Hillary’s Plan to Rein in Wall Street Catches What Bernie’s Misses

This week, US Senator Bernie Sanders (I-VT) unveiled a multi-point plan to reign in greed and corruption on Wall Street essentially focusing on breaking up big banks.  There’s a lot of merit in Sanders’ ideas but there’s a lot missing too, and there’s the glaring fact he really doesn’t have a chance to secure the Democratic nomination unless former Secretary of State Hillary Clinton just dropped dead between now and the Democratic Convention.

My biggest concern over Sanders plan is he doesn’t define the bottom; his ideas from breaking up “big banks”: could also apply to smaller, regional financial institutions and credit unions.  Much of his focus is on the players who caused and created the fiscal crisis in 2008, but many of those companies aren’t banks — Lehman Brothers and AIG would not have been affected by an in-place Glass-Steagall regulation. And nothing in Sanders’ proposal addresses firms like AIG.

I like many things in the Sanders plan, but it won’t appeals to moderates who are socially liberal yet fiscally conservative.  It won’t draw support from Republicans in Congress.  It’s purpose is to solidify support from the Democratic Party’s far left wing leaving little room to move to the middle for the general election — much like immigration on the conservative Republican side of the aisle is so extremely right wing, it makes it impossible for a Republican to run in the center.

Americans prospered under Bill Clinton’s economy and candidate Hillary Clinton has much in common with her husband’s approach of fixing broken policy to make it better instead of wholesale radical change that Sanders would have no chance of passing though a Republican Congress even if the Senate goes blue in November.

Hillary’s Op-Ed ran in the New York Times last month.  She writes:

“Right now, Republicans in Congress are working to attach damaging deregulation riders to the must-pass spending bill. They’re attempting to defund the Consumer Financial Protection Bureau. They want to roll back common-sense efforts to prevent conflicts of interest by financial managers. And they’re trying to undo constraints on risk at some of the largest and most complex financial institutions.

President Obama and congressional Democrats should do everything they can to stop these efforts. But it’s not enough simply to protect the progress we have made. As president, I would not only veto any legislation that would weaken financial reform, but I would also fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank.

My comprehensive plan has already won praise from progressives like Sherrod Brown and Barney Frank. Here’s what it would do.

First, we need to further rein in major financial institutions. My plan proposes legislation that would impose a new risk fee on dozens of the biggest banks — those with more than $50 billion in assets — and other systemically important financial institutions to discourage the kind of hazardous behavior that could induce another crisis. I would also ensure that the federal government has — and is prepared to use — the authority and tools necessary to reorganize, downsize and ultimately break up any financial institution that is too large and risky to be managed effectively. No bank or financial firm should be too big to manage.

My plan would strengthen the Volcker Rule by closing the loopholes that still allow banks to make speculative gambles with taxpayer-backed deposits. And I would fight to reinstate the rules governing risky credit swaps and derivatives at taxpayer-backed banks, which were repealed during last year’s budget negotiations after a determined lobbying campaign by the banks.

Secretary Clinton’s plan also called for a tax on high frequency trading, reforming stock exchange rules for greater transparency and equal access to information, and regulations to make executives more accountable by extending the statute of limitations on financial crime, making sure company fines cut into executive bonuses and closing the carried interest loophole that lets fund managers avoid paying taxes on significant bonuses and income that other Americans would have to pay.

There’s more, so go read the whole thing from the link above.

Clinton writes:  “Republicans may have decided to forget about the financial crisis that caused so much devastation — but I haven’t. The proper role of Wall Street is to help Main Street grow and prosper. When our financial sector works the right way, it helps families buy their first homes, entrepreneurs start and grow small businesses and hardworking Americans save for retirement. Rather than pursuing the kind of high-stakes speculation that devastated our economy before, Wall Street should focus on building an economy that creates good-paying jobs, rising incomes and sound investments so that more families can achieve the security of a middle-class life.”

Secretary Clinton’s plan received support from US Senator Elizabeth Warren (D-Mass) who told the New York Times:

“Secretary Clinton is right to fight back against Republicans trying to sneak Wall Street giveaways into the must-pass government funding bill,” Ms. Warren, the liberal senator from Massachusetts, wrote on Facebook after Mrs. Clinton published an Op-Ed article in The New York Times with her proposals to regulate Wall Street.

In the Op-Ed, Mrs. Clinton specifically called for Republicans not to defund the Consumer Financial Protection Bureau, which Ms. Warren previously oversaw. “Whether it’s attacking the C.F.P.B., undermining new rules to rein in unscrupulous retirement advisers, or rolling back any part of the hard-fought progress we’ve made on financial reform,” Ms. Warren wrote, “she and I agree.”

And Warren also supports Bernie Sanders plan, but Warren hasn’t endorsed anyone in the race.

Clinton’s plan is attracting the non-partisan crowd.

“Mrs. Clinton is standing up to powerful special interests by demanding a clean appropriations bill. The people’s elected representatives in Washington should do the same and reject Wall Street’s special-interest provisions in this critical, must-pass appropriations bill,” wrote Dennis Kelleher, the president and chief executive of Better Markets, a nonpartisan nonprofit founded after the 2008 crisis to promote the public interest in the financial markets based in Washington, DC.  His remarks appeared in a letter to the editor in the New York Times.

Irvine’s Ezra Klein from Vox calls Clinton’s Proposal “a very good financial reform plan from Hillary Clinton.”

From Vox:

“Hillary Clinton has often stood accused of pandering or shaping policy proposals for political purposes, but her proposals for improving regulation of the financial system show her doing exactly the opposite — tackling the issue of mega-bank risk in a thoughtful way that is likely to prove politically thankless. … It’s a mouthful. Banks will hate it. It doesn’t feature a crowd-pleasing, populist applause line. And it’s a pretty great idea. … This is just one element of a broader Clinton plan for Wall Street regulation, but it shows her at her wonkish best. She is addressing the core concern of populist bank bashers without being a slave to their preferred methods and slogans. And she’s recognizing the importance of both an ideal-case legislative path forward and a more realistic path that involves the use of executive authority. And while the plan is unlikely to generate much positive attention (or, indeed, any attention) in the mainstream press, it just so happens to address a question of urgent importance to the economic welfare of everyone in the country.”

Matthew Yglesias from Vox also chimed in:

“The media won’t bother to care, but Hillary released a really smart Wall Street reform plan.”

And more endorsements from smart people on the left:

Felicia Wong, President and CEO of the Roosevelt Institute

“Secretary Clinton released a detailed and comprehensive agenda today and her proposals to strengthen Dodd-Frank and the Volcker rule, step up enforcement, and increase rules around shadow banking and high-frequency trading demonstrate a thoughtful and serious approach to these issues.”

Roosevelt Institute’s Mike Konczal in Vox: Critics say Hillary Clinton is pro-Wall Street. Her Wall Street reform plan says otherwise.

“Clinton’s agenda is a very detailed and comprehensive dive into financial reform. It is broad, covering parts of the financial markets that aren’t often discussed. If anything, it goes into such footnoted specifics that it can be overly wonky.”

MSNBC: Clinton unveils a plan that Wall Street won’t like

“One of the principal concerns from the left about Hillary Clinton’s campaign is that she might be overly friendly towards Wall Street. The Democratic presidential hopeful has been going out of her way to put those fears to rest. … The entire plan is online at the campaign’s website, and to Clinton’s credit, it’s not brief. It’s also not the sort of thing a candidate who’s overly cozy with Wall Street would propose.”

Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee

“I like it. It’s a pretty good start. I don’t know if anything goes far enough. I think it makes sense. The things she does will contribute to safety and soundness, will make Wall Street more trustable by the public. All the things that we need out of Wall Street, it does.”

This post isn’t so much a criticism of Bernie Sanders’ plan; there’s a lot on his plan that’s similar.  But banks serve more than the average American.  They serve businesses — both global and small, unions, large funds where millions of Americans have retirement plans invested, unions, and non-profits.  Breaking up something big because its big is fundamentally wrong.  The bigger banks and financial institutions become, the more rules they need to follow to make sure a fiscal crisis like 2008 doesn’t happen again.

It’s Clinton’s plan, not Sanders plan, that has a greater chance of passing in a divided Congress.  And as it becomes increasingly likely Clinton is the Democratic nominee, Sanders can and should work with her to include aspects of his proposal into what will become the Party’s reforms for Wall Street.