Sanders launches new plan to dismantle Wall Street giants, including Goldman Sachs and JP Morgan

Sen. Bernie Sanders (I-Vt.) Unveiled Wednesday a bill that would significantly limit the size of financial institutions, a proposal that would separate the largest companies on Wall Street in order to avoid future rescue operations of taxpayers.

The measure died on arrival with a Republican Congress and President Trump in power. And even if the current Democratic Party took control of the government, the way would be difficult to cross, many of his moderates having opted for solutions to the banking crisis that modified less the financial system.

The Sanders Bill would prohibit financial institutions from holding assets, derivatives and other forms of borrowing representing more than 3% of the total US economy, or $ 584 billion in US dollars. today.

The law would force federal regulators to dismantle six different Wall Street companies – JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – as well as insurance giants such as Prudential Financial and MetLife. Together, the targeted companies hold more than $ 13 trillion in assets, according to Sanders employees.

Despite being unable to pass in the short term, this measure could become a marker for Democrats seeking support from the party's progressive voters, as well as the single-payer universal health care system.

Sanders views this plan as a way to avoid a repeat of the financial crisis of ten years ago, when the banks about to collapse were big enough for their bankruptcies to shake the fundamentals. of the global financial system. In response, the federal government provided massive loans to banks, which largely helped to alleviate the crisis, but also helped to finance high net worth individuals as unemployment soared and thousands of people lost their homes.

"We have spent huge amounts of money to bail them out, and they are considerably larger than they were at the time," Sanders said at the time. 39, an interview. "It's time for us to return to this discussion, especially now for the 10th anniversary [of the crash]. "

In response to the crisis, Democrats have restrictively enacted a broad banking law to ensure that banks "too big to fail" take steps to avoid bankruptcy, subjecting larger companies to more stringent restrictions aimed at limit their risks.

The law, signed by former President Barack Obama, contained 16 separate chapters and had more than 2,300 pages. Sanders' measure is seven pages in length and goes to the size of banks, arguing that companies of this size represent an inherent risk to the economy.

The senator, who identifies as a Socialist Democrat, and his supporters believe that companies must be split to avoid future rescues, while critics say that Sanders advance an impractical bill that has no chance of to be promulgated.

"This legislation is at the heart of the problem by setting a high ceiling for the largest heavily indebted companies. The ceiling is simple, direct and transparent, "said Simon Johnson, an economist at MIT, who served as chief economist of the International Monetary Fund and who supports the bill. "This measure will bring us closer to full and fair competition in the financial system, where a few mega-banks are currently predominant."

According to Sanders, four of the six largest banks are on average 80% larger than they were when they started receiving life-saving funds because many of the larger financial companies have acquired banks in difficulty during the crisis. JP Morgan, which acquired Bear Stearns in 2008 at the request of the federal government, has increased about 60% to $ 2.53 billion, said Gregg Gelzinis, banking expert at the Center for American Progress, a think tank of left.

Sanders' plan has been criticized by some Wall Street analysts, who have pointed to dramatic improvements in capital cushions that banks now aim to prevent collapse. Dodd-Frank, Obama's 2010 banking law, has introduced new capital requirements for larger financial institutions.

"The financial system is not too indebted like in 2006 and 2007," said Allen Sinai, economist at Decision Economics. "They are much better in shape today."

Jim Kessler, chairman of the Third Way centrist think tank, said that Democrats should instead focus on capital expansion in rural areas, where he said that small business loans had stagnated.

"I'm not sure anyone won an election against the big banks," said Kessler. (In an interview, Sanders pointed to the announcements that Trump had published in the 2016 presidential election and promised to post them on Wall Street.)

Even some, generally sensitive to Sanders' efforts to reduce the size of Wall Street banks, believe the legislation is too ambitious. Thomas M. Hoenig, who recently stepped down as deputy chairman of the Federal Deposit Insurance Corporation, which regulates the banking sector, said it would already be very difficult to get enough support even for to reach a much less strict ceiling with regard to the size of the banks.

Hoenig pointed out that more than a dozen Democratic senators had joined the Republicans when dismantling part of the Obama Dodd-Frank banking bill released in 2010, an effort that many Republicans thought not to go far enough.

"Several Democrats have just voted to loosen the capital standards of two of the largest banks," said Hoenig. "So who will adopt this law?"

Sanders had already called for the dissolution of the largest companies on Wall Street, but this new bill offers a new mechanism to do so. Previously, Sanders had asked the Financial Stability Board to identify and dissolve institutions "too big to fail," in addition to supporting the reinstatement of Glass-Steagall – the law of the 1930s separating banks commercial banks and investment banks. The new approach clearly limits the size of a financial institution.

Senator Sherrod Brown (D-Ohio), the largest Democrat on the Senate Banking Committee, has also proposed a bill limiting the size of US banks. The Sanders bill uses a larger measure than Brown's to take into account the size of the bank, which means that Sanders' legislation would force more banks to shrink further, said Johnson, the economist. from MIT. (Brown's bill predated the Federal Reserve's recent release of a new estimate of "total risk" for banks, which included borrowing that does not apply to balance sheets.)

But the bill could also be the cornerstone of future Democratic banking legislation, with the party increasingly directing a crowd of populist left-wing ideas on issues ranging from insurance. -maladie for all to free tuition in public universities.

Robert Hockett, a professor at Cornell University, who specializes in banking issues and helped draft Sanders' "Too Big To Scatter" law, said it could more easily garner public support and offer significant improvement over previous banking legislation.

"Like Obamacare, Dodd-Frank is very long, very nuanced and very difficult to explain to people," said Hockett. "It's so much easier to explain Sanders' bill."