enforce those rules.
FROST: So, Senator, what is your bigger issue that this these types of trades were going on over the last couple of weeks and pushing GameStop up or that people were restricted from doing so more today when they were banned from trading because the two are almost opposite and I just wonder which, which is the bigger issue you're focused on.
WARREN: The bigger issue for me is the SEC's inability and unwillingness to deal with market manipulation. It's not just what's happened in the last couple of weeks. Let me take an example. The example around stock buybacks. We all understood what stock buybacks are about, they're about companies buying back their own stock so they can inflate their, the price of that stock. That's just the economics of what happens and it was market manipulation, up through the 1980s when the Reagan era SEC said, well really not so much and so what happens now is companies routinely manipulate their own stock. We're watching the same kinds of things happen everywhere like Robinhood that say, we're gonna give you prizes to come join with us and then say, but you have to sign something that says there'll be an arbitration clause. So, if it turns out that we really did cheat you, it'll never be made public, there'll be very little that you can do about it. That doesn't create a healthy market. What we need is a healthy stock market and to have a healthy stock market, you gotta have a cop on the beat. That should be the SEC they need to step up and do their job.
SARA EISEN: Just for purposes around GameStop and everyone trying to figure out what's going on here, Senator Warren, who do you think is manipulating this stock.
WARREN: Well, that's the problem. How do you know who's manipulating the stock at this point. I mean, people are liking to tell a David versus Goliath story but are you entirely sure that's right. Are you entirely sure that there aren't wealthy people on both sides. That hedge funds haven't moved in on the side of the people who bid up the price of Game stock. And that's what happens when you don't have an honest market. When you don't have an honest market, a lot of folks get cheated and a lot more folks just say, I'm not going into a market like that. I'm not going to participate. I'm not going to put my money out there. This is happening at a time when millions of people are out of work, when millions of people are struggling, and they're looking for another way to try to make money and going into a market that is not honest, that is not transparent, signing away their rights with arbitration agreements and then getting cut off from being able to trade, that is not a way for them to be able to build any security at all. And if it's bad for Wall Street, but ultimately it's bad for our country.
EISEN: As it relates to manipulation here on this stock I just want to be really clear, Senator Warren, as to what do you mean because there is a new element here and that is social media and that a lot of this has come from rallying cries on chat boards of Reddit so is that something that you're defining as manipulation if hedge funds are behind that or big money is behind that and potentially colluding to put out, to put out the word knowing what's gonna happen next.
WARREN: Of course that's the whole point is that we don't know, we don't know who's putting this information out. And here's the key, market manipulation should be illegal, manipulating the market should be wrong, right. But the SEC has never even completed its rules defining what market manipulation is. So that means, in effect, what you've got is a casino. And you don't even know if, if anything in that casino is honest. You can't tell who the players are and there are very few restrictions on what the players can do. We need an SEC that's going to step up, that's going to put some clear rules in place, and then that will be willing to enforce those rules. That's when we can see a lot more traders. I want to see more traders in the market. I want to see day traders in the market. I want to see them have an opportunity to be able to evaluate companies and say this is what I like, this is what I don't like. But I don't want to see them be able to get in the market so that they can get fleeced by insiders who are pulling the strings in the back corners and they end up getting cheated. There's going to be an investigation here, we know there are going to be people who are going to turn out to be hurt from this, all because the SEC has not stepped up, has not put clear rules in place, and has not had the courage to enforce those rules.
FROST: Senator Warren, you tweeted yesterday quote, "With stocks soaring while millions are out of work and struggling to pay bills, it's not news that the stock market doesn't reflect our actual economy." Stimulus checks have been going out and likely the bigger ones are assumed to go out still and that there's been plenty of evidence to suggest some people are using that to invest in the stock market. Is that, is that what their main intention is, are you happy for people to do that if that's what they wish to use their stimulus checks for, does it sort of accentuate a little bit the problem you referred to the sort of two speed economy that you referred to in your tweet.
WARREN: Look, right now we are suffering through a K-shaped recovery. The people at the top are getting richer and richer and richer and people who make less than $40,000 a year are now suffering through 20%, unemployment, they're getting poorer and poorer and poorer. We've been talking about wealth inequality in this country for several years now. This pandemic could accelerate it at a rate that we had never even imagined in our worst nightmares. Right now, with the stimulus checks are about our getting money into the hands of people who need it and getting that money into our economy to support it. You know, the, the economy is struggling right now, the economic indicators from October to November, they were worse in November than in October, they were worse in December than in November, and we're not through January yet, but it looks like they're going to be worse in January than they were in December, this economy is in trouble. But the stock market, which has become the giant casino and playground for the billionaires, just keep spinning upward. That means that our real economy has become completely, well not completely, but has really become detached from where the stock market is and the real economy right now is suffering. Stimulus checks are a way to deal with that.
EISEN: But Senator Warren, surely the market is not the economy and the market also reflects the great optimism that is out there around the vaccines, around the robust growth that that we are looking at on the, in the second half of the year, the tremendous amount of stimulus from the Federal Reserve and from you and the federal government including potentially another $1.9 trillion. I mean, surely, that's reflected in the market, it's not necessarily all the casino is it?
WARREN: Well, look, we have to understand what's happening in this economy. I mean did you hear me, a 20% unemployment rate for people making less than $40,000 a year. Women that have been blocked out of their jobs who are suffering from unemployment more than anyone else because they've had to pick up two jobs at once, one at home and still trying to be in the workplace at the same time. Childcare centers that are closed so that people can't go back to work. Right now, Republicans who are saying they don't want to see us put up the money that we need that's in President Biden's plan money for vaccines, money for families that need to put food on the table, and money to get our schools open. Now look, I think we've got a lot of tools, and a lot of things we can do and I want to see us do those things but we need to have our feet firmly on the ground and firmly on the ground means acknowledging that tens of millions of people across this country are out of work, tens of millions more are on the threshold of losing either their homes or their apartments, tens of millions more have depleted their savings and don't have enough money to put food on the table. That is a core part of the American economy and that's where Congress needs to respond and we need to respond quickly and forcefully.
FROST: What is the answer, Senator Warren, to solve the issue of inequality. On the campaign trail last year, President Biden seem to allude more often to a corporate tax hike than, than any other type of tax hike. What's your view as to the, the optimum way to try and rebalance the scale somewhat.
WARREN: Look, I believe in investing in opportunity. That's how we will build a future and the way we can do that is if we put a wealth tax in place, a two-cent tax on the top one tenth of 1% of families in this country would permit us to fund universal childcare for all of our babies and so that all of their mamas and daddies could finish their education be able to go to work, it would let us invest in K12 for our kids, it would let us invest in universal free college, it would let us get rid of our student loan debt, it would let us make an investment not just in the wealthiest tippy top in this economy but it would let us make an investment, a broad investment across this country and here's the thing, it would not only be good for all of our kids and all of their parents, it would be good for all of America because a better educated workforce, a workforce that we have invested in and helped grow is the one that will help us build an economy for the future. It's the right thing to do.
EISEN: Now it might also chase wealthy people out of this country as we've seen has happened with, with other wealth taxes. You just said how much we need the economy to be revitalized right now for companies to start adding jobs and not subtracting them anymore.
WARREN: I'm sorry. There is no evidence that anyone is going to leave this country because of the two-cent wealth tax. Can we just keep in mind right now in America who's paying taxes. You know the bottom 99% last year, paid about seven and a half percent of their total wealth in taxes. That's what it pays. The top one tenth of 1%, you know how much they paid, they paid about 3.2%. If they added a two-cent wealth tax, they'd still be paying less than most of the people in this entire nation. Look, someone has to pay to keep this nation going and right now, with the top one tenth of 1%, the wealthiest people in this country have said is, let's let everyone else pay for it. Because what they want to do, is not only keep their wealth, they want to keep building their wealth faster than anyone else. All I'm saying is can we have just, just a little fairness here two-cent wealth tax so that we can have universal childcare…
EISEN: I'm just presenting the counter argument.
WARREN: That every baby has an opportunity… Well, how about a counter argument though.
EISEN: You know you'll hear the…
WARREN: Based on fact, the wealthiest in this country are paying less in taxes than everyone else. Asking them to step up and pay a little more and you're telling me that they would forfeit their American citizenship, or they had to do that and I'm just calling her bluff on that. I'm sorry that's not going to happen.
FROST: Senator, I don't think Sarah is going that far with the point. I think part of the example could be why, why did Elon Musk and others Larry Ellison move from a high tax state in California to a lower tax state in, in Texas. You might be right, it might be the right way to redistribute wealth but do you say there is no risk whatsoever that it could damage American economy.
WARREN: Look, they want to use American workers. They want to use American highways. They want to use American police forces. They want to use American infrastructure, but they just don't want to help pay to support it. And that's the trick, a wealth tax needs to be national because you can still get advantages, if you move from state to state. But the idea behind wealth tax is you have to pay it if you're an American citizen. It doesn't matter whether you live in Texas or California or even whether you move to Europe or South America. If you want to keep your American citizenship, you pay the wealth tax and it doesn't matter where you put your assets. You can try to hide them in the Cayman Islands, you can try to put them up in Switzerland, but it doesn't matter, you still pay the two-cent wealth tax. And here's the nice thing about that, you know, a lot of the wealth is quite visible and easy to see, it's right there in the stock market. A two-cent wealth tax changes this country fundamentally because it means we say as a nation, we are going to invest in the next generation. We're going to invest in creating opportunity not just for a handful at the top, we're going to create opportunity for all of our kids. That's how we build a strong future in this country.
FROST: Senator Elizabeth Warren thank you so much for joining us.
WARREN: Thank you for having me.