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Are Big Banks Too Big to Regulate?

Thursday, 18 October 2012 16:38 By Paul Jay, The Real News Network | Video Interview

Michael Greenberger: If somebody understood the economic issues and explained them to the American people, you could easily be elected president by saying you're going to put an end to the Wall Street hijinks.


More at The Real News

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

We've heard a lot about banks being too big to fail. But is the other part of the story that they're simply too big or, should we say, too powerful to regulate? Are we beyond being able to regulate the finance sector?

Now joining us to talk about all of this is Michael Greenberger. Michael is a professor at the University of Maryland School of Law, where he teaches homeland security and financial law. He's the founder nad director of the Center for Health and Homeland Security there. And he used to be at the Commodity Futures Trading Commission. Thanks very much for joining us.

PROF. MICHAEL GREENBERGER, UNIV. OF MARYLAND SCHOOL OF LAW: Happy to be here.

JAY: So have we reached a point where the finance sector is simply overwhelmingly powerful, but not just in terms of their ability to influence the economy, but the political power, the way you cannot pass a regulation? The Commodity Futures Trading Commission, where you used to be, even though there are some people there trying to pass what many people think are very modest, limited regulation—in fact, a lot of people are not satisfied with what they're trying to propose, and they can't even pass that. And if they do get anything passed, they're going to get defunded anyway because of the lobbying of Wall Street and Congress. Are we past being able to regulate it?

GREENBERGER: I don't think we're past being able to regulate it.

But the problem you present is a real live problem. That is especially with the Citizens United ruling, where you can have these SuperPACs with unlimited amounts of money. The politicians are looking to Wall Street to fund their campaigns. And, ironically, the price that Wall Street pays is a very—it's like you and me paying a traffic ticket. They're making these political contributions, but it means everything to the politicians. So it's definitely skewing the regulatory agenda, not just that we have Republicans who really want to do away with the entire regulatory framework that's been put in place and put banks back where they were prior to the meltdown, which is out in the jungle without any control at all, lawless atmosphere, but too many Democrats have their heads turned by the need to get campaign—.

JAY: Well, President Obama was—in fact, to everyone's surprise—was outfunding, outraising money against Hillary Clinton early in the primary campaign. He's been very connected to Wall Street money right from the beginning.

GREENBERGER: Well, he has, although I think people were surprised at the gentle approach President Obama took toward Wall Street. Wall Street is very insulted about some of the things he said, but—.

JAY: So they say.

GREENBERGER: But essentially even the minimal regulatory structure that the Democrats took—put in place in 2009 and 2010 has been attacked by Wall Street. And I think the irony of all this is I do think there was a sense, either an overt sense or a hidden sense, that if they were nice to Wall Street, Wall Street would come around and be the supporters they were of the Democratic Party in 2008. Well, that hasn't worked out.

So the lesson learned here is: feeding the 800-pound gorilla is not necessarily the way to get to political nirvana. In fact, to the extent the president is now, as we sit here, seeming to be reassured of reelection, we're still 35 days out. Wall Street now may be a little nervous that they put all their eggs in the Romney basket. But the fact of the matter is: the lesson that should be taken away from this by the president and by the Democratic Party in the House and the Senate is you can in no way gear your regulatory philosophy to satisfying Wall Street. Any minimal action you take is going to make them angry.

And looking at it from the other side, the American people instinctively are very angry with Wall Street. They don't know why they're angry at Wall Street, because nobody has taken the time (and I fault the president for this) to explain to the American public just how Wall Street has so badly beaten up the average American taxpayer. But there's an instinctive hatred here. It comes from the Tea Party, even; certainly Occupy Wall Street. But there has not been a coalescence of a philosophy arising from that, 'cause people don't understand the not-so-technical problems. They can be explained, but nobody's bothered to explain it.

JAY: Now, President Obama clearly had a lot of Wall Street money when he got elected the first time, and his—part of, I guess, his payback was to appoint Geithner and Summers and a Wall Street team, to some extent a Goldman team. But getting beyond President Obama, is it just at a point that no one's going to be president without being beholden this way, at least given our current politics?

GREENBERGER: Well, it's my view, if somebody understood the economic issues and explained them to the American people, you could easily be elected president by saying you're going to put an end to the Wall Street hijinks. What are the Wall Street hijinks? Making reckless, reckless bets with two theories in mind: if the bets are successful, they will go into Wall Street's pocket; if the bets are unsuccessful, the American taxpayer will bail them out. And if that could be explained to the American public, there'd be no way that somebody could run for president explaining that and, I think, being denied the election.

What we have is the Romney presidency that just says, we're going to tear down all the barriers that have been set up, even though they're not as strong as many would like to see them; and the president, who's prepared to keep some of the barriers in place.

It's to my mind the president missed the boat by not understanding the anger in the American public, which is bipartisan anger, about the idea that Wall Street can run the economy into the ground, that trillions of dollars of American taxpayer money is spent—some estimate $12.3 trillion—to bring Wall Street back to where it was, while the rest of us are flat on our back with unemployment, dwindled pensions, job insecurity, etc.

JAY: So some people are arguing that the lobbying force of finance on Wall Street is such that it's very difficult to pass anything (as we've seen, when you do pass it, the regulations get weakened and turned into swiss cheese—people say because of the lobbying efforts), that is it not better that ordinary people, at least, have a clearer demand about what they want. And should that demand be more towards, look, you already practically nationalized some of these institutions with all of our money anyway, then why don't you actually take some of it, say it's nationalized, and actually give it a public-interest mandate?

GREENBERGER: There's no doubt, if the public were more vocal. They are vocal on the fact that they're angry with Wall Street. The reputation of Wall Street is in the tank. But they are not being given options by the leadership on either side.

Here's what we can do to get our economy back on its feet again: to be pro-manufacturing and not pro-Wall Street paper investments that destroy the economy. Now, to some extent, the president has been on the better side of this. I think it's helped him very much. But he's not had a full-throated message to that effect. And if he is reelected, everybody is holding their breath as to who's going to be put in power—we can have more Goldman Sachs former partners running the economy. Or is there going to be a broader base of individuals—academics, market regulators, and others—who have a say in what [crosstalk]

JAY: So you're rating President Obama's—assuming he gets reelected, you're writing his inaugural address, what two or three things would you like to hear?

GREENBERGER: The two or three things I would like to hear is, number one, the era of taxpayers bailing out banks is over.

JAY: Well, he claims it is. He claims Dodd–Frank—we already dealt with this. Too-big-to-fail won't happen again, he says.

GREENBERGER: I don't think there's anybody who really believes that's the case if Dodd–Frank were allowed to survive. But Dodd–Frank is being pulled apart by conservative jurists or jurists who are Democrats but don't understand the issues in this regard. The only way Americans are going to understand this issue and judges will take the lead from the American expression of policy is if somebody is making the argument about what needs to be done.

JAY: Okay. Number one: public won't bail out big banks anymore. He says that, but he has to add something to that 'cause he says that.

GREENBERGER: Well—and number two is: we're limiting the size of big banks. Banks cannot be over a certain size, which is the one thing Dodd–Frank didn't do. They tried to get there by indirection, but they—by putting all these regulations in place that will ultimately, if successful, constrain the size of banks, I think what many progressives say: these banks have no social value at all; we don't need banks that have $53 billion in capital; let's break up the banks. The American people would be very happy about that.

And third is: whatever the banks do, they do not trade in reckless transactions. Interestingly enough, the European Union just in the last few days has said, proposed, that banks take in money, loan money, but not trade with their customers' accounts, in other words, not take risks with their customers' money. And I think we have to be much clearer about that. So I think that would be the third prong of this.

The size of the banks is limited, and what they can do with customer deposits is limited to constructive things like loaning money to business community, to individuals who want to buy houses, students who want loans, and not doing naked credit default swaps, where you're betting that institutions are going to fail.

JAY: And what do you make about the proposal for a financial transaction tax?

GREENBERGER: There is probably no more important thing that should be discussed than the financial transaction tax. Right now the Republicans have strangled whatever life there is in regulation by refusing to fund the regulators. Take the CFTC, for example. Their jurisdiction went for $40 trillion of instruments to $300 trillion of instruments. They have 700 employees to do all that work. The president has wanted them to increase to 1,100 employees. It's $100 million in more appropriations. The Republicans want them to go to 575. They've compromised at 700. We've got to get—.

Now, how does the financial transaction tax help that? The money that's imposed on trillions of dollars of trading, pennies would go directly to the regulator and the regulators would be self-financed, so they wouldn't be dependent on Congress, who's being lobbied by Wall Street to get them their money. They're not getting the money now for small amounts of money on trillions of dollars of transactions. You could have an effective Securities Exchange Commission, an effective Commodity Futures Trading Commission. It's doubtless, the answer, if the American people understood that.

JAY: And do you buy that this would also slow down high-frequency traders? That's one of the arguments, that you would somehow mitigate high-frequency traders if you tax it so it's not as—the small margins [crosstalk]

GREENBERGER: Now, there are ways to limit high-frequency traders, but the margin on this is so small that it would not block people from doing high-frequency trading.

JAY: Well, unless you had a bigger margin, 'cause—.

GREENBERGER: Well, but then the—the margin does not have to be that big. I think to the extent you argue for a bigger margin, you're setting barriers in getting the financial transaction tax off the ground.

For high-frequency trading, it's as simple as making sure that there's a human behind the engine that's doing the trading. You know, when you go to send an email letter off a website, you have to type in letters that are put out there so they know there's a human being doing the transaction. The trader should be required to do the same thing.

JAY: 'Cause right now—I was told by someone at the commission that does research at the commission that Goldman—I think he told me 600 to 700 people doing nothing but writing computer algorithms for high-frequency trading.

GREENBERGER: Well, it's not [incompr.] the problem that 600 or 700 people are writing the algorithms. The problem is the algorithms are in place where decisions are being made with no human intervention, they go askew, and we have calamities. And we really—we had the market drop, in May 2010, 1,000 points in half an hour. That's going to be a walk in the woods compared to the damage that can be done by this.

JAY: Thanks for joining us. And thank you for joining us on The Real News Network.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay

Paul Jay is CEO and Senior Editor of The Real News Network. As Senior Editor of TRNN Paul has overseen the production of over 4,500 news stories and is the Host of our news analysis programming. As Executive Producer of CBC Newsworld's independent flagship debate show counterSpin he produced over 2,000 shows during its 10 yrs on air. He is an award-winning documentary filmmaker with over 20 films under his belt and was founding Chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).


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Are Big Banks Too Big to Regulate?

Thursday, 18 October 2012 16:38 By Paul Jay, The Real News Network | Video Interview

Michael Greenberger: If somebody understood the economic issues and explained them to the American people, you could easily be elected president by saying you're going to put an end to the Wall Street hijinks.


More at The Real News

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

We've heard a lot about banks being too big to fail. But is the other part of the story that they're simply too big or, should we say, too powerful to regulate? Are we beyond being able to regulate the finance sector?

Now joining us to talk about all of this is Michael Greenberger. Michael is a professor at the University of Maryland School of Law, where he teaches homeland security and financial law. He's the founder nad director of the Center for Health and Homeland Security there. And he used to be at the Commodity Futures Trading Commission. Thanks very much for joining us.

PROF. MICHAEL GREENBERGER, UNIV. OF MARYLAND SCHOOL OF LAW: Happy to be here.

JAY: So have we reached a point where the finance sector is simply overwhelmingly powerful, but not just in terms of their ability to influence the economy, but the political power, the way you cannot pass a regulation? The Commodity Futures Trading Commission, where you used to be, even though there are some people there trying to pass what many people think are very modest, limited regulation—in fact, a lot of people are not satisfied with what they're trying to propose, and they can't even pass that. And if they do get anything passed, they're going to get defunded anyway because of the lobbying of Wall Street and Congress. Are we past being able to regulate it?

GREENBERGER: I don't think we're past being able to regulate it.

But the problem you present is a real live problem. That is especially with the Citizens United ruling, where you can have these SuperPACs with unlimited amounts of money. The politicians are looking to Wall Street to fund their campaigns. And, ironically, the price that Wall Street pays is a very—it's like you and me paying a traffic ticket. They're making these political contributions, but it means everything to the politicians. So it's definitely skewing the regulatory agenda, not just that we have Republicans who really want to do away with the entire regulatory framework that's been put in place and put banks back where they were prior to the meltdown, which is out in the jungle without any control at all, lawless atmosphere, but too many Democrats have their heads turned by the need to get campaign—.

JAY: Well, President Obama was—in fact, to everyone's surprise—was outfunding, outraising money against Hillary Clinton early in the primary campaign. He's been very connected to Wall Street money right from the beginning.

GREENBERGER: Well, he has, although I think people were surprised at the gentle approach President Obama took toward Wall Street. Wall Street is very insulted about some of the things he said, but—.

JAY: So they say.

GREENBERGER: But essentially even the minimal regulatory structure that the Democrats took—put in place in 2009 and 2010 has been attacked by Wall Street. And I think the irony of all this is I do think there was a sense, either an overt sense or a hidden sense, that if they were nice to Wall Street, Wall Street would come around and be the supporters they were of the Democratic Party in 2008. Well, that hasn't worked out.

So the lesson learned here is: feeding the 800-pound gorilla is not necessarily the way to get to political nirvana. In fact, to the extent the president is now, as we sit here, seeming to be reassured of reelection, we're still 35 days out. Wall Street now may be a little nervous that they put all their eggs in the Romney basket. But the fact of the matter is: the lesson that should be taken away from this by the president and by the Democratic Party in the House and the Senate is you can in no way gear your regulatory philosophy to satisfying Wall Street. Any minimal action you take is going to make them angry.

And looking at it from the other side, the American people instinctively are very angry with Wall Street. They don't know why they're angry at Wall Street, because nobody has taken the time (and I fault the president for this) to explain to the American public just how Wall Street has so badly beaten up the average American taxpayer. But there's an instinctive hatred here. It comes from the Tea Party, even; certainly Occupy Wall Street. But there has not been a coalescence of a philosophy arising from that, 'cause people don't understand the not-so-technical problems. They can be explained, but nobody's bothered to explain it.

JAY: Now, President Obama clearly had a lot of Wall Street money when he got elected the first time, and his—part of, I guess, his payback was to appoint Geithner and Summers and a Wall Street team, to some extent a Goldman team. But getting beyond President Obama, is it just at a point that no one's going to be president without being beholden this way, at least given our current politics?

GREENBERGER: Well, it's my view, if somebody understood the economic issues and explained them to the American people, you could easily be elected president by saying you're going to put an end to the Wall Street hijinks. What are the Wall Street hijinks? Making reckless, reckless bets with two theories in mind: if the bets are successful, they will go into Wall Street's pocket; if the bets are unsuccessful, the American taxpayer will bail them out. And if that could be explained to the American public, there'd be no way that somebody could run for president explaining that and, I think, being denied the election.

What we have is the Romney presidency that just says, we're going to tear down all the barriers that have been set up, even though they're not as strong as many would like to see them; and the president, who's prepared to keep some of the barriers in place.

It's to my mind the president missed the boat by not understanding the anger in the American public, which is bipartisan anger, about the idea that Wall Street can run the economy into the ground, that trillions of dollars of American taxpayer money is spent—some estimate $12.3 trillion—to bring Wall Street back to where it was, while the rest of us are flat on our back with unemployment, dwindled pensions, job insecurity, etc.

JAY: So some people are arguing that the lobbying force of finance on Wall Street is such that it's very difficult to pass anything (as we've seen, when you do pass it, the regulations get weakened and turned into swiss cheese—people say because of the lobbying efforts), that is it not better that ordinary people, at least, have a clearer demand about what they want. And should that demand be more towards, look, you already practically nationalized some of these institutions with all of our money anyway, then why don't you actually take some of it, say it's nationalized, and actually give it a public-interest mandate?

GREENBERGER: There's no doubt, if the public were more vocal. They are vocal on the fact that they're angry with Wall Street. The reputation of Wall Street is in the tank. But they are not being given options by the leadership on either side.

Here's what we can do to get our economy back on its feet again: to be pro-manufacturing and not pro-Wall Street paper investments that destroy the economy. Now, to some extent, the president has been on the better side of this. I think it's helped him very much. But he's not had a full-throated message to that effect. And if he is reelected, everybody is holding their breath as to who's going to be put in power—we can have more Goldman Sachs former partners running the economy. Or is there going to be a broader base of individuals—academics, market regulators, and others—who have a say in what [crosstalk]

JAY: So you're rating President Obama's—assuming he gets reelected, you're writing his inaugural address, what two or three things would you like to hear?

GREENBERGER: The two or three things I would like to hear is, number one, the era of taxpayers bailing out banks is over.

JAY: Well, he claims it is. He claims Dodd–Frank—we already dealt with this. Too-big-to-fail won't happen again, he says.

GREENBERGER: I don't think there's anybody who really believes that's the case if Dodd–Frank were allowed to survive. But Dodd–Frank is being pulled apart by conservative jurists or jurists who are Democrats but don't understand the issues in this regard. The only way Americans are going to understand this issue and judges will take the lead from the American expression of policy is if somebody is making the argument about what needs to be done.

JAY: Okay. Number one: public won't bail out big banks anymore. He says that, but he has to add something to that 'cause he says that.

GREENBERGER: Well—and number two is: we're limiting the size of big banks. Banks cannot be over a certain size, which is the one thing Dodd–Frank didn't do. They tried to get there by indirection, but they—by putting all these regulations in place that will ultimately, if successful, constrain the size of banks, I think what many progressives say: these banks have no social value at all; we don't need banks that have $53 billion in capital; let's break up the banks. The American people would be very happy about that.

And third is: whatever the banks do, they do not trade in reckless transactions. Interestingly enough, the European Union just in the last few days has said, proposed, that banks take in money, loan money, but not trade with their customers' accounts, in other words, not take risks with their customers' money. And I think we have to be much clearer about that. So I think that would be the third prong of this.

The size of the banks is limited, and what they can do with customer deposits is limited to constructive things like loaning money to business community, to individuals who want to buy houses, students who want loans, and not doing naked credit default swaps, where you're betting that institutions are going to fail.

JAY: And what do you make about the proposal for a financial transaction tax?

GREENBERGER: There is probably no more important thing that should be discussed than the financial transaction tax. Right now the Republicans have strangled whatever life there is in regulation by refusing to fund the regulators. Take the CFTC, for example. Their jurisdiction went for $40 trillion of instruments to $300 trillion of instruments. They have 700 employees to do all that work. The president has wanted them to increase to 1,100 employees. It's $100 million in more appropriations. The Republicans want them to go to 575. They've compromised at 700. We've got to get—.

Now, how does the financial transaction tax help that? The money that's imposed on trillions of dollars of trading, pennies would go directly to the regulator and the regulators would be self-financed, so they wouldn't be dependent on Congress, who's being lobbied by Wall Street to get them their money. They're not getting the money now for small amounts of money on trillions of dollars of transactions. You could have an effective Securities Exchange Commission, an effective Commodity Futures Trading Commission. It's doubtless, the answer, if the American people understood that.

JAY: And do you buy that this would also slow down high-frequency traders? That's one of the arguments, that you would somehow mitigate high-frequency traders if you tax it so it's not as—the small margins [crosstalk]

GREENBERGER: Now, there are ways to limit high-frequency traders, but the margin on this is so small that it would not block people from doing high-frequency trading.

JAY: Well, unless you had a bigger margin, 'cause—.

GREENBERGER: Well, but then the—the margin does not have to be that big. I think to the extent you argue for a bigger margin, you're setting barriers in getting the financial transaction tax off the ground.

For high-frequency trading, it's as simple as making sure that there's a human behind the engine that's doing the trading. You know, when you go to send an email letter off a website, you have to type in letters that are put out there so they know there's a human being doing the transaction. The trader should be required to do the same thing.

JAY: 'Cause right now—I was told by someone at the commission that does research at the commission that Goldman—I think he told me 600 to 700 people doing nothing but writing computer algorithms for high-frequency trading.

GREENBERGER: Well, it's not [incompr.] the problem that 600 or 700 people are writing the algorithms. The problem is the algorithms are in place where decisions are being made with no human intervention, they go askew, and we have calamities. And we really—we had the market drop, in May 2010, 1,000 points in half an hour. That's going to be a walk in the woods compared to the damage that can be done by this.

JAY: Thanks for joining us. And thank you for joining us on The Real News Network.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay

Paul Jay is CEO and Senior Editor of The Real News Network. As Senior Editor of TRNN Paul has overseen the production of over 4,500 news stories and is the Host of our news analysis programming. As Executive Producer of CBC Newsworld's independent flagship debate show counterSpin he produced over 2,000 shows during its 10 yrs on air. He is an award-winning documentary filmmaker with over 20 films under his belt and was founding Chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).


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