Too Big to Jail?

— an Op-Ed by Senator Bernie Sanders

We are supposed to be a country of laws. The laws should apply to Wall Street as well as everybody else. So I was stunned when our country’s top law enforcement official recently suggested it might be difficult to prosecute financial institutions that commit crimes because it may destabilize the financial system of our country and the world.

“I am concerned,” Attorney General Eric Holder told the Senate Judiciary Committee, “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 we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.”

The attorney general was talking about some of the same financial institutions that received billions, and in some cases trillions, of dollars in taxpayer bailouts after their greed, recklessness and illegal behavior plunged the country into a terrible recession. Over my opposition, Congress approved a $700 billion taxpayer bailout of financial institutions that were on the brink of collapse which some in Congress considered “too big to fail.”

In addition, the Federal Reserve provided over $16 trillion in total financial assistance to these same institutions during the financial crisis (which only became public after an amendment I inserted into the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring the Fed to disclose this information).

The attorney general’s view seems to be that if you are just a regular person and you commit a crime, you go to jail. But if you are the head of a Wall Street company, your power is so great that a prosecution could have destabilizing consequences with national or even worldwide implications.

In other words, we have a situation now where Wall Street banks are not only too big to fail, they are too big to jail. That view is unacceptable.

The attorney general’s troubling acknowledgement has revived interest in an idea that is drawing more and more support. It is time to break up too big to fail financial institutions.

The 10 largest banks in the United States are bigger today than they were before a taxpayer bailout following the 2008 financial crisis.

U.S. banks have become so big that the six largest financial institutions in this country (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) today have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation’s gross domestic product. These six financial institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States.

I will soon introduce legislation that would give the Treasury secretary 90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that the Treasury Department determines are too big to fail. The affected financial institutions would include “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.” Within one year after the legislation becomes law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions identified by the secretary.

Breaking up the too big to fail financial institutions is a notion that has drawn support from some leading figures in the financial community. Richard Fisher, president of the Dallas Federal Reserve Bank, wrote this: “The safer the individual banks, the safer the financial system. The ultimate destination — an economy relatively free from financial crises — won’t be reached until we have the fortitude to break up the giant banks.” James Bullard, the head of the St. Louis Fed, also weighed in. “I do kind of agree that ‘too big to fail’ is ‘too big to exist.'” Thomas Hoenig, the former Kansas City Fed president, was an early supporter of the idea of breaking up big U.S. banks. “I think [too big to fail banks] should be broken up. And in doing so, I think you’ll make the financial system itself more stable. I think you will make it more competitive, and I think you will have long-run benefits over our current system, which leads to bailouts when crises occur.”

In my view, no single financial institution should be so large that its failure would cause catastrophic risk to millions of American jobs or to our nation’s economic well-being. No single financial institution should have holdings so extensive that its failure could send the world economy into crisis. And, perhaps most importantly, no institution in America should be above the law. We need to break up these institutions because of the tremendous damage they have done to our economy.

If an institution is too big to fail, it is too big to exist.

Must Reads — 7/7/2012

Texas GOP Declares: “No More Teaching of ‘Critical Thinking Skills’ in Texas Public Schools”

Danny Weil, Truthout: “The Republican Party of Texas has issued their 2012 political platform and has come out and blatantly opposed critical thinking in public schools throughout the state. If you wonder what took them so long to actually state that publicly, it is really a matter of timing. With irrationality now the norm and an election hovering over the 2012 horizon, the timing of the Republican GOP announcement against ‘critical thinking’ instruction couldn’t be better. It helps gin up their anti-intellectual base.”
Read the full Article

Messing with Texas Textbooks

— by Bill Moyers, Moyers & Co. | News Analysis, Truthout

One of the tasks of the Texas State Board of Education is to update curriculum standards and textbooks for TX schoolchildren. The Texas school system is so large — 4.8 million textbook-reading school children as of 2011 — that revisions made by the board are often included in school books across the country, though digital technology has lessened this effect in recent years. In 2010, the board got a lot of attention when it approved over 100 amendments — many of which had a very clear conservative political agenda — to the social studies and economics curriculum standards. Here are some of the more pointed proposals.
Read the full Article

The 401k Scam

v2.69: May 8th (Broke!) The Demos report is an eye opener as to the hidden costs which cause 401k programs to not only fail to keep up with inflation, but to fall behind even the base amount invested into these funds.

Read this article on the Addicting Info Blog 
Read/Download the Demos Report

Why is Nobody (in the US) Freaking Out About the LIBOR Banking Scandal?

imageby Matt Taibbi | Rolling Stone: The LIBOR manipulation story has exploded into a major scandal overseas. The CEO of Barclays, Bob Diamond, has resigned in disgrace; his was the first of what will undoubtedly be many major banks to walk the regulatory plank for fixing the interbank exchange rate. The Labor party is demanding a sweeping criminal investigation. Mervyn King, Governor of the Bank of England, responded the way a real public official should (i.e. not like Ben Bernanke), blasting the banks:Barclays bank.

“It is time to do something about the banking system…Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal.”

Read the full article here
Read more at The National Memo “Barclays–The Corruption at the Heart of the Financial System

Making the World Safer for the Next Bernie Madoff

Lawmakers are pushing a bill that would hand the oversight of investment advisers to an organization with an inherent conflict of interest.

By Joe Newman

Joe Newman

Sometimes, members of Congress follow harebrained logic. If the consequences weren’t so serious, it would be hilarious.

Consider a House bill co-sponsored by Reps. Spencer Bachus (R-AL) and Carolyn McCarthy (D-NY) that would essentially let investment advisers regulate themselves.

This idea stinks. Everyone knows: You don’t let the fox guard the henhouse.

Bachus and McCarthy say their Investment Adviser Oversight Act of 2012 tightens up needed supervision of large investment advisers — the people you trust to handle your retirement nest egg.

It’s true that the federal oversight of investment advisers is sorely lacking. The Securities and Exchange Commission (SEC) only regulates investment advisers handling more than $25 million in assets, while the states oversee the smaller-scale ones.

(David Paul Ohmer / Flickr)
(David Paul Ohmer / Flickr)

Yet the SEC is so understaffed it has never examined 40 percent of the investment advisers under its jurisdiction. The agency reviewed only 8 percent of the more than 12,600 investment advisers it oversees last year.

And while new rules will shift about 2,000 mid-size advisers (those who oversee up to $100 million in assets) to state jurisdiction at the end of June, some industry analysts saythe move will do little to ease the SEC’s workload.

Here’s where this bill’s logic gets silly. Rather than address the SEC’s shortcomings by boosting its budget, it shifts responsibility for the investment advisers under SEC jurisdiction to an organization controlled and financed by Wall Street. That would probably be the Financial Industry Regulatory Authority. This group, known as FINRA, suffers from an inherent conflict of interest because it collects membership fees from the very securities firms it oversees. This arrangement undermines its ability to regulate Wall Street — and its own credibility.

Compounding this conflict of interest is the financial group’s troubling lack of transparency and accountability. Even Big Business lobbies such as the Chamber of Commerce have complained that unlike the SEC, FINRA isn’t required to comply with the Freedom of Information Act, which allows it to keep many of its records hidden from journalists and watchdog groups, including my own.

Even when it does produce documents, there can be problems. An SEC administrative order issued last year found that the Financial Industry Regulatory Authority had altered minutes of its staff meetings before turning the documents over to the SEC. The agency found that it was the third time in eight years that it had tried to mislead the SEC this way.

In a letter my organization sent to the House Financial Services Committee last month, we pointed out recent examples of ties between current and former FINRA officials and firms that were later investigated or charged with fraud involving major investor losses.

Who tops that list? Bernie Madoff, the man who bilked investors of at least $64 billion in the largest Ponzi scheme ever. Not only had Madoff served as chairman of the NASDAQ stock exchange in the early 1990s, his brother, son, and niece all had ties to either FINRA or its predecessor, the National Association of Securities Dealers (NASD).

While there was no indication that family members helped Madoff avoid scrutiny, it’s clear that FINRA and the SEC ignored tips that would have exposed Madoff’s scheme years earlier.

Harry Markopolos, the private financial fraud investigator credited with discovering Madoff’s scheme and reporting it to the SEC, was asked by a congressional committee if he ever considered taking his findings to NASD or FINRA.

Not a chance, Markopolos said.

“What I found them to be was a very corrupt, self-regulatory organization, that if you took a fraud to them, they would ignore it as soon as they received it,” Markopolos testified. “They were there to assist [the] industry by avoiding stricter regulation from the SEC.”

And while Madoff’s scam didn’t’ trigger the financial crisis, what did bring us to the brink was risky, questionable behavior by Wall Street traders.

Incredibly, as we continue to claw our way out of the hole that Wall Street’s greed put us in, some lawmakers want to rig the system in the financial industry’s favor.

Congress should reject the Bachus-McCarthy Investment Adviser Oversight bill. This is no time to loosen Wall Street oversight.


Joe Newman is the director of communications for the Project On Government Oversight. www.pogo.org  — Distributed via OtherWords (OtherWords.org)