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.

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Under The Reading Lamp — 10/28/2010


Bank Transfer Day: A Guide to Closing Your Account
News Analysis: “The description and goal of Bank Transfer Day is straightforward: If you currently have checking and savings accounts (deposit accounts) with a big bank, the organizers encourage you to remove all of your funds, close your accounts, and place your money in a new deposit account with a not-for-profit credit union. The organizers ask that you do this by November 5. And since November 5 is a Saturday, you should definitely do it before November 5 since many big banks aren’t open on weekends.”


Goldman Sachs v. Occupy Wall Street
Video Report: “A controversy in the banking community has arisen around the Occupy Wall Street movement. Greg Palast investigates the story behind Goldman Sachs’ recent decision to pull out of a fundraiser for the Lower East Side People’s Federal Credit Union in New York City after it learned the event was honoring the protesters at Occupy Wall Street. The investment bank withdrew its name from the fundraiser and also canceled a $5,000 pledge. Was the $5,000 a Goldman Sachs donation or actually American taxpayer bailout money Goldman set aside for community banks?”


GOP Presidential Candidates’ Tax Plans Would Benefit The Rich
Steven Thomma, News Analysis: “The flat tax — so called because it offers one flat rate for taxpayers in all income groups while taking away many or all deductions — would simplify taxes. It also would almost certainly give big tax cuts to wealthy Americans. Republicans believe that cutting taxes, especially on the wealthy, helps to spur investment, economic growth and hiring.”


Should Minimum Wage Earners Pay a Tax Rate 460 Times Higher than Millionaires?
Kyle Linzer, Special Feature: The question of the supposed simplicity and fairness of a flat tax keeps popping up every few years in political debate, most recently with the 9-9-9 plan of Herman Cain. I just wanted to look at what this kind of flat tax would look like for people across the income range to see how fair and simple it would be. One question needs to be addressed before we can begin to look at real numbers.


Robert Reich | Wall Street is Still Out of Control
Robert Reich, Op-Ed: “Next week President Obama travels to Wall Street where he’ll demand – in light of the Street’s continuing antics since the bailout, as well as its role in watering-down the Volcker rule – that the Glass-Steagall Act be resurrected and big banks be broken up. I’m kidding. But it would be a smart move — politically and economically.”


What’s Happened to the Big Players in the Financial Crisis
Braden Goyette, News Investigation: “Mortgage lenders contributed to the financial crisis by issuing or underwriting loans to people who would have a difficult time paying them back, inflating a housing bubble that was bound to pop. Lax regulation allowed banks to stretch their mortgage lending standards and use aggressive tactics to rope borrowers into complex mortgages that were more expensive than they first appeared.”


Flanders on Ed Schultz on Oakland Crack Down
Laura Flanders, Video Report: Whose servants? Whose safety? Whose space? The extreme violence of the Oakland police underscores the critical questions the Occupy movement is raising. Just what is the place of the public in the privatized state? Good for Ed Schultz, alone in prime time, for leading with this story Wednesday night.


Jim Hightower: “We the People,” Not “We the Corporations”
Jim Hightower, Op-Ed: “A year from now, Americans will be caught in an unprecedented blizzard of presidential campaign ads. We’ll be blinded by the whiteout and buried in the storm’s negativity. For the first time ever, most of this ad blizzard will not come from the candidates, but from ads secretly funded by huge corporations. This is because a five-man cabal on the Supreme Court issued an edict last year that perverts nature itself.”


Rick Perry Outlines Flat Tax, Social Security Proposals
Adam Beam, News Report: “The optional flat tax is the centerpiece of a broad economic initiative that includes Social Security and Medicare changes, spending cuts, freezing pending federal regulations and other steps aimed at bolstering the economy and balancing the federal budget by 2020. Perry described it as a ‘bold reform needed to jolt this economy out its doldrums.’ The flat tax would offer a major break for America’s wealthiest taxpayers by enabling them to move from the current top bracket of 35 percent into the 20 percent bracket.”


Perry: “I Don’t Care” Whether My Tax Plan Gives Breaks to the Rich
Pat Garofalo, News Analysis: “Texas Gov. Rick Perry (R) today became the latest GOP presidential hopeful to release a tax plan, as he tries to catch up in the polls, some of which even have him trailing former Speaker Newt Gingrich and libertarian favorite Rep. Ron Paul (R-TX). The plan, as Perry has been explaining, revolves around a 20 percent flat tax. Former pizza magnate Herman Cain and former Govs. Mitt Romney (R-MA) and Jon Huntsman (R-UT) have all laid out tax plans that give huge tax breaks to the wealthy.”


Who Are these Occupy Protesters, and What Do They Want?
Lois Beckett, News Analysis: “At first glance, the synchronized protests that took place in more than 900 cities around the globe on Oct. 15 seemed to indicate that Occupy Wall Street had achieved a kind of worldwide resonance. But the truth is more complex. Many of the protests elsewhere grew out of movements that pre-date Occupy Wall Street and out of frustrations that, though similar in some ways, are also specific to their countries. Here’s a look at the origins, demands and affects of five of these global protests, as well as the criticism they’ve faced.”


Glen Greenwald: Immunity and Impunity in Elite America
Glenn Greenwald, Op-Ed: “As intense protests spawned by Occupy Wall Street continue to grow, it is worth asking: Why now? The answer is not obvious. After all, severe income and wealth inequality have long plagued the United States. In fact, it could reasonably be claimed that this form of inequality is part of the design of the American founding — indeed, an integral part of it. Many Americans who once accepted or even cheered such inequality now see the gains of the richest as ill-gotten, as undeserved, as cheating.”


Dean Baker: The Military Spending Fairy
Dean Baker, Op-Ed: “Faced with the prospect of cuts to the Defense Department’s budget, the defense industry is pushing the story of the military spending fairy on members of Congress. They are telling them that these cuts will lead to the loss of more than 1 million jobs over the next decade. Believers in the military spending fairy say things like “the government can’t create jobs,” but also think that military spending creates jobs.”


Obama Housing Plan Gets Faint Praise
Ben Hallman, News Report: “Obama’s new housing initiative, announced Monday in Las Vegas, may not be as bold as some had hoped, but it offers some underwater homeowners the possibility of relief. A week earlier at the Venetian casino, the leading Republican candidates said that the government should get out of the way and let the market sort out the foreclosure mess. The president’s plan will loosen restrictions on the Home Affordability Refinance Program (HARP), which was created especially for homeowners who owe more on their mortgage than their homes are worth.”


Occupy Wall Street, 1979
John Cavanaugh and Robin Broad, New Analysis: “Thirty-two years ago, the two of us and 1,043 other protesters were arrested for what one would now call “occupying” Wall Street. It was October 29, 1979, the 50th anniversary of the Wall Street crash that ushered in the Great Depression. We two were then graduate students at Princeton, and we had trained for weeks as part of an “affinity group” of about a dozen people prepared to commit acts of civil disobedience to prevent what we saw as a greater evil.”


Robert Reich | Why We Shouldn’t be Selling the Right to Live in America
Robert Reich, Op-Ed: “America is having a fire sale. Why not sell wealthy foreigners the right to live here, too? That’s the notion behind a bill introduced last week by Republican Senator Mike Lee of Utah and Democrat Senator Charles Schumer of New York: Stoke demand for American homes by allowing foreign nationals to buy them. In return, give foreigners the right to live here (although not work here).”


A Fire Sale for Arsonists: The “Revised” Bank Mortgage Settlement Still Stinks
Richard (RJ) Eskow, Op-Ed: “Let’s imagine that the Mayor, the DA, and the Chief of Police said they’ve come up with a great “settlement”: The arsonists will pay a small fine, and they’ll never be prosecuted for arson. Plus, if they’re asked very nicely, they’ll also agree to provide a little help to 27 out of the 1,000 families they made homeless – although they’d control the ‘help’ process and the town might wind up footing the bill anyway.”


Recalling the Lost Paradise of Budget Surpluses
Froma Harrop, Op-Ed: “Hard to believe, but once upon a time, economists worried that the U.S. government would pay off all its debt. Also hard to believe, once upon a time was only 11 years ago. President Clinton had bequeathed his successor budget surpluses “as far as the eye could see.” He wanted some of them used to speed up repayment of the remaining $3.6 trillion still owed the public in Treasury bonds. He said it could all be paid off by 2013.”


Iceland — A Lesson for the Occupy Wall Street Movement

Having spent a year of my life in Iceland, the fieriness of the Icelandic people in resolving their financial woes doesn’t surprise me one iota.  This post from Daily Kos is well worth the read … and ordinary Americans should take this one to heart.  One has to ask — why is it that we’ve seen, heard, or read absolutely NOTHING about this in our supposedly liberally-biased main stream media?

By Deena Stryker at Daily Kos

“An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt.  The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors.  But as investments grew, so did the banks’ foreign debt.  In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent.  The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro.  At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution.  But only after much pain.

Geir Haarde, the Prime Minister of a Social Democratic coalition government, negotiated a two million one hundred thousand dollar loan, to which the Nordic countries added another two and a half million. But the foreign financial community pressured Iceland to impose drastic measures.  The FMI and the European Union wanted to take over its debt, claiming this was the only way for the country to pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots continued, eventually forcing the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half million Euros.  This required each Icelandic citizen to pay 100 Euros a month (or about $130) for fifteen years, at 5.5% interest, to pay off a debt incurred by private parties vis a vis other private parties. It was the straw that broke the reindeer’s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland’s leaders to the side of their constituents. The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland’s citizens responsible for its bankers’ debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country.  As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF.  The British government threatened to freeze Icelander savings and checking accounts. As Grimsson said: “We were told that if we refused the international community’s conditions, we would become the Cuba of the North.  But if we had accepted, we would have become the Haiti of the North.” (How many times have I written that when Cubans see the dire state of their neighbor, Haiti, they count themselves lucky.)

In the March 2010 referendum, 93% voted against repayment of the debt.  The IMF immediately froze its loan.  But the revolution (though not televised in the United States), would not be intimidated. With the support of a furious citizenry, the government launched civil and penal investigations into those responsible for the financial crisis.  Interpol put out an international arrest warrant for the ex-president of Kaupthing, Sigurdur Einarsson, as the other bankers implicated in the crash fled the country.

But Icelanders didn’t stop there: they decided to draft a new constitution that would free the country from the exaggerated power of international finance and virtual money.  (The one in use had been written when Iceland gained its independence from Denmark, in 1918, the only difference with the Danish constitution being that the word ‘president’ replaced the word ‘king’.)

To write the new constitution, the people of Iceland elected twenty-five citizens from among 522 adults not belonging to any political party but recommended by at least thirty citizens. This document was not the work of a handful of politicians, but was written on the internet. The constituent’s meetings are streamed on-line, and citizens can send their comments and suggestions, witnessing the document as it takes shape. The constitution that eventually emerges from this participatory democratic process will be submitted to parliament for approval after the next elections.

Some readers will remember that Iceland’s ninth century agrarian collapse was featured in Jared Diamond’s book by the same name. Today, that country is recovering from its financial collapse in ways just the opposite of those generally considered unavoidable, as confirmed yesterday by the new head of the IMF, Christine Lagarde to Fareed Zakaria. The people of Greece have been told that the privatization of their public sector is the only solution.  And those of Italy, Spain and Portugal are facing the same threat.

They should look to Iceland. Refusing to bow to foreign interests, that small country stated loud and clear that the people are sovereign.

That’s why it is not in the news anymore.”