Posts Tagged ‘elizabeth warren’

The law can’t touch them at all

9 March 2013

“Too big to prosecute” is the recurring headline this week after Attorney General Eric Holder’s remarkable statement before the Senate Judiciary Committee on Wednesday:

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

Where to begin? “Too big to fail” is one thing, but to say these institutions are too big to clean up their act is another. The attorney general seems to be implying that the big banks are more important than the laws themselves. It is one thing to say that the outright collapse of these institutions would bring economic ruin. It is quite another to assume that prosecuting criminal acts by them or some of their employees would also bring ruin.

Skeptics have long called the big banks “too big to prosecute” because their lavish campaign contributions give them unparalleled access and influence in Washington, but Holder’s remarks point to something more insidious: ideological capture. When cabinet officials are products of Wall Street or, worse, credulously believe Wall Street claims that their firms are delicate life-giving flowers that must never be disturbed, we have a problem that won’t go away anytime soon.

Fortunately, several members of Congress, including Republicans David Vitter and Charles Grassley and Democrats Sherrod Brown and Elizabeth Warren, are pushing back. Vitter and Brown have co-sponsored a bill to limit the size of the big banks. But we have been here before, as recently as 2010, when a similar bill lost by a vote of 61-33 and was opposed by the Obama administration. Until further notice, it’s hard to disagree with these words of Huey Long from 1932:

“They’ve got a set of Republican waiters on one side and a set of Democratic waiters on the other side, but no matter which set of waiters brings you the dish, the legislative grub is all prepared in the same Wall Street kitchen.”

The law can’t touch them at all.

Financial reform bill: Better than nothing

22 May 2010

This week the Senate passed a financial reform bill that’s at least a bit tougher than looked possible a couple weeks ago.  Paul Krugman has a concise rundown on it right here:

“What’s good? Resolution authority, which was sorely lacking last year; consumer protection; derivatives traded through clearinghouses; ratings reform, thanks to Al Franken; tighter capital standards for big players, although with too much discretion to regulators.

“What’s missing? Hard leverage limits; size caps; not much in the way of restoring Glass-Steagall. If you think that too big to fail is the core problem, it’s disappointing; if you think that shadow banking is the core, as I do, not too bad.”

Dean Baker has some additional words here on Al Franken’s credit-rating-agencies reform amendment, which would eliminate the huge grades-for-sale conflict of interest of having companies being rated pay the rating agency for their work.  Instead, the Securities and Exchange Commission will assign the rating agency for each new securities issue.

The Senate bill also includes a Consumer Financial Protection Agency, which will be technically independent, as reformers had been pushing for and industry had been furiously opposing.  However, the agency will be housed within the Federal Reserve, which reformers had opposed because of the Fed’s dismal track record on consumer protection over the past decade.  Supposedly the agency will not have to answer to the Fed’s leadership, but we’ll have to see how that works out in practice.  I have not yet seen any word on whether the fabulous Elizabeth Warren, the Harvard Law professor who had been advocating for this agency, would still be interested in heading it.

All told, the bill still leaves much to be desired — Simon Johnson and James Kwak at The Baseline Scenario decry its lack of hard capital requirements or bank size restrictions — but looks a whole lot better than nothing:

The Regulator Guys

18 June 2009

The Obama Administration’s new Financial Regulatory Reform plan hit the streets yesterday.  At 85 pages, it’s a lot to digest.  Today’s Washington Post has pretty good coverage, including this excellent summary chartJoe Nocera of the New York Times has some pointed criticisms, the gist of which is that Obama’s reforms, unlike FDR’s, do not go far enough.

Probably the biggest step forward is that the plan calls for giving someone the authority to close and liquidate insolvent financial behemoths like AIG and Citigroup.  Right now, the FDIC can shut down failing banks, but nobody can do the same with financial supermarkets like AIG and Citigroup.  In a similar view, it also empowers the Fed to oversee huge, systemically important financial institutions and require them to hold more reserves and take fewer risks.  Both of these changes seem to go a long way toward resolving that tension between moral hazard and “too big to fail.”

Another step that looks welcome is the establishment of a Consumer Finance Protection Agency, along the lines suggested by the estimable Elizabeth Warren, the Harvard Law Professor who chairs the Congressional Oversight Panel that monitors the TARP bailouts.  In this 2004 interview with Bill Moyers she offers a critical, detailed assessment of credit-card-company abuses and sensible ideas for reform.  Her two-part interview with Jon Stewart this past April is worth watching as well.  Warren has been rumored as the person to lead this new agency.  Had an effective consumer protection agency been in place earlier this decade, we might have avoided the stampede into dubious adjustable-rate mortages and option ARMs.  Not surprisingly, the financial services industry is critical of the idea of such an agency.

(more…)