Bernie Sanders’ Election Would Mean the End of ‘Too Big To Fail’ on Wall Street

Why have the power players of the Democratic Party allowed this to continue?

Larry Cohen January 11, 2016

Bernie Sanders at New York Town Hall, January 5. (Michael Vadon / Flickr)

On Jan­u­ary 5 at Town Hall in New York City, Bernie Sanders deliv­ered a major pol­i­cy speech in which he declared that he will break up any banks that are too big to fail and that big bankers will not be too big to jail.”

We get words from the Clinton campaign but no clarity on breaking up the banks that are too big to fail or real separation of commercial and investment banking.

His speech and the audi­ence reac­tion almost seemed like an alter­nate end­ing to Adam McKay’s new block­buster film on the 2007-08 finan­cial melt­down, The Big Short. After watch­ing the movie’s por­tray­al of how Wall Street’s greed and reck­less­ness led to our economy’s col­lapse, it’s hard to argue against Sanders’ demands to increase tax­es on the bil­lion­aires and break up the banks, and use the rev­enue to fund bet­ter health care and education.

Sanders advo­cates a mod­ern Glass-Stea­gall Act (the first one was repealed by Pres­i­dent Bill Clin­ton, who in 1999 called the act no longer appro­pri­ate”) that would sep­a­rate com­mer­cial and invest­ment bank­ing, and there­by sep­a­rate home mort­gage bank­ing from spec­u­la­tion involv­ing deriv­a­tives of those same mort­gages. When you add in Sanders’ demands to end Super PAC cam­paign fund­ing and his own refusal to accept Wall Street funds in the cur­rent cam­paign, we are pre­sent­ed with a sharp con­trast to Hillary Clin­ton, who oppos­es rein­stat­ing Glass-Stea­gall and has tak­en upwards of $6 mil­lion from Wall Street supporters.

In the last 50 years the finan­cial sector’s share of our GDP has almost quadru­pled. The Big Short illus­trates how Wall Street keeps up that growth with lit­tle increase in real val­ue but lots of high salaries and high liv­ing for bankers. As the film con­cludes, view­ers real­ize we haven’t done much to change the finan­cial sector’s rules since the cri­sis. Once Fed chair Ben Bernanke and Trea­sury let Bear Stearns fail and Lehman Broth­ers go bank­rupt, they bailed out the rest and the cul­ture of self-inter­est­ed high liv­ing returned. Whether the next finan­cial bub­ble is around hous­ing or some­thing else, the result is like­ly to be the same as in 2008.

Why have the pow­er play­ers of the Demo­c­ra­t­ic Par­ty allowed this to con­tin­ue? Why have estab­lish­ment Democ­rats proven so enam­ored with free mar­kets and addict­ed to the polit­i­cal con­tri­bu­tions from finan­cial high rollers that they rushed to embrace Hillary Clin­ton with no real demands for pro­gres­sive posi­tions on finance or much of any­thing else?

We learned in 2008 that the words uttered dur­ing a pri­ma­ry cam­paign bear lit­tle resem­blance to pres­i­den­tial poli­cies. For exam­ple, can­di­date Barack Oba­ma’s promis­es to rewrite NAF­TA nev­er came to fruition, lead­ing instead to the Trans-Pacif­ic Part­ner­ship, that if adopt­ed would do lit­tle for work­ers rights in any nation, U.S. jobs or liv­ing stan­dards, or to pro­vide envi­ron­men­tal stan­dards beyond improved fish­ing prac­tices. Today, we get words from the Clin­ton cam­paign but no clar­i­ty on break­ing up the banks that are too big to fail or real sep­a­ra­tion of com­mer­cial and invest­ment banking.

Lay­ing out the destruc­tive con­se­quences of dereg­u­lat­ed finance, The Big Short implic­it­ly encour­ages the audi­ence to sup­port major reforms of our finan­cial struc­tures — the kind of reforms Sanders argues for. View­ers iden­ti­fy with the work­ing-class fam­i­ly that los­es its home, despite hav­ing dili­gent­ly paid the rent each month, because the land­lord fell behind when his adjustable rate mort­gage shot up. We even iden­ti­fy with those who fore­saw the system’s col­lapse, bet against the invest­ment banks and sold their lever­aged mort­gage debt short.” Those investors prof­it­ed huge­ly from wide­spread mis­ery, but at least they acknowl­edged it.

The answer to such finan­cial dis­as­ter is not a repeat of a Bill Clin­ton pres­i­den­cy, all but guar­an­teed to pro­duce a new crop of short sell­ers who prof­it once again and bankers rid­ing the bub­ble. The answer is a polit­i­cal rev­o­lu­tion,” as Bernie calls it — not just for a polit­i­cal democ­ra­cy with vot­ing rights in and mon­ey out, but also a finan­cial rev­o­lu­tion that breaks up the banks, sep­a­rates com­mer­cial, con­sumer and invest­ment bank­ing, and slams shut the revolv­ing door between Wall Street, gov­ern­ment reg­u­la­tors and White House officials.

As Bernie says, Enough is enough.” We can still dream of an Amer­i­ca where mak­ing things and pro­vid­ing real ser­vices is at the heart of what we do. We can dream of an Amer­i­ca where Wall Street’s easy mon­ey doesn’t lure away young col­lege grad­u­ates from teach­ing or healthcare.

As we begin 2016, let’s com­mit to real change. Bernie Sanders has chal­lenged us to join him in a polit­i­cal rev­o­lu­tion that goes far beyond the pres­i­den­cy. Let’s take him up on it. After all, if we won’t, who will?

Lar­ry Cohen chairs the board of Our Rev­o­lu­tion and is a mem­ber of the Demo­c­ra­t­ic Nation­al Com­mit­tee, vice-chair of the Uni­ty Reform Com­mis­sion, and mem­ber of the 2020 con­ven­tion rules com­mit­tee. He is the past pres­i­dent of the Com­mu­ni­ca­tions Work­ers of Amer­i­ca and was a senior advi­sor in the Bernie 2016 campaign.
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