Bernie Sanders gave the editorial board of the New York Daily News an interview. Now, some are trying to paint Sanders as a nincompoop because they either conveniently forget how things work, or they just don’t know.
In “9 things Bernie Sanders should’ve known about but didn’t in that Daily News interview” Jonathan Capehart writes that Bernie Sanders doesn’t know what he is talking about on breaking up the banks. Here is a chunk of the interview on this topic, you can read the whole thing here:
Daily News: And then, you further said that you expect to break them up within the first year of your administration. What authority do you have to do that? And how would that work? How would you break up JPMorgan Chase?
Sanders: Well, by the way, the idea of breaking up these banks is not an original idea. It’s an idea that some conservatives have also agreed to.
You’ve got head of, I think it’s, the Kansas City Fed, some pretty conservative guys, who understands. Let’s talk about the merit of the issue, and then talk about how we get there.
Right now, what you have are two factors. We bailed out Wall Street because the banks are too big to fail, correct? It turns out, that three out of the four largest banks are bigger today than they were when we bailed them out, when they were too-big-to-fail. That’s number one.
Number two, if you look at the six largest financial institutions of this country, their assets somewhere around $10 trillion. That is equivalent to 58% of the GDP of America. They issue two-thirds of the credit cards in this country, and about one-third of the mortgages. That is a lot of power.
And I think that if somebody, like if Teddy Roosevelt were alive today, he would look at that. Forgetting even the risk element, the bailout element, and just look at the kind of financial power that these guys have, would say that is too much power.
Daily News: Okay. Well, let’s assume that you’re correct on that point. How do you go about doing it?
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don’t know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, “Now you must do X, Y and Z?”
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.
Daily News: So if you look forward, a year, maybe two years, right now you have…JPMorgan has 241,000 employees. About 20,000 of them in New York. $192 billion in net assets. What happens? What do you foresee? What is JPMorgan in year two of…
Sanders: What I foresee is a stronger national economy. And, in fact, a stronger economy in New York State, as well. What I foresee is a financial system which actually makes affordable loans to small and medium-size businesses. Does not live as an island onto themselves concerned about their own profits. And, in fact, creating incredibly complicated financial tools, which have led us into the worst economic recession in the modern history of the United States.
Daily News: I get that point. I’m just looking at the method because, actions have reactions, right? There are pluses and minuses. So, if you push here, you may get an unintended consequence that you don’t understand. So, what I’m asking is, how can we understand? If you look at JPMorgan just as an example, or you can do Citibank, or Bank of America. What would it be? What would that institution be? Would there be a consumer bank? Where would the investing go?
Sanders: I’m not running JPMorgan Chase or Citibank.
Daily News: No. But you’d be breaking it up.
Sanders: That’s right. And that is their decision as to what they want to do and how they want to reconfigure themselves. That’s not my decision. All I am saying is that I do not want to see this country be in a position where it was in 2008, where we have to bail them out. And, in addition, I oppose that kind of concentration of ownership entirely.
You’re asking a question, which is a fair question. But let me just take your question and take it to another issue. Alright? It would be fair for you to say, “Well, Bernie, you got on there that you are strongly concerned about climate change and that we have to transform our energy system away from fossil fuel. What happens to the people in the fossil fuel industry?”
That’s a fair question. But the other part of that is if we do not address that issue the planet we’re gonna leave your kids and your grandchildren may not be a particularly healthy or habitable one. So I can’t say, if you’re saying that we’re going to break up the banks, will it have a negative consequence on some people? I suspect that it will. Will it have a positive impact on the economy in general? Yes, I think it will.
Daily News: Well, it does depend on how you do it, I believe. And, I’m a little bit confused because just a few minutes ago you said the U.S. President would have authority to order…
Sanders: No, I did not say we would order. I did not say that we would order. The President is not a dictator.
Daily News: Okay. You would then leave it to JPMorgan Chase or the others to figure out how to break it, themselves up. I’m not quite…
Sanders: You would determine is that, if a bank is too big to fail, it is too big to exist. And then you have the secretary of treasury and some people who know a lot about this, making that determination. If the determination is that Goldman Sachs or JPMorgan Chase is too big to fail, yes, they will be broken up.
As others are already pointing out, the legal and legislative implications of breaking up the banks is something that hasn’t been done. While Dodd-Frank does give the Fed the authority to target a bank for break-up, that authority doesn’t extend to the executive branch, either the president himself or the Secretary of the Treasury. The Fed is an independent government agency. It neither answers to the executive branch, nor can it be upended through executive actions. That is why Sanders’ answer called for new legislation giving the executive the power to break up a bank.
The mechanics of breaking up a bank are new territory and, while the board’s mention of MetLife was appropriate, that example doesn’t quite follow that of a bank that has grown through consolidation and the purchase of other banks. While there is an agency that technically monitors insurance companies, there is no agency that even comes close to the scope and power of the Treasury Department and the FDIC, when it comes to monitoring, auditing and, at times, taking over banks when they are deemed failures, as was done during the S&L crisis. We have experience taking over banks when we have to. We don’t have experience forcing banks to divest themselves of the bits and pieces that have grown them into full-blown monopolies. Does that mean it can’t be done? No! It just means someone needs to come up with a blueprint for how, once a bank is told to divest itself of some or all of the banks it bought up, to go about actually doing it. Does the government take over? Does the government appoint a Bank Breakup Czar who would oversee the sale? What other agencies might be involved? How would the bank’s interests be safeguarded in ensuring the pieces are sold at fair value and to interests that have no connection to that bank?
Those are the kinds of minutiae that a presidential candidate is almost never asked about. Presidential campaign policy is never anything more than the broadest brush strokes that, when a candidate is elected, then appoints subject matter experts to flesh out.
I’ve written about this before, in the context of an interview former Fed Chair, Ben Bernanke, gave to ABC’s This Week last fall. He too, by the way, was not categorical about the process.
He was no more precise than Sanders on the subject of breaking up banks. He said he thought the Fed already has the authority to do it. He “thought.” He is against the idea, by the way, as probably is his successor, Janet Yellen. Hillary Clinton has also said plenty about breaking up the banks and she defers to the Fed. The current Chair will be in place for all of the next president’s first term. See how that circle closes?
This is yet another tempest in a tea pot, designed to bring down a man whom the establishment fears. Remember, Goldman Sachs’ Lloyd Blankfein called Sanders “dangerous” recently. He’s afraid. Very afraid.
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