Can Clinton Be Trusted to Regulate the Industry That Made Her Wealthy?
Former regulator Bill Black and Public Banking Institute founder Ellen Brown say Hillary’s track record gives no indication that she will fulfill any promise in her 2016 campaign to implement regulations on Wall Street
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Real News Network. I’m Sharmini Peries coming to you from Baltimore.
What will Hillary Clinton and her Democratic party opponent Bernie Sanders do to regulate Wall Street if they’re elected president? That is the question we will take up with Bill Black and Ellen Brown. Ellen is joining us from Los Angeles. She is an attorney and the founder of the Public Banking Institute. Her latest book is The Public Bank Solution. It explores successful public banking models historically and globally. And we are joined by Bill Black. Bill is joining us from Minneapolis. He’s an associate professor of economics and law at the University of Missouri Kansas City. He’s the author of The Best Way to Rob a Bank is to Own One. Thank you both for joining us.
SPEAKER: Thank you, Sharmini.
PERIES: So let’s first have a look at a bit of the exchange between the two candidates during the debate that they held on Sunday.
MODERATOR: What do you see as the difference between what you would do about the banks and what Secretary Clinton would do?
BERNIE SANDERS: I don’t take money from big banks. I don’t get personal speaking fees from Goldman Sachs. What I would do–.
MODERATOR: Secretary Clinton, help the voter understand the daylight between the two of you, here.
HILLARY CLINTON: Well, there’s no daylight on the basic premise that there should be no bank too big to fail, and no individual too powerful to jail. We agree on that. But where we disagree is the comments that Senator Sanders has made that don’t just affect me. I can take that. But he’s criticized President Obama for taking donations from Wall Street. And President Obama has led our country out of the great recession. Now, I personally believe that President Obama’s work to push through the Dodd-Frank, the Dodd-Frank bill, and then to sign it, was one of the most important regulatory schemes we’ve had since the 1930s.
PERIES: Ellen, let me go to you first. That jab at Hillary by Bernie, about accepting speaking engagement fees from Goldman Sachs, ouch, that hurts. Do you think that is fair, and will that affect the way in which she will protect the taxpayers from being gouged again by Wall Street?
ELLEN BROWN: No, it was a non sequitur. She said that Obama had accepted donations, and that now he had pulled us out of the great recession. Well, first of all, there’s a question whether we have been pulled out of the great recession. Most people, you know, most people in what used to be called the middle class say we haven’t. And even if we had, the fact that he has accepted donations and then went on to push through the Dodd-Frank act, which is highly controversial–I mean, there are many things in it that are not helping us and that are helping the big banks. It’s just more regulation that the banks have managed to get around. They’re regulating, for example, supposedly they were regulating derivatives. And then a year ago, when we had the cromnibus spending bill, Citigroup pushed through a rider that eliminated what was called the pushout rule, where banks that were doing certain types of risky, speculative derivatives, couldn’t do those with their deposits, or in the depository arm of the bank. They had to push it out into another entity that wasn’t FDIC insured. And they got rid of even that.
So it’s all too easy for the banks to get around the rules. It seems like they can get around them faster than Congress can make them. And it seems there’s nothing to do with whether they take big bank donations. I mean, clearly if they take big bank donations they’re expected to do what the banks want, and they do do what the banks want.
PERIES: And Bill, Hillary on December 7 released a plan to rein in Wall Street. And in this debate she claimed that Dodd Frank is the most important regulatory scheme we have seen since the 1930s. Is it adequate to prevent another financial market crash? Hillary Clinton seems to be clutching to that notion.
BILL BLACK: Well, she didn’t say it was the most effective. She just said it was the most important. And it is important, in terms of lost opportunity. It’s only after a crisis like this that you can get fundamental reform. And as we all know, the president didn’t–expressly excluded the idea of fundamental reform, expressly rejected modeling himself after Franklin Delano Roosevelt in any form of modern New Deal.
And the result, as Ellen has quite correctly said, doesn’t address any of the primary causes of the crisis. Still leaves us with what she says should be not allowed, institutions that are systemically dangerous and will have to be bailed out when they fail, or alternatively will cause the next global financial crisis.
So fundamentally, of course, her criticism of Senator Sanders was that he was consistent. That he opposed both President Obama, then Senator Obama, and Senator Clinton taking money from Goldman Sachs. And I think all of us would criticize that.
PERIES: And I guess one of the big problems is the money in these election campaigns. And why do you think she is criticizing Wall Street in her campaign, and in fact in the plan that she had released on December 7 that the New York Times covered, she says that she’s going to be introducing risk fees on banks that are over $50 billion in assets, and she wants to bring about further regulatory measures to rein in Wall Street. How does this work if she’s also dependent on them?
BLACK: Let’s start with the basics. The $50 billion is a rule of thumb for a bank that’s big enough to blow up the global economy. So there are ballpark 20 of those, and then there are other non-banks in that category.
So every day, effectively we roll the dice 25 times, roughly, to see when, not if, the next big bank is going to blow up the global economy. Now, that’s insane. There’s no reason to have banks that large. We know that they completely distort the economy, and we should get rid of them. And you can see that Hillary Clinton wants to accommodate them. And I will tell you that it is all through the financial press, Bloomberg, places like that, financial times, that the industry reaction to the Hillary Clinton plan is: no worries here. Right, so they know that she has to do some soft political cover, but they are not worried. As long as Hillary Clinton is in charge, they know that the Clintons historically have been enormously helpful to the banking industry, and in return the banking industry–not simply the banking industry, others as well–have made the Clintons very wealthy.
PERIES: And I should go to you–she said she was going to strengthen the Walker rule, and that she was also going to reinstate rules of governing in relation to risk. Risky credit swaps and derivatives. First of all, do you think she will? Because there’s one thing, what she says in the campaign trail, and what she will actually do. Is there any reason to believe that she will carry out these promises she’s making in her plan?
BROWN: I would tend to doubt it, just because she does–she has spoken out of both sides of her mouth on a number of issues. So it doesn’t seem like we can trust her. But then, but even if she were to further regulate the derivatives, let’s say, that would not solve the problem. We still need Glass-Steagall. We need to reimpose Glass-Steagall, separate the deposits from investment banking, because those are our deposits, and it’s getting riskier and riskier what’s being done with them. We don’t–we don’t understand the whole derivative thing ourselves. I mean, we don’t know what’s being done with our money. And state and local governments have no protection at all. I mean, theoretically they have FDIC insurance, but it only goes to $250,000, and their deposits are secured. But they come in behind the derivatives in a big bankruptcy. So now we have bail-ins, where they’ll be taking our deposits, or you know, creditors’ money, which includes shareholders, bondholders, and depositors, the largest class of creditor of any banks.
So it seems to me particularly state and local governments are vulnerable, because derivatives go first in a bankruptcy, under the bankruptcy reform act of 2005, and under the Dodd-Frank Act. That is that when there’s a bankruptcy now, the bank doesn’t go bankrupt. What they do instead–it used to be that when you had a bank bankruptcy, the bank sold off its assets to pay off their creditors. Now, they take the creditors’ money to keep the bank afloat. And the derivatives players, who are basically the banks and the hedge funds, and those big players, they are essentially exempt from the bankruptcy rules. So they just grab the collateral first, then they’re out of here.
Well, there’s $247 trillion in derivatives on the books of the big four or five banks, derivative banks. So there’s a huge downside liability out there. They could wipe out the entire collateral of any big bank, theoretically. I mean, it hasn’t ever, it’s never gone that high. But it could. We don’t know what would happen in the next big derivatives [inaud.]. We’ve never seen numbers like this before, as Bill says. It’s, you know, it’s just a disaster waiting to happen.
PERIES: Now, Bill, one of the things that Hillary Clinton also said is that she would ensure that Securities Exchange Commission and the Commodities Future Trading Commission are independently funded. Now, this is the kind of thing that this government could have already done. Why didn’t it, and do we have any confidence that she would put this kind of arm’s-length relationship between the regulatory bodies and Wall Street?
BLACK: Well, the history is quite to the contrary. So it was, of course, Bill Clinton that not only repealed Glass-Steagall and passed the Commodities Future Modernization Act for the express purpose of crushing Brooksley Bourne, to keep her from acting independently, to protect us from the kind of derivatives that blew up AIG and were such a major contributor of the financial crisis. It was Bill Clinton who attacked the head of the Securities Exchange Commission, Art Levitt, when he attempted to do regulatory changes to protect us from what became the Enron-era scandals.
So the Clinton administration was the great enemy of independence, and any effective protection by the regulators. And the Clinton administration began and mostly accomplished–the Bush administration continued this–but collectively, and again, most of it happened under Clinton, they cut three-quarters of the FDIC staff. Over three-quarters. And over half of the staff that was supposed to regulate savings and loans. And in his first great meeting with banking regulators, Clinton said–Bill Clinton said to them, I never got more complaints about anybody than you. And he didn’t then go on to say, great job standing up to those banks. That was his criticism. And under Bill Clinton, this is when I got out as a federal regulator, we were ordered–and I was there, and personally saw this. And not some individual order to me. This was hundreds of people, hundreds of banking regulators, in public, where we were ordered to treat the bank, and I quote, as our customer. And I raised my hand in my own quiet fashion, and I said, surely you mean the public. And they said no, we thought of that and rejected it.
I’m quoting. I am not paraphrasing, I am quoting.
PERIES: Ellen, one of your areas of study and expertise is, of course, the public banking system. Does any of our candidates give that any strength in terms of a movement in this country?
BROWN: I haven’t heard anyone specifically talk about public banking, but my sense is, after hearing Bernie Sanders on Tom Hartmann a number of times, that he would be favorable to that idea. Of course, it’s, it’s more something you would do at the state and local level anyway, it’s not something the president does. But then besides state and local publicly-owned banks, there is the possibility of the Treasury issuing money directly, or using the Federal Reserve for quantitative easing for the people. And again, my sense is that he would be more open to that than any of the other candidates.
PERIES: And explain what you mean by quantitative easing for the people.
BROWN: That’s actually the term that Jeremy Corbyn is using in England, for the UK, for using quantitative easing for infrastructure. So basically what you would do is you decide what infrastructure projects you want done, you pay the workers, you pay the materials just by issuing the money. So you’re not issuing it–you’re not issuing bonds to cover the money, you just issue the money directly. And then what balances the economy out to prevent hyperinflation, you know, too much printing, is that that money comes back in the form of taxes. And different studies have shown that money put out into the economy for infrastructure increases GDP by two or three times. So that means that you’re actually doubling or tripling the supply relative to demand, or money.
So not only are you not going to drive up prices, you can drive down prices that way. Or at least you’re not going to have an inflation problem.
PERIES: And Bill, the last question to you, you being a white-collar criminologist. One of the items that Hillary Clinton has laid out in her plan is that she wants to extend the statute of limitations for major financial crimes to ten years. Is this going to help?
BLACK: By the way, we did that on financial crimes. That’s what we got through in the 1989 legislation dealing with the savings and loan crisis, which is the only reason they’re able to bring some of these civil cases. But note that none of that does any good if you appoint attorney generals the way they’ve been appointing attorney generals, who refuse to prosecute a single elite banker who lead the fraud schemes.
If I could just tag on to something Ellen said. The president, I think, whoever that president is, should seek federal public banking in the form of postal savings. This is a superb system for offering the small consumer the ability to avoid what is a notoriously rigged system.
And Ellen quite correctly has brought up the UK experience. Americans need to educate themselves about the payment protection insurance and the swap scandals in the United Kingdom, where over 55 billion pounds, and the pound was ballpark 1.6 bucks, so we’re talking about an enormous amount of money, in product that should not have ever been sold, ever, to a single person, and which provided, according to the Tories, the Conservatives’ own parliamentary inquiry, all of the profits, the retail profits of British banks for over a decade, just a pure ripoff. Those things couldn’t happen if you had the alternative of a postal savings plan. Which the United States used to have. Which Scandinavia still has, and which Japan had until they largely privatized it.
PERIES: All right. Bill Black, Ellen Brown, this campaign is going to be long, so we hope to have you back on these issues again. Thank you so much for joining us today.
BLACK: Thank you.
BROWN: Thank you, Sharmini.
PERIES: And thank you for joining us on the Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.