“Shadow Banking” At Last Night’s Democratic Debate: Are We Paying Attention?

By Russ PhillipsGlass-Steagall

During last night’s Democratic debate reference was made to the Glass-Steagall Banking Act.

This resonated with me due to the fact that recently I visited the Franklin D. Roosevelt Presidential Library and Museum and there was a display regarding bank failures during the 1920s-1930s and their cause.

The debate brought to mind the financial crisis of 2007 and subsequent years including the extended recession.

There was discussion about this among the candidates and below is a transcript of those comments.

This topic, commercial and investment banking, as well as “shadow banking,” typically is under the radar for the average citizen until the economy falls apart like several years ago and during the depression years.

A transcript of the entire debate as provided by the Washington Post, with annotation and video clips, is here.

Transcript:

COOPER: I’ll let you jump in a moment. Everybody will get in on this in a moment.

Secretary Clinton, how would you address this issue? In all candor, you and your husband are part of the one percent. How can you credibly represent the views of the middle class?

CLINTON: Well, you know, both Bill and I have been very blessed. Neither of us came from wealthy families and we’ve worked really hard our entire lives. And I want to make sure every single person in this country has the same opportunities that he and I have had, to make the most of their God-given potential and to have the chances that they should have in America for a good education, good job training, and then good jobs.

I have a five point economic plan, because this inequality challenge we face, we have faced it at other points. It’s absolutely right. It hasn’t been this bad since the 1920s. But if you look at the Republicans versus the Democrats when it comes to economic policy, there is no comparison. The economy does better when you have a Democrat in the White House and that’s why we need to have a Democrat in the White House in January 2017.

COOPER: Governor O’Malley, (inaudible).

O’MALLEY: Yes. Anderson, I want to associate myself with many of the items that the senator from Vermont mentioned, and I actually did them in our state. We raised the minimum wage, passed the living wage, invested more in infrastructure, went four years in a row without a penny’s increase in college tuition.

But there’s another piece that Senator Sanders left out tonight, but he’s been excellent about underscoring that. And that is that we need to separate the casino, speculative, mega-bank gambling that we have to insure with our money, from the commercial banking — namely, reinstating Glass-Steagall.

Secretary Clinton mentioned my support eight years ago. And Secretary, I was proud to support you eight years ago, but something happened in between, and that is, Anderson, a Wall Street crash that wiped out millions of jobs and millions of savings for families. And we are still just as vulnerable Paul Volcker says today.

We need to reinstate Glass-Steagall and that’s a huge difference on this stage among us as candidates.

COOPER: Just for viewers at home who may not be reading up on this, Glass-Steagall is the Depression-era banking law repealed in 1999 that prevented commercial banks from engaging in investment banking and insurance activities.

Secretary Clinton, he raises a fundamental difference on this stage. Senator Sanders wants to break up the big Wall Street banks. You don’t. You say charge the banks more, continue to monitor them. Why is your plan better?

CLINTON: Well, my plan is more comprehensive. And frankly, it’s tougher because of course we have to deal with the problem that the banks are still too big to fail. We can never let the American taxpayer and middle class families ever have to bail out the kind of speculative behavior that we saw.

But we also have to worry about some of the other players — AIG, a big insurance company; Lehman Brothers, an investment bank. There’s this whole area called “shadow banking.” That’s where the experts tell me the next potential problem could come from.

CLINTON: So I’m with both Senator Sanders and Governor O’Malley in putting a lot of attention onto the banks. And the plan that I have put forward would actually empower regulators to break up big banks if we thought they posed a risk. But I want to make sure we’re going to cover everybody, not what caused the problem last time, but what could cause it next time.

(CROSSTALK)

COOPER: Senator Sanders, Secretary Clinton just said that her policy is tougher than yours.

SANDERS: Well, that’s not true.

(LAUGHTER)

COOPER: Why?

SANDERS: Let us be clear that the greed and recklessness and illegal behavior of Wall Street, where fraud is a business model, helped to destroy this economy and the lives of millions of people.

(APPLAUSE)

Check the record. In the 1990s — and all due respect — in the 1990s, when I had the Republican leadership and Wall Street spending billions of dollars in lobbying, when the Clinton administration, when Alan Greenspan said, “what a great idea it would be to allow these huge banks to merge,” Bernie Sanders fought them, and helped lead the opposition to deregulation.

(APPLAUSE)

Today, it is my view that when you have the three…

COOPER: Senator…

SANDERS: …largest banks in America — are much bigger than they were when we bailed them out for being too big to fail, we have got to break them up.

(APPLAUSE)

COOPER: Secretary Clinton, you have to be able to respond. He brought you up.

CLINTON: Yeah.

You know, I — I respect the passion an intensity. I represented Wall Street, as a senator from New York, and I went to Wall Street in December of 2007 — before the big crash that we had — and I basically said, “cut it out! Quit foreclosing on homes! Quit engaging in these kinds of speculative behaviors.”

I took on the Bush administration for the same thing. So I have thought deeply and long about what we’re gonna do to do exactly what I think both the senator and the governor want, which is to rein in and stop this risk.

And my plan would have the potential of actually sending the executives to jail. Nobody went to jail after $100 billion in fines were paid…

(APPLAUSE)

COOPER: (inaudible)

CLINTON: …and would give regulators the authority to go after the big banks.

COOPER: Thank you. Thank you. Senator Sanders…

CLINTON: But I’m telling you — I will say it tonight. If only you look at the big banks, you may be missing the forest for the trees.

(CROSSTALK)

WEBB: Bernie, say my name so I can get into this.

SANDERS: I will, just a second.

WEBB: OK. Thank you.

(LAUGHTER)

SANDERS: I’ll tell him.

In my view, Secretary Clinton, you do not — Congress does not regulate Wall Street. Wall Street regulates Congress.

(APPLAUSE)

And we have gotta break off these banks. Going to them…

CLINTON: So…

SANDERS: …and saying, “please, do the right thing”…

CLINTON: …no, that’s not what…

SANDERS: …is kind of naive.

CLINTON: …that — I think Dodd-Frank was a very…

WEBB: Anderson, I need to jump in (inaudible).

CLINTON: …good start, and I think that we have to implement it. We have to prevent the Republicans from ripping it apart. We have to save the Consumer Financial Protection board, which is finally beginning to act to protect consumers.

(APPLAUSE)

We have work to do. You’ve got no argument from me. But I know, if we don’t come in with a very tough and comprehensive approach, like the plan I’m recommending, we’re gonna be behind instead of ahead…

COOPER: Governor O’Malley? Where do you stand?

CLINTON: …on what the next crisis could be.

O’MALLEY: Anderson, look, this is — the big banks — I mean, once we repealed Glass-Steagall back in the late 1999s (ph), the big banks, the six of them, went from controlling, what, the equivalent of 15 percent of our GDP to now 65 percent of our GDP.

And — (inaudible) right before this debate, Secretary Clinton’s campaign put out a lot of reversals on positions on Keystone and many other things. But one of them that we still have a great difference on, Madam Secretary, is that you are not for Glass-Steagall.

You are not for putting a firewall between this speculative, risky shadow banking behavior. I am, and the people of our country need a president who’s on their side, willing to protect the Main Street economy from recklessness on Wall Street.

We have to fulfill…

COOPER: Secretary Clinton…

O’MALLEY: …our promise.

COOPER: I have to let you respond.

(APPLAUSE)

CLINTON: Well, you know, everybody on this stage has changed a position or two. We’ve been around a cumulative quite some period of time.

(LAUGHTER)

You know, we know that if you are learning, you’re gonna change your position. I never took a position on Keystone until I took a position on Keystone.

But I have been on the forefront of dealing with climate change, starting in 2009, when President Obama and I crashed (ph) a meeting with the Chinese and got them to sign up to the first international agreement to combat climate change that they’d ever joined.

So I’m…

COOPER: Thank you.

CLINTON: …not taking a back seat to anybody on my values…

COOPER: Thank…

CLINTON: …my principles and the results that I get.

COOPER: Senator Sanders…

(APPLAUSE)

Senator Sanders, in 2008, congressional leaders were told, without the 2008 bailout, the U.S. was possibly days away from a complete meltdown. Despite that, you still voted against it.

As president, would you stand by your principles if it risked the country’s financial stability?

SANDERS: Well, I remember that meeting very well. I remember it like it was yesterday. Hank Paulson, Bernanke came in, and they say, “guys, the economy is going to collapse because Wall Street is going under. It’s gonna take the economy with them.”

And you know what I said to Hank Paulson? I said, “Hank, your guys — you come from Goldman Sachs. Your millionaire and billionaire friends caused this problem. How about your millionaire and billionaire friends paying for the bailout, not working families in this country?”

So to answer your question, no, I would not have let the economy collapse. But it was wrong to ask the middle class to bail out Wall Street. And by the way, I want Wall Street now to help kids in this country go to college, public colleges and universities, free with a Wall Street speculation tax.

(APPLAUSE)

COOPER: We’re going to talk about that in a minute.

But, Senator Webb, I want to get you in. You have said neither party has the guts to take on Wall Street. Is the system rigged?

WEBB: There is a reality that I think we all need to recognize with respect to the power of the financial sector.

And let me just go back a minute and say that on this TARP program, I introduced a piece of legislation calling for a windfall profits tax on the executives of any of these companies that got more than $5 billion, that it was time for them, once they got their compensation and their bonus, to split the rest of the money they made with the nurses and the truck drivers and the soldiers who bailed them out. With respect to the financial sector, I mean, I know that my time has run out but in speaking of changing positions and the position on how this debate has occurred is kind of frustrating because unless somebody mentions my name I can’t get into the discussion.

COOPER: You agreed to these rules and you’re wasting time. So if you would finish your answer, we’ll move on.

WEBB: All right. Well, I’m trying to set a mark here so maybe we can get into a little more later on. This hasn’t been equal time.

But if you want to look at what has happened, if we look at the facts in terms of how we’re going to deal with this, since that crash, in the last 10 years, the amount of the world’s capital economy that Wall Street manages has gone from 44 percent to 55 percent.

That means the Wall Street money managers are not risking themselves as the same way the American people are when they’re going to get their compensation. They’re managing money from all over the world.

We have to take that into consideration when we’re looking at ways to regulate it.

COOPER: Governor Chafee, you have attacked Secretary Clinton for being too close to Wall Street banks. In 1999 you voted for the very bill that made banks bigger.

CHAFEE: The Glass-Steagall was my very first vote, I’d just arrived, my dad had died in office, I was appointed to the office, it was my very first vote.

COOPER: Are you saying you didn’t know what you were voting for?

CHAFEE: I’d just arrived at the Senate. I think we’d get some takeovers, and that was one. It was my very first vote, and it was 92-5. It was the…

COOPER: Well, with all due respect, Governor…

CHAFEE: But let me just say…

COOPER: … what does that say about you that you’re casting a vote for something you weren’t really sure about?

CHAFEE: I think you’re being a little rough. I’d just arrived at the United States Senate. I’d been mayor of my city. My dad had died. I’d been appointed by the governor. It was the first vote and it was 90-5, because it was a conference report.

But let me just say about income inequality. We’ve had a lot of talk over the last few minutes, hours, or tens of minutes, but no one is saying how we’re going to fix it. And it all started with the Bush tax cuts that favored the wealthy.

So let’s go back to the tax code. And 0.6 percent of Americans are at the top echelon, over 464,000, 0.6 Americans. That’s less than 1 percent. But they generate 30 percent of the revenue. And they’re doing fine.

COOPER: Thank you, Governor.

CHAFEE: So there’s still a lot more money to be had from this top echelon. I’m saying let’s have another tier and put that back into the tax bracket. And that will generate $42 billion.

COOPER: I want to bring in Dana Bash.

CHAFEE: And then we can help the middle class and hard-earning Americans — hard-working Americans.


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