Provided Photo Matt Taibbi
When Sen. Bernard Sanders holds a town hall meeting today in Burlington to take on the country’s “too big to fail, too big to jail” banks, he’ll be joined in his quest by Rolling Stone investigative reporter Matt Taibbi.
Taibbi, 42, who has written extensively about the role Wall Street banks played in the financial collapse of 2008 and the continuing abuses, will lend his support to Sanders’ call to break up the mega-banks.
That call came in the form of a Sanders bill that was introduced this week to dismantle the nation’s largest financial institutions.
In a telephone interview last week, Taibbi said the legislation is overdue and is the only way to stop the global banking behemoths from running amok and causing another financial calamity.
Worse, Taibbi said no one has been held criminally responsible with the Obama administration and its chief law enforcement officer, Attorney General Eric Holder, effectively giving the bankers a “don’t worry about going to jail” card.
“Nobody is actually responsible for anything that’s gone wrong, has really had to pay personally,” said Taibbi, who will join Sanders, an independent from Vermont who sits on the Senate Budget Committee, on Friday for a 7 p.m. town hall meeting at the Unitarian Church on Pearl Street. Prior to that, the pair will make a 3 p.m., public appearance at the University of Vermont.
Taibbi said even the fines that have been levied haven’t come out of the pockets of bank executives. He said the one exception that comes to mind was Angelo Mozilo, the former head of subprime mortgage lender Countrywide Financial, who paid a record fine.
Too big to jail
He said Holder’s comments giving bank executives a pass on criminal prosecutions, while shocking in its candor, was nothing more than what the Obama administration had been doing all along.
“What’s crazy about that is that they’re saying it out loud,” Taibbi said. “They clearly decided not to go forward with lots of prosecutions they could have gone forward with in the last five years and everybody kind of knew that’s the reason they didn’t do it, but the fact that they’re not afraid to come out and say it now I think is a significant development.”
Holder’s comments reflected the Obama administration’s fear that pursuing criminal charges could very well have severe repercussions for the U.S. and global economies.
“I am concerned 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 you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder told the Senate Judiciary Committee in March. “And I think that is a function of the fact that some of these institutions have become too large.”
Taibbi said the comments only reinforce the message that the bankers have nothing to fear.
“If you know ahead of time you’re not going to be prosecuted, it’s a reverse deterrent,” he said. “It’s an encouragement to crime.”
Slap on the wrist
He said the two biggest fines levied so far this year against UBS and HSBC send a clear message to Wall Street that “you can pretty much get away with anything and you’re not going to go to jail for it.”
In December, HSBC agreed to pay a record $1.92 billion fine to settle money laundering accusations, including allegations it laundered money for Mexican drug cartels.
“They could have taken HSBC officials and lined them up and thrown them all in jail for a long time,” he said.
Taibbi said that’s exactly what federal prosecutors would have done not too many years ago before the too big to fail, too big to jail mentality took hold.
He said Sanders’ bill may pressure the administration to explain why officials are comfortable not prosecuting bankers engaged in white collar criminal activity.
Taibbi traces the creation of the too-big-to-fail banks to the repeal of the Glass-Steagall Act of 1933, which barred commercial banks from engaging in investment banking activities. In its place, Congress in 1999 passed Gramm-Leach-Bliley, which opened the floodgates, giving banks the green light to become financial supermarkets, offering brokerage, insurance and other services.
The argument from backers of Gramm-Leach-Bliley was that “this was going to be the way that we competed internationally,” Taibbi said.
What happened before, and in the months following the 2008 financial crisis, is that several large banks were forced to merge, concentrating even more economic power in the hands of fewer banks, he said.
“I think what Bernie’s reacting to, and a lot of other senators are reacting to, is the realization that it’s a tremendously dangerous spot for all of us to be in,” he said.
For Vermont’s community banks, Taibbi said the concentration of wealth and power in the hands of just a handful of banks harms the banks that support local communities.
“Community banks are put at an inherent economic disadvantage by this system because when you have all these big companies that have an implicit government backing, the market lends money to them at lower rates then they will to a smaller bank,” he said.
The call to break up the country’s largest banks isn’t confined to members of Congress or a growing segment of the public. The Dallas Federal Reserve has also advocated for downsizing banks.
Not so fast
The American Bankers Association has a different perspective, arguing that breaking up the mega-banks is not the way to go and would be counterproductive.
In an op-ed that appeared last week in Investors Business Daily, ABA President and CEO Frank Keating said that only five of the biggest 50 banks in the world are U.S. banks. He said reducing their size would limit their ability to serve the country’s largest corporations.
“As crucial as small and regional banks are to their communities, they are in no position to finance the needs of a Chevron, Ford Motor or American Airlines,” Keating wrote. “European or Asian banks would quickly move to fill the banking needs of our corporations as they already compete mightily for this business.”
He also warned that financing deals would shift “more heavily to the still less regulated “shadow” banking system that was ground zero for the 2008 financial meltdown.
But according to Sanders, since the 2008 financial crisis, and the $700 billion taxpayer bailout, the country’s 10 largest banks have grown even bigger. On top of that, he points out that the Federal Reserve ponied up another $16 trillion to prop up financial institutions.
The Big Six
Sanders’ list of the six largest banks includes, J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. Together the banks have nearly $9.6 trillion in assets. That’s the equivalent, Sanders said, of roughly two-thirds of the U.S. gross domestic product. Together, the banks issue more than two-thirds of all credit cards, more than half of all mortgages, 40 percent of bank deposits and control 95 percent of derivatives held in financial institutions.
Sanders’ bill gives the Department of the Treasury 90 days to come up with a too big to fail list of commercial banks, investment banks, hedge funds and insurance companies. The bill defines too big to fail as “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 bill became law, the Treasury Department would be required to break up the too-big-to-fail banks, insurance companies and other financial institutions.
“If an institution is too big to fail, it is too big to exist,” Sanders said in a statement announcing the legislation.
Taibbi said there is growing support in Congress, and especially in the Senate, where there is a core group of senators, including Elizabeth Warren of Massachusetts, who “are already openly kind of waving the banner of we have to do something about too big to fail.”
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