Ultimately, there are only two things that will help rescue our economy — and our democracy — from the dangers posed to us by Too Big to Fail banks.
The first is to arrest a lot of Wall Street bank executives for the massive and intentional fraud perpetrated on homeowners, clients, shareholders, and taxpayers. Crimes were clearly committed in great numbers, and those who commit large numbers of crimes — serious, egregious, intentional crimes — should be prosecuted. The kinds of very modest negotiated fines we see coming out of the SEC from time to time — a couple hundred million dollars paid by the shareholders of companies whose quarterly profits and executive bonuses are in the billions — are just not going to change the criminal behavior of so many of those executives.
The second is to break up the Too Big to Fail banks. Period. As long as these banks are as huge as they are (the six largest own assets equivalent to 64 percent of America’s GDP), if they teeter at all, no matter the cause, they will have to be bailed out. And as long as they are that big and powerful — economically and politically — they will always have the ability to unduly influence and, yes, capture and corrupt regulators, members of Congress, and judges so that whatever restraints might be proposed or put on them are eventually weakened, watered down, or swept away. Institutions that big and wealthy and powerful are a threat to our economy and the very basis of our pluralistic democracy.
In the meantime, though, until these two big fundamental things begin to happen, we are left with more modest legislative and regulatory action. This Wednesday, after a brutal fight involving last year’s financial reform legislation, a more recent amendment fight in the Senate, and an exhaustive round of regulatory review by the Federal Reserve, it looks like we will finally have a new regulation put in place on the swipe fee issue — which until now had been completely unregulated and had allowed the big banks and credit card companies to run completely roughshod over consumers and small businesses. I have been working on this issue as part of a truly strange coalition of consumer groups and retailers. The proposed rule that came out from the Fed a while back was reasonably fair to the retailers, which was a major upset given how kind to Wall Street banks the Fed has historically been. This prompted the big banks to scream bloody murder and try to delay the rule in Congress. But after they were once again defeated in another big upset (big Wall Street banks rarely lose Congressional fights either), the rulemaking is going forward. Let’s hope Wall Street doesn’t have another sleazy trick up its sleeve and the Fed finally puts in place the kind of modest new rule they first proposed on swipe fees.
As long as these Wall Street banks are this powerful, this kind of very small reform on very modest issues is all we are left with in terms of restraining these banks. But we’ll take whatever we can get. Let’s hope the Federal Reserve does the right thing on Wednesday.
