Taibbi and Bernie Sanders on too big to fail – Rolling Stone

Ten years ago, George W. Bush ratified the Troubled Asset Relief Program, better known as the TARP Rescue Plan. The rescue has yielded more than $ 700 billion in taxpayer dollars to the rescue of giant Wall Street banks, already too big and about to become.

Sen. Bernie Sanders (D-VT) and Rep. Brad Sherman (D-CA) on Wednesday introduced a new TARP anniversary law. This is the central problem of the last catastrophe that has not yet been solved: the ungovernable size of the largest banks in the country.

Nicknamed the law "Too big to fail, too big to exist", the Sanders-Sherman bill is based on a simple concept: if a bank collectively controls assets accounting for more than 3% of the country's GDP, or about $ 584 billion dollars, shrink or be broken.

"We bailed out these banks ten years ago, because they were 'too big to go bankrupt,' Sanders explained. Rolling stone by telephone. "Now, it turns out that our four largest financial institutions – JP Morgan Chase, Bank of America, Wells Fargo and Citigroup – are on average 80% larger than they were before. before we bailed them out. It's not fair. "

Banks have long been a priority for Sanders, who hopes to use a new tactic to attack old foes. He has experimented with the use of public pressure and journalism-related tactics, including the launch of a series of video testimonials about working conditions in companies such as Disney and Amazon, so strengthen legislative efforts on reform.

Sanders is in a good mood with his recent successes. Just a month after being criticized by Amazon for "deceptive accusations" and triggering a national controversy that has seen much of the class of experts, with think tanks aligned with the Democrats, take the side of Amazon In the social debate, he saw the retailer appear this week to capitulate, announcing a minimum wage of $ 15 through US operations.

"In the end, you gather public opinion, you force people to do what is right," says Sanders, who has spoken openly in the past about his frustration with the slow pace of change on the Internet. Hill.

It is difficult to underestimate the extent to which bank concentration has weighed on Sanders over the years. Decades ago, the administrations of the Republican and Democratic presidents embarked on a series of deliberately designed policies to consolidate financial power.

The first major action on this front was Riegle-Neal's law on banks and the effectiveness of interstate branches in 1994. This law torpedoed restrictions on the opening of bank branches beyond state borders. These rules date back to the 1927 McFadden Act, which was specifically enacted to prevent financial concentration.

Signed Bill Clinton, Riegle-Neal helped inaugurate the era of huge national banks. In 2016, Americans had 57% fewer FDIC-insured banks than in 1994. Sanders voted against the negative vote against Riegle-Neal on the House Financial Services Committee.

The next major action was the Gramm-Leach-Bliley Act, better known as the repeal of the Glass-Steagall Act. A post-1929 security measure adopted at the time of FDR, Glass-Steagall prevented the merger of insurance companies, investment banks and commercial banks.

The apparent justification for the repeal of this historically successful reform was that such a restriction was no longer necessary. In addition, the creation of "supermarket" type financial institutions was necessary to keep America competitive against the gigantic "universal" banks of Europe and Asia.

In fact, Gramm-Leach-Bliley was adopted to retroactively legalize the merger of Citigroup, which brought together under one roof Travelers Insurance, Salomon Smith Barney and Citibank. This agreement was reached even before the repeal of Glass-Steagall in 1998.

In one of the deadliest atrocities of all time, Treasury Secretary Bob Rubin, who helped broker the deal, then held a position at Citigroup and earned more than $ 100 million. dollars as "Senior Advisor" over a decade or so.

This early banking effort had already led Sanders to consider bailout plans. At a review conducted in 2000 by Alan Greenspan, then head of the Fed, Sanders asked why a regulator would agree to place as many assets under one roof.

"Are you worried about mergers like Travelers Insurance and Citicorp when they're a company with nearly $ 700 billion in assets," asked Sanders. "What happens if they fail? Who in the name of God will bail them out? Are you concerned about that? "

Greenspan is distinctively distinguished. "We do not think that in the event that it turns out that an important institution is failing, it should be bailed out," he said.

At about the same time, the future Treasury Secretary and CEO of Goldman Sachs Hank Paulson began lobbying to relax the so-called net capital rule, which ostensibly prohibited investment banks from borrowing more than $ 12 each. of them.

Within four years, the five largest investment banks met with the SEC to lobby for this change to materialize. Although the actual impact of the change in the net capital rule has been hotly debated, there is no mention of the fact that in 2008, the ratio of financial debt to equity on Wall Street was around 33 to 1.

Of the five investment banks that claimed changes in 2004, three of them (Bear Stearns, Merrill Lynch and Lehman Brothers) would have died within four years.

When the big crash occurred in September 2008, most of the economic world focused on developing a rescue system aimed at "stabilizing" the economy. Sanders, however, admitted that any merger or bailout subsidized by the state would likely continue the trend towards concentration. As of September 17, 2008, in fact, he complained to the Senate that any Wall Street bailout do not have including mandatory breaks would leave the underlying problem unresolved.

"This country can no longer afford companies too big to fail," he said at the time. "If a company is so big that its failure would cause systemic damage to our economy, if it is too big to fail, it is too big to exist … We, as a Congress, need to determine which companies fall into this category … companies must be separated. "

However, at that time, officials of the Federal Reserve and the Treasury Department of George W. Bush – including Paulson, then Secretary of the Treasury of Bush – had already taken a different direction.

They had begun to develop a rescue plan, the main feature of which was doubling or tripling the story of concentration, using public funds to make dangerously large financial corporations even bigger and more powerful.

This type of rescue would continue during the next administration. Treasury Secretary Timothy Geithner, chief architect of Barack Obama's rescue, had also been involved in Bush's rescue at the head of the New York Fed and had been protected from Rubin in Clinton's Treasury.

When Bear Stearns faltered, Geithner and other officials used the Fed's funds to help reduce the damage in JP Morgan Chase's balance sheet. Later, when Merrill Lynch failed, he was bent in Bank of America. Wells Fargo, a recipient of financial aid, was driven to swallow the toxic disaster of Wachovia. The FDIC seized another case, the Washington Mutual, and piled it up in Chase at a bargain price, with the state absorbing much of the loss.

These forced marriages had the immediate effect of preventing new crises, but everyone knew that the long-term impact would be to concentrate more economic and political power.

For some, this has created a major safety problem, as this type of concentration virtually ensures the need for future rescue plans. Even the former TARP administrator (and the Goldman banker), Neel Kashkari, estimated that last summer, the probability of a next bailout was 67%, in the absence of any effort to remedy to Too Big To Fail.

For Sanders, however, the extreme concentration of economic power is a problem even if there is no next collapse in the next 10 minutes.

"It's a movement towards an oligarchy in this country," he says. "Are we comfortable as a country in which six financial institutions have assets equivalent to 54% of GDP? What kind of economic power is it, what kind of political power is it?

When work began in the summer of 2009 on the Dodd-Frank Financial Reform Act, which was to be the key legislative response to the crisis, all the brains on the hill knew two things.

First, by far the most important problem to solve was the Too Big To Fail problem. And secondly, any significant effort in this direction would be totally devoid of political meaning.

Not only did the banks still have so many members of Congress that such a decision could never fail, but the government had long since strayed from its mandate to dismantle the dangerous concentrations of corporations.

"We dont do [antitrust] more as a nation, "says Sanders.

Nevertheless, scattered efforts have been made to solve the problem of economic concentration. Sanders introduced for the first time a bill to break the banks in November 2009. Senators Sherrod Brown of Ohio and Ted Kaufman of Delaware also introduced an amendment to Dodd-Frank which provided for the dissolution of major based on simple and numerical ceilings.

This bill was defeated in the Senate, 61-33, with 27 Democrats who voted against, often using a version of the argument that "size does not matter". "Size is not the appropriate restriction," said Virginia Democrat Mark Warner.

Over the years, Brown, Sanders and Sherman, from California, have spared no effort and have put forward various proposals to target banks too big to fail. The lack of support within the Democratic Party, whose economic policies have been dominated by the same ideology favorable to Rubin-Geithner-Lawrence Summers Wall Street (a friend of our financial analysts, believes that the "crime rubino family") since two and a half years. For democratic voters to massively reject these ties, they will even have to begin to act concretely.

Sanders has been regularly criticized by the Democrats for his bank dissolution concepts. During the 2016 campaign, when the party's official position and Clinton's campaign were that the shadow banking system had caused the crisis, Barney Frank went so far as to write an editorial for the Washington Post saying "Too big to fail is an empty phrase."

The pundits are piling up. the Financial Times Sanders said he "had trouble explaining" how he was going to break up, and reports from the Fed had described the banking system as safer since Dodd-Frank. Slate said it was "hard to take Bernie Sanders seriously" on this issue.

Today, however, Sanders has the feeling of having a new weapon in order to change things that interest the public. Amazon is an example of how his office thinks it can avoid scrambling both on the hill and in the press and bring the issues directly to the public.

"We changed the office into a television station, Sanders Broadcasting," he says with a laugh. "You know, we make our agitation and we bring people together."

Sanders wants to use these tools to make the concentration of financial power among some companies a major issue for Democrats in the run-up to the 2020 election season. The new bill would affect the six richest banks in the country JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Bank of America and Morgan Stanley.

"We're going to have to re-educate people," says Sanders. "This is the tenth anniversary of the economic disaster that has changed the lives of millions of people. Losing jobs, losing their homes, losing their life savings. It was a cataclysmic impact on our entire society. "

He adds, "We think that breaking any financial institution [that have] an asset of more than 3% of GDP, about $ 580 billion, is the right thing to do. This should have been done a long time ago.

Looking at the disaster of three decades of concentration, it is difficult to conclude that he is wrong. At the very least, the public will probably agree with him on this point. Let's hope that this time, the Democrats realize it in time for the presidential election.