My Thoughts On Bernie Sanders: Reforming Wall Street

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I’m talking about Bernie Sanders again, and today, I’m specifically talking about his platform that deals with Reforming Wall Street. Just glancing through it, I get the feeling that a lot of he things he mentions are, again, not going to work, or will actually benefit Wall Street, and the 1% he so badly hates.

Let’s dive in, shall we?

#1.  Breaking Up The Banks

Introduced the “Too Big to Fail, Too Big to Exist Act,” which would break up the big banks and prohibit any too-big-to-fail institutions from accessing the Federal Reserve’s discount facilities or using insured deposits for risky activities.

Bernie wants to break apart the big banks, which he believes will stop lot’s of cronyism, especially when it comes to influence in the Federal Reserve. This is a foolhardy thought, as that’s not how the Federal Reserve works, nor how the banks will operate afterwords.

To start, you might want to familiarize yourself with how the Federal Reserve works, so take some time to watch this:

Short Version:

Long Version:

Point is, the Federal Reserve does not serve the public interest, nor does it serve the government. The Federal Reserve is a private, central bank that was created by the bankers to control monetary policy. Understanding this will go a long way in understanding how the banks are being protected, and will not be split up.

Second thing to know is that these large banks are being supported by government policy. That is the only way they can survive. Consider the graph below:

ab081915doddfrank2

The chart above shows that bank mergers have, though being down since the 90’s, been back on the rise since 2008. Looking at new reports, aka new banks, and failures and assists, have been down. The conditions are ripe for the centralization of banking in the US, since we’re post 2008 and Dodd-Frank, which is hurting smaller banks, and keeping them from growing, whereas the larger banks are able to operate just fine, without really even a scratch.

What is needed here? How abot less government assurances and regulation? The reason why the banks have become so big is because they know that if something were to happen to them, they’d be able to go to Congress for help, or any other branch of government. They know that, no matter what, they’re insured from anything bad happening. Basically, the US government is encouraging them to make bad decisions, such as with the housing crisis back in 2007 and 2008. But, will Bernie think about that? No, because to him and so many other leftists, when one regulation fails to do the job, simply writing more is the answer.

#2. Fought For Glass-Steagall

Led the fight in 1999 defending Glass-Steagall provisions which prevented banks (especially “too big to fail” ones) from gambling with customers’ money, and currently is a co-sponsor of the Elizabeth Warren/John McCain bill to reinstate those provisions.

M’kay, so let’s refresh on what Glass-Steagall  is, in case you’ve either forgotten it, or haven’t figured it out while blowing off hot air about bringing it back. C. Wallace DeWitt over at The Federalist.: points out just what Glass-Steagall is, and what it is not. If you do not know what it is, or are either unsure or have only heard a few things about it, please, read the article.

To summarize what I, or anyone, could spend an eternity on, here’s Yaron Brook and Don Watkins writing over at Forbes:

There is zero evidence this change unleashed the financial crisis. If you tally the institutions that ran into severe problems in 2008-09, the list includes Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, and Fannie Mae and Freddie Mac, none of which would have come under Glass-Steagall’s restrictions. Even President Obama has recently acknowledged that “there is not evidence that having Glass-Steagall in place would somehow change the dynamic.”

As for the FDIC-insured commercial banks that ran into trouble, the record is also clear: what got them into trouble were not activities restricted by Glass-Steagall. Their problems arose from investments in residential mortgages and residential mortgage-backed securities—investments they had always been free to engage in.

But, as this CATO policy paper puts irt more in-depth:

But there are questions about how much impact the law had on the financial markets and whether it had any influence on the current financial crisis. Even before its passage, investment banks were already allowed to trade and hold the very financial assets at the center of the financial crisis: mortgage-backed securities, derivatives, credit-default swaps, collateralized debt obligations. The shift of investment banks into holding substantial trading portfolios resulted from their increased capital base as a result of most investment banks becoming publicly held companies, a structure allowed under Glass-Steagall.

Second, very few financial holding companies decided to combine investment and commercial banking activities. The two investment banks whose failures have come to symbolize the financial crisis, Bear Stearns and Lehman Brothers, were not affiliated with any depository institutions. Rather, had either Bear or Lehman possessed a large source of insured deposits, they would likely have survived their short-term liquidity problems. As former president Bill Clinton told BusinessWeek in 2008, “I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn’t signed that bill.”

Gramm-Leach-Bliley has been presented by both its supporters and detractors as a revolution in financial services. However, the act itself had little impact on the trading activities of investment banks. The off-balancesheet activities of Bear and Lehman were allowable prior to the act’s passage. Nor did these trading activities undermine any affiliated commercial banks, as Bear and Lehman did not have affiliated commercial banks. Additionally, those large banks that did combine investment and commercial banking have survived the crisis in better shape than those that did not.

And for those of you who would like to have it spoken to you, here’s Yaron Brooke (again), talking about the financial crisis and Glass-Steagall:

But Bernie wants the return of the Glass-Steagall provisions repealed. What good will that do in preventing another market crash? None. Need some more explaining? Here’s Louise Bennetts with the CATO Institute:

Finally, a senior banking regulator has acknowledged the so-called repeal of Glass-Steagall had nothing to do with the 2008 financial crisis. In a recent speech, Fed governor Daniel Tarullo noted that most firms at the center of the financial crisis in 2008 were either stand-alone commercial banks or investment banks, and therefore would not have been affected by the repeal. Tarullo also expressed concern that a reinstatement of Glass-Steagall would be costly for banks and their clients and would result in less product diversification.

#3. Financial Transactions Tax

Has proposed a financial transaction tax which will reduce risky and unproductive high-speed trading and other forms of Wall Street speculation; proceeds would be used to provide debt-free public college education.

Before we get to Bernie’s previously preposed plan for a Financial Transactions Tax, let us take a moment to see why an FTT is a bad idea. As Adam Memon writes over at CapX:

There are, in my view, many reasons to oppose a financial transaction tax. For example, the burden of the tax would more than likely fall on pensioners, employees and consumers rather than bankers and traders. It is also highly unlikely to raise the sort of revenues that its ardent supporters claim and is often a cosy replacement for a magic money tree. Moreover, it is all too easy to think of examples where the FTT has been tried and failed. Brazil’s recent experience was hardly a glowing success and Sweden’s earlier attempt was an unmitigated disaster; more than 90% of bond, equity and derivate traders moved abroad and only negligible revenues were ever raised.

Now, moving on to Bernie’s proposal, which can be found here: [Link].

What would Bernie’s plan really do? Nohin good, as it’s supporters really try to claim. As Mehul Gaur points out over at Supplyside Liberal:

Let’s start with what supporters of the policy are right about: It will drive high-frequency traders (HFTs) out of business. Their profit margins per trade are well below 0.5% and it will essentially eliminate the industry.

There’s just 1 tiny problem with that: It is estimated that HFTs make up somewhere between 50%-75% of all trading volume in the United States. So, by implementing this tax, one would essentially be directly eliminating at least half of the liquidity in the equity markets. But we got rid of the evil HFTs right? HFTs are widely believed to actually help the markets by both adding liquidity and reducing trading costs. Additionally, by cutting the trading volume in half one would also be reducing the potential revenue from the tax. It may also have a net negative effect on tax revenue because of reductions in capital gains taxes. Bernie did not provide any numbers on this, but as I discuss later, both of these statements have an empirical basis.

Next, the tax would affect all sorts of institutional investors (investment banks, mutual funds, hedge funds, etc.). Currently, these funds average transaction fees of 7 basis points. Adding a tax of 50 basis points would radically affect their returns and cause them to cease activity. Additionally, most 401(k)s are invested in these types of funds, so the tax would essentially be reducing the value of investors retirement accounts. Another important point to note is that by taxing bond transactions, the government is inhibiting the ability to raise capital for not only corporations, but itself.

#4. Big Bonuses for New Government Employee’s?

Is co-sponsoring Sen. Tammy Baldwin’s bill to end Wall Street’s practice of paying big bonuses to bank executives who take senior-level government jobs.

I’m tryig to figure this out: he wants to ban giving now-former bank executives who now work for the government bonuses? I’m sorry, but is this not promoting inequality? What if the former bank exec is a woman? Isn’t that sexism?

On a more serious note, I find his to be really:

  1. Pointless, because what defines in this bill the type of people who will be barred from collecting a government bonus
  2. Pointless more so, in the sense that that definition will never last, and
  3. Stupid, as it does nothing to even address an issue

So, instead of not appointing or hiring former banking executives, we’re just not going to give them bonuses? I must be missing something, because this just really doesn’t make any sense, what-so-ever.

#5. Taxing Speculation

Introduced a tax on Wall Street speculation to make public colleges and universities tuition-free

This is really explained back up in poin #3, with the financial transaction tax.

#6. Capping Credit Card Interest

Supports capping credit card interest rates at 15%.

And this, ladies and gentlemen, is a direct appeal to emotion, and is NOT AT ALL based on any logical or economic theory (or at least, the two combined). I get the sense that this is supposed to be a good thing he wants, but not only will it not work, but it will end up hurting people.

As Tim Worstall writes over at Forbes:

I came across something in Salon which, even for there, seemed to me to be a very odd thing to be celebrating. Which is a speech Bernie Sanders gave in which he threatened to pretty much kill off the entire credit card industry. That isn’t, of course, what he thinks he said but it is the meaning of what he did say. If you cap the interest rate at which people can lend money, and your cap is below the economic cost of lending that money, then people don’t cut their interest rates to the new cap: they just stop lending money. And Bernie’s number for interest rates on credit cards is rather below current market rates for credit cards. In fact, only those with very high credit scores would currently be able to have a credit card under the rate Bernie is proposing.

Further on in his article, after addresing some points on ATM fees, he continues:

Yep, Bernie is going to cap unsecured lending at 15% APR. Which is something of a pity because I rather like Bernie. I certainly prefer him to his current opponent. And while I think he’s wrong in many areas I think he’s wrong in interesting ways. But this is simply madness. Such a price cap won’t mean cheaper unsecured lending: it will mean the near total absence of unsecured lending in the American economy. Quite apart from the fact that we don’t want to ban unsecured lending in the first place.  The adjustment to that would be a really most painful recession, as every household had to make sure they had savings in place for any emergency rather than having “future savings” available on their credit card balance.

#7. Audit The Fed

Sponsored an amendment calling for an audit the Federal Reserve. The audit found that far more had been spent in the Wall Street bailout than previously disclosed, and that considerable funds had been spent to bail out foreign corporations.

While he’s been on both sides of his issue, and been on rough grounds with Ron Paul’s ATF, he did support Rand Paul’s ATF, so credit is due where deserved.

#8. Warnings

Warned about the risks of deregulation eight years before the fiscal crisis of 2008.

What dereugulation does Bernie speak of? It better not be Glass-Steagall…

#9. Bailouts

Has proposed limiting the ability of bankers to get rich from taxpayer bailouts of their institutions

Why not just ban it outright? In a free market, government does not fund business. Oh wait, you have your special industries and groups to keep an eye out for. That’s right.


 

I’m doing a series on Bernie Sanders, and all of those posts can be found at this link here, which will be updated every time I finish a new part of the series.

You can find that page here: [LINK]

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