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Bernie Sanders to Launch New Plan to Break Up Wall Street Giants, Including Goldman Sachs and JP Morgan
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=46943"><span class="small">Jeff Stein, The Washington Post</span></a>   
Thursday, 04 October 2018 08:26

Stein writes: "Sen. Bernie Sanders (I-Vt.) on Wednesday unveiled legislation that would place a hard cap on the size of financial institutions, a proposal that would splinter Wall Street's biggest firms in an effort to ward off future taxpayer bailouts."

Sen. Bernie Sanders. (photo: Getty)
Sen. Bernie Sanders. (photo: Getty)

Bernie Sanders to Launch New Plan to Break Up Wall Street Giants, Including Goldman Sachs and JP Morgan

By Jeff Stein, The Washington Post

04 October 18


en. Bernie Sanders (I-Vt.) on Wednesday unveiled legislation that would place a hard cap on the size of financial institutions, a proposal that would splinter Wall Street’s biggest firms in an effort to ward off future taxpayer bailouts.

The measure is dead on arrival with a Republican Congress and President Trump in office. And even if the current Democratic Party were to take control of government, it would face a difficult path to passage, as many of the party’s moderates have opted for answers to the banking crisis that did less to alter the financial system.

Sanders’s bill would bar financial institutions from holding assets, derivatives and other forms of borrowing worth more than 3 percent of the entire U.S. economy. That would cap their size at $584 billion in today’s dollars.

The legislation would force federal regulators to break up six different Wall Street firms — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — as well as insurance giants such as Prudential Financial and MetLife. Collectively, the targeted firms hold more than $13 trillion in assets, according to Sanders aides.

Despite its unlikelihood of passing in the near term, the measure could become a marker for Democrats seeking support from the party’s progressive voters, much like a single-payer, universal health-care system has become.

Sanders touts the plan as a way to prevent a repeat of the financial crisis of a decade ago, when banks on the edge of collapse were large enough that their failures would rock the fundamentals of the global financial system. In response, the federal government extended the banks massive loans, a move largely credited with blunting the crisis but that also gave government funding to wealthy individuals at a time when unemployment was soaring and thousands were losing their homes.

“We spent huge amounts of money bailing them out, and they are significantly larger now than they were back then,” Sanders said in an interview. “It’s time we return to that discussion, especially now for the 10th anniversary" of the crash.

In response to the crisis, Democrats narrowly passed a broad banking law that was meant to ensure that “too big to fail” banks took steps to ward off failure, subjecting the largest firms to more stringent restrictions aimed at limiting their risk.

The law, signed in 2010 by President Barack Obama, had 16 separate chapters and ran more than 2,300 pages long. Sanders’s measure runs seven pages and, instead, goes after the size of banks, arguing firms of that size pose an inherent risk to the economy.

The senator, who identifies as a Democratic socialist, and his supporters say the firms should be broken up to prevent future rescues, while critics say Sanders is advancing an unpractical bill with no chance of being enacted.

“This legislation cuts to the heart of the matter, by putting a size cap on the largest highly leveraged firms. The size cap is simple, straightforward, and transparent,” said Simon Johnson, an economist at the Massachusetts Institute of Technology who served as chief economist of the International Monetary Fund and supports the bill. “This measure will bring us closer to full and fair competition in the financial system, where a few megabanks currently predominate.”

Four of the six biggest banks are on average 80 percent bigger than they were when they started receiving bailout funding about a decade ago, according to Sanders aides, as many of the largest financial firms acquired distressed banks during the crisis. JPMorgan, which acquired Bear Stearns in 2008 at the urging of the federal government, has grown by about 60 percent, to $2.53 trillion, according to the company’s public disclosure forms.

Sanders’s plan was criticized by some analysts and allies of the financial industry, who pointed to dramatic improvements in the capital cushions that banks now hold to ward against collapse. Dodd-Frank, Obama’s banking law, put new capital requirements into effect for the largest financial institutions.

The Financial Services Forum, a D.C.-based lobbying firm that represents large financial services companies, said in a statement that legislation “to address so-called too big to fail” banks risked ignoring the role these banks play in supporting the global economy. The group represents banks targeted by Sanders’s legislation, such as Bank of America, Citi, JP Morgan and Goldman Sachs.

“To have a large, strong economy that supports households and businesses big and small, you must have large, strong, global banks,” said Kevin Fromer, president and chief executive of the Financial Services Forum, in an email. “The banking industry and governments around the globe have made enormous strides during the past decade to ensure that large banks are safe and sound and that no institution is too big to fail. Policymakers must neither ignore the progress that has been made nor the essential role of large financial institutions in our economy.”

Jim Kessler, co-founder of the centrist think tank Third Way, said Democrats should instead focus on expanding capital in rural areas where he said small-business lending has stalled.

“No one has ever lost an election going against the big banks. But I’m not sure anyone has won an election going against the big banks,” Kessler said. (In an interview, Sanders pointed to the ads Trump ran in the 2016 presidential election promising to take on Wall Street.)

Even some broadly sympathetic to Sanders’s efforts to restrain the size of Wall Street banks think the legislation is too ambitious. Thomas M. Hoenig, who recently stepped down as vice chair of the Federal Deposit Insurance Corporation that regulates the banking industry, said it would already be a very difficult to get enough support even to pass a far less stringent cap on banks' size.

Hoenig pointed out that Republicans were joined by more than a dozen Democratic senators in dismantling parts of the 2010 Dodd-Frank banking bill, an effort that many Republicans thought did not go far enough.

“Several Democrats just voted to ease capital standards on two of the largest banks,” Hoenig said. “So who is going to pass this law?”

Sanders had already called for breaking up the biggest Wall Street firms, but this new bill offers a new mechanism for doing so. Previously, Sanders had called for the Financial Stability Oversight Council to identify and break up “too big to fail” institutions in addition to supporting the reinstatement of Glass-Steagall — the 1930s law keeping commercial and investment banking separate. The new approach sets a clean cap on a financial institution’s size.

Sen. Sherrod Brown (Ohio), the top Democrat on the Senate Banking Committee, has also proposed legislation capping the size of U.S. banks. Sanders’s bill uses a broader measure than Brown’s bill to capture the size of the bank, which means Sanders’s legislation would force more banks to have to shrink by a greater margin, said Johnson, the MIT economist. (Brown’s bill came before the Federal Reserve recently began publishing a new estimate of banks’ “total exposure,” which factored in borrowing that does not apply on financial balance sheets.)

But the bill may also form the cornerstone of future Democratic banking legislation, as the party has moved toward a raft of populist left-leaning ideas, including Medicare-for-all and free tuition at public universities.

Robert Hockett, a professor at Cornell University who specializes in banking issues and helped draft Sanders’s “too big to fail” legislation, said the measure may more easily garner public support and offers a significant improvement on previous banking legislation.

“Like Obamacare, Dodd-Frank is very long, very nuanced, and very difficult to explain to people,” Hockett said, referring to the Affordable Care Act. “It’s so much easier to explain Sanders’s bill.”

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+5 # Rodion Raskolnikov 2018-10-04 09:49
Of course it would be dead on arrival as long as republican control all branches of government. But Sanders should introduce it every year, anyway. It is a way of introducing the concept of smaller and more regional banks into the general discussion of the role banks pay in the US and world.

Before Reagan/Bush/Cli nton, the US did have small regional banks. Glass Steagel and the prohibition of banks operating across state lines meant that 100s of local or statwide banks could flourish. Reagan/Bush/Cli nton all wanted to eliminate smaller banks and allow banking giants to gobble them all up. They saw the creation of maga-banks as a way for the US to control world financial matters. This was the opening salvo of global trading system.

Banks could be broken up if the accounting laws were enforced. Many of them carry worthless investment vehicles on their books but they account for them at face value which is very high instead of actual market value which is zero. Bankrupt banks are by close closed by the FED.
+7 # librarian1984 2018-10-04 12:22
"The measure is DOA"

Like a lot of the legislation Sanders has been proposing the past two years, these represent actions he could introduce quickly if he becomes president.

These bills represent what Sanders would try to accomplish in his first year, and they give many something to VOTE FOR.

Sanders 2020
0 # lfeuille 2018-10-04 16:06
Of course it can't pass in THIS congress. It is demonstrating the kind of thing that can be done if we Change Congress and the Presidency. Sanders is always looking forward to the time things like this can be passed. It gives people something to aim for. Bernie is still the best we have.
0 # Rodion Raskolnikov 2018-10-04 19:57
Change congress to what. Democrats would be just as opposed to Sander's bill as republicans. Goldman Sachs was Obama's biggest contributor and the same for Hillary.

Maybe if Sanders ran as a Green and a Green tide swept over the congress.
+4 # Benign Observer 2018-10-04 19:32
On MSNBC a reporter talked about how pressure from Bernie Sanders convinced Amazon to raise its wages, and the host pivoted away from talking about Sanders immediately -- but on most MSNBC shows they reported the change without mentioning Sanders at all.

Continuing Bernie Blackout.

The only way they'll bring him up is if Amazon raises prices, then they'll blame him. You can bet if Kamala Harris got one of the world's biggest company to cave they'd be shouting it from the rooftops.

Btw, Amazon's stock went down with this news. The rich think it's bad news if people aren't getting screwed.

Also watched a great 11/15 conversation between Chris Hedges and Ralph Nader, where Nader said not one of his books has ever been reviewed by the NYT or Washington Post.

The msm is not our friend.
+4 # Benign Observer 2018-10-04 19:39
In Denmark there is no minimum wage but the unions are very strong. A worker at McDonald's makes $20/hour -- yet a Big Mac costs less than it does here.

And the Danish have a great healthcare system where everyone is covered and no one goes bankrupt when they get sick.

I don't think Americans know or think about just how bad things are here. 40 million Americans live in abject poverty. Two-thirds of us can't afford a $400 emergency. 60% have no retirement savings.

And oh yeah, the House just passed another 4 trillion dollars in tax cuts.
0 # relegn 2018-10-05 06:06
It would be a good idea after breaking up the Big Banks and Big Insurance companies to find a way to break up the Big Telecommunicati on companies as well. More legislation from more Senators addressing these issues are badly needed. Bernie's voice should not be the only one calling for this kind of action.