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.

What’s Your Story?

As the new Director of the Consumer Financial Protection Bureau, and as someone who has been helping to build the Bureau for about a year now, I can tell you it’s an extraordinary privilege to work on behalf of American consumers.

Consumers like you. Tell your story.

https://help.consumerfinance.gov/app/tellyourstory

In our first six months, our team at the Bureau has been answering calls and reading stories from hundreds of American consumers every week. Their stories illustrate the kinds of issues people are dealing with around the country.

These things can happen to anyone. We are not talking about some impersonal abstraction, not about somebody “else.” We are talking about each one of us. We’re talking about our mothers and fathers, our sisters and brothers, our sons and daughters. Regular people who are trying to make the right choices for themselves and their families.

We’ve heard from people like Rebecca from North Carolina. She told us she missed a mortgage payment nine months after her husband lost his job. In the two years since then, her mortgage servicer has increased her payments even though she entered a trial modification in an effort to lower her monthly payments. The servicer has charged her monthly fees for inspections and appraisals that she never asked for and she believes have never occurred, all while repeatedly threatening her with foreclosure unless she shells out more money in unexplained fees. Rebecca has frantically complied with all of these demands because she is afraid of foreclosure and so is doing whatever she can to stay in her home.

Tell us your story at  https://help.consumerfinance.gov/app/tellyourstory

With the stakes so high, consumers need to be able to fully understand the costs and risks of borrowing on credit, and they need to be able to comparison shop for the best deal. Consumers deserve to have someone who will stand on their side, who will protect them against fraud, and who will ensure they are treated fairly. The new Consumer Bureau was created to make sure that these things are achieved for all Americans. The good news is that we have already gotten started.

Over time, we will judge the success of our efforts by considering whether consumers are treated more fairly and with more clarity and candor in the financial marketplace. We deeply believe that we must hear from Americans about their experiences.

Can you share your experience?

https://help.consumerfinance.gov/app/tellyourstory

Think about your own family members. Like all of us, they want to be able to use consumer credit to make their lives better, not worse. That is our goal as well. The financial marketplace can be a potent arena that helps people find and seize opportunity, not condemn them to bewildering failure. By working every day to protect consumers, we will help to fashion a more resilient economy and a stronger country. Join us; work with us; help us make it so.

Thank you,
Richard Cordray
Director
The Consumer Financial Protection Bureau

Know Before You Owe — for Students

The Consumer Financial Protection Bureau

For generations, a college degree has helped Americans achieve a better future. But as education costs go up and families continue to face a tough economy, there’s a new challenge:

How do we make sure students can understand the costs and risks of the loans they will use to pay for the schools they want to attend?

Too often, school financial aid offers don’t effectively deliver this information. We want to change that, and we’ve got an idea that we hope can help.

Check it out.
www.consumerfinance.gov/students/knowbeforeyouowe/

Know Before You Owe: student loans

 

The Department of Education is going to publish a model financial aid form that schools can use to communicate financial aid offers to students and their families. We are partnering with the Department to learn what people think is useful.

Together, we’ve created an early draft of what a model form might look like, and we want your opinion. This isn’t a formal proposal, but we believe it’s a really good thought-starter.

We’re calling it Know Before You Owe for student loans.

Maybe you’re a parent or student. Maybe you work in lending or loan servicing. Or maybe you’re just interested in how we ensure that students in American higher education understand their financial situations.
Whatever your reason, we want to hear from you. What’s useful? What’s not?

Let us know what you think:  www.consumerfinance.gov/students/knowbeforeyouowe/

Paying for college is stressful enough. One thing that doesn’t need to be is figuring out the basics of what you’re going to pay and what your options are.

Know Before You Owe for student loans is our first step in trying to make it easier.

Continue to ConsumerFinance.gov

OWS News Update from Sen. Bernie Sanders

The Occupy Wall Street protests are shining a national spotlight on the most powerful, dangerous and secretive economic and political force in America.

If this country is to break out of this horrendous recession and create the millions of jobs we desperately need, if we are going to create a modicum of financial stability for the future, there is no question but that the American people are going to have to take a very hard look at Wall Street and demand fundamental reforms.  I hope these protests are the beginning of that process.

Click here to read my recent op-ed at the Huffington Post.

Let us never forget that as a result of the greed, recklessness and illegal behavior on Wall Street, this country was plunged into the worst economic downturn since the Great Depression.  Millions of Americans lost their jobs, homes and life savings as the middle class underwent an unprecedented collapse.  Sadly, despite all the suffering caused by Wall Street, there is no reason to believe that the major financial institutions have changed their ways, or that future financial disasters and bailouts will not happen again.

The question now becomes: how do we change the financial system so that it works for all Americans, not just the top one percent?

Here are several proposals that I am working on:

  1. If a financial institution is too big to fail, it is too big to exist.  Today, the six largest financial institutions in America have assets equivalent to 65% of the United States’ GDP – $9.4 trillion dollars.  It is time to take a page from Teddy Roosevelt and break up these behemoths so that there will be real competition in the financial industry and, when big banks fail again, there will be no need to bail them out.
  2. Put a cap on credit card interest rates to end usury.  When credit card companies charge 25- or 30-percent interest rates they are not engaged in the business of “making credit available” to their customers.  They are involved in extortion, usury and loan-sharking.
  3. The Federal Reserve needs to provide small businesses in America with the same low-interest loans it gave to foreign banks.  When Wall Street collapsed, the Fed lent out $16 trillion in low interest loans to central banks around the world and every major financial institution in this country.  Now, at a time when small businesses can’t get the loans they need, it is time for the Fed to create millions of American jobs by providing low-interest loans directly to small businesses.
  4. Stop Wall Street oil speculators from artificially increasing gasoline and heating oil prices.  Wall Street speculators are buying and selling billions of barrels of oil in the energy futures market with no intention of using a drop for any purpose other than to make a quick buck.  We have got to end excessive oil speculation and bring needed relief to American consumers in lower oil and gas prices.
  5. Demand that Wall Street invest in the job-creating productive economy, instead of gambling on worthless derivatives.  The American people have got to make it crystal clear to Wall Street that the era of excessive speculation is over.  The “heads, bankers win; tails, everyone else loses” financial system must end.
  6. Establish a Wall Street speculation fee on credit default swaps, derivatives, stock options and futures.  Both the economic crisis and the deficit crisis are a direct result of the greed and recklessness on Wall Street.  Establishing a speculation fee would reduce gambling on Wall Street, encourage the financial sector to invest in the productive economy, and significantly reduce the deficit without harming average Americans.

Click here to read my full op-ed at the Huffington Post.

The Occupy Wall Street demonstrators are shining a light on one of the most serious problems facing the United States — the greed and power of Wall Street.  Now is the time for the American people to demand that the president and Congress follow that light — and act.  The future of our economy is at stake.

Thank you for your support.