Bernie Sanders visited the New York Daily News a few days ago and was interviewed by their editorial board. The entire [very long] transcript is here.
Of the wide ranging topics discussed, one of the most concerning to me as a New Yorker was Wall Street and the financial industry.
Daily News: Now, switching to the financial sector, to Wall Street. Speaking broadly, you said that within the first 100 days of your administration you'd be drawing up...your Treasury Department would be drawing up a too-big-to-fail list. Would you expect that that's essentially the list that already exists under Dodd-Frank? Under the Financial Stability Oversight Council?
Sanders: Yeah. I mean these are the largest financial institutions in the world….
Daily News: And then, you further said that you expect to break them up within the first year of your administration. What authority do you have to do that? And how would that work? How would you break up JPMorgan Chase?
...
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don't know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, "Now you must do X, Y and Z?"
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.
Daily News: So if you look forward, a year, maybe two years, right now you have...JPMorgan has 241,000 employees. About 20,000 of them in New York. $192 billion in net assets. What happens? What do you foresee? What is JPMorgan in year two of...
Sanders: What I foresee is a stronger national economy. And, in fact, a stronger economy in New York State, as well. What I foresee is a financial system which actually makes affordable loans to small and medium-size businesses. Does not live as an island onto themselves concerned about their own profits. And, in fact, creating incredibly complicated financial tools, which have led us into the worst economic recession in the modern history of the United States.
Daily News: I get that point. I'm just looking at the method because, actions have reactions, right? There are pluses and minuses. So, if you push here, you may get an unintended consequence that you don't understand. So, what I'm asking is, how can we understand? If you look at JPMorgan just as an example, or you can do Citibank, or Bank of America. What would it be? What would that institution be? Would there be a consumer bank? Where would the investing go?
Sanders: I'm not running JPMorgan Chase or Citibank.
Daily News: No. But you'd be breaking it up.
Sanders: That's right. And that is their decision as to what they want to do and how they want to reconfigure themselves. That's not my decision. All I am saying is that I do not want to see this country be in a position where it was in 2008, where we have to bail them out. And, in addition, I oppose that kind of concentration of ownership entirely...
So first, we have Sanders admitting that he is not familiar with how the current regulatory scheme under Dodd-Frank works. A president doesn’t just decide that a bank is too big to fail and tell the Fed to break it up. An institution would have to meet the criteria established by the FSOC and Office of Financial Research at the Treasury to be subject to such a fate. Further, given the reforms already in place under Dodd-Frank, it is highly unlikely that such action would be warranted.
Moreover, breaking up banks now would likely cause new chaos as “interwoven asset and liability threads around the globe” would have to be “disentangled,” “millions of contracts would have to be renegotiated,” and “lines of credit might have to be terminated because smaller banks can't afford to finance them.”
Daily News: Okay. Staying with Wall Street, you've pointed out, that "not one major Wall Street executive has been prosecuted for causing the near collapse of our entire economy." Why was that? Why did that happen? Why was there no prosecution?
Sanders: I would suspect that the answer that some would give you is that while what they did was horrific, and greedy and had a huge impact on our economy, that some suggest that...that those activities were not illegal. I disagree. And I think an aggressive attorney general would have found illegal activity.
Daily News: So do you think that President Obama's Justice Department essentially was either in the tank or not as...
Sanders: No, I wouldn’t say they were in the tank. I'm saying, a Sanders administration would have a much more aggressive attorney general looking at all of the legal implications. All I can tell you is that if you have Goldman Sachs paying a settlement fee of $5 billion, other banks paying a larger fee, I think most Americans think, "Well, why do they pay $5 billion?" Not because they're heck of a nice guys who want to pay $5 billion. Something was wrong there. And if something was wrong, I think they were illegal activities.
Daily News: Okay. But do you have a sense that there is a particular statute or statutes that a prosecutor could have or should have invoked to bring indictments?
Sanders: I suspect that there are. Yes.
Daily News: You believe that? But do you know?
Sanders: I believe that that is the case. Do I have them in front of me, now, legal statutes? No, I don't. But if I would...yeah, that's what I believe, yes. When a company pays a $5 billion fine for doing something that's illegal, yeah, I think we can bring charges against the executives.
Daily News: I'm only pressing because you've made it such a central part of your campaign. And I wanted to know what the mechanism would be to accomplish it.
Again, Sanders admits ignorance of the actual specifics of a topic that is a central part of his platform. In many cases banks entered into deferred prosecution agreements with the DOJ where they were informed of the charges that could be brought against them but instead agreed to cooperate, pay a large fine, and make supervised reforms. Whether or not the DOJ should have pursued this strategy is another issue, but Sanders should educate himself on the actual facts.
Then there was this gem:
Sanders: Let me be very clear about this. Alright? Let me repeat what I have said. Maybe you've got a quote there. I do believe that, to a significant degree, the business model of Wall Street is fraud.
...
Daily News: What kind of fraudulent activity are you referring to when you say that?
Sanders: What kind of fraudulent activity? Fraudulent activity that brought this country into the worst economic decline in its history by selling packages of fraudulent, fraudulent, worthless subprime mortgages. How's that for a start?
Selling products to people who you knew could not repay them. Lying to people without allowing them to know that in a year, their interest rates would be off the charts. They would not repay that. Bundling these things. Putting them into packages with good mortgages. That's fraudulent activity.
Sure, there was fraudulent activity and abuse in connection with subprime mortgages. But to say that the “business model of Wall Street” is fraud “to a significant degree” is completely irresponsible. Do you know what else is part of their business model? Helping enterprises raise capital in order to innovate and grow and provide goods and services to the economy. Helping individuals invest retirement income so it grows at a faster rate than inflation and providing the liquidity for such a system. I could go on. This is not going to go over well for New Yorkers in the upcoming primary.