Much has been made of the twin takedowns of Sanders last week. First there was the Daily News story which was spun by many in the media and the Hillary camp as a disaster, but if you read and understood the actual content it wasn’t a disaster at all. And then there was the Krugman spin on the financial crisis where he once again echoed the Hillary party line that the bad actors were “shadow” banks and not the actual too big to fail banks, and that Sanders was just on a reckless bank-hating crusade. Krugman said:
Yet going on about big banks is pretty much all Mr. Sanders has done. On the rare occasions on which he was asked for more detail, he didn’t seem to have anything more to offer. And this absence of substance beyond the slogans seems to be true of his positions across the board.
This isn’t true mind you. Sanders gave all the relevant detail he needed in the Daily News interview. Sanders’ answers regarding the breakup of the big banks was correct in that, according to Dodd/Frank, it’s up to the banks to break themselves up. Sanders would initiate it but it would fall on the Treasury Department to decide how much smaller a bank should be and what would be acceptable. It’s not up to Sanders or any president to make those decisions or to get into the weeds on details.
What about the core idea of Krugman’s that the big banks weren’t at fault? In a not so veiled swipe at Krugman, Elizabeth Warren vehemently disagreed.
There’s been a lot of revisionist history floating around lately that the Too Big to Fail banks weren’t really responsible for the financial crisis, That talk isn’t new. Wall Street lobbyists have tried to deflect blame for years. But the claim is absolutely untrue.
There would have been no crisis without these giant banks, They encouraged reckless mortgage lending both by gobbling up an endless stream of mortgages to securitize and by funding the slimy subprime lenders who peddled their miserable products to millions of American families. The giant banks spread that risk throughout the financial system by misleading investors about the quality of the mortgages in the securities they were offering.
Why was Elizabeth Warren commenting on this issue? As part of Dodd/Frank, systemically important banks need to supply plans on how to wind themselves down in case they’re going to fail. There’s a new report by the FDIC and the Federal Reserve that five of the six largest banks don’t have credible plans. This means that if any of them were to collapse they would require another taxpayer bailout. I have heard for some time from party loyalists that Dodd/Frank fixed everything, however that’s not the case. Dodd/Frank gave the lawmakers and regulators some tools but there were many areas of concern that the law failed to address, and many others where there needs to be a willingness on the part of the regulators to take on the banks. So far that willingness isn’t there. It should give everyone pause that seven plus years after the crash the banks still don’t have their act together and the regulators are dithering about enforcing regulations.
The bottom line is that Hillfans need to give up on this talking point regarding the shadow banks. Warren (and Sanders) are correct that the big banks crashed the economy and are still an existential threat. If you’re still talking about focusing on shadow banks in the coming weeks, it’s a sure sign you’re not serious about bank reform.