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Elizabeth Warren Stumps for Banking Reform

By    |   Wednesday, 13 November 2013 12:25 PM

Sen. Elizabeth Warren, D-Mass., a freshman member of the Senate Banking Committee mentioned by some pundits as a possible rival for former Sen. Hillary Clinton, D-N.Y., from the left in the 2016 presidential race, spoke Nov. 12 to a joint meeting sponsored by the Roosevelt Institute and Americans for Financial Reform about the condition of the financial system five years after the 2008 episode of the ongoing financial crisis.

She began with a fairly standard review of the damage done by that episode, which the Federal Reserve Bank of Dallas has estimated to have cost $14 trillion, or $120,000 for every household in America.

Studies by Congress concluded that the causes of this event were bad mortgages, faulty credit ratings, exotic financial instruments and the failure of financial regulators to act to "stop the madness." Warren credited Sen. Tom Coburn, R-Okla., with helping to identify these causes in a report by the Senate's Permanent Subcommittee on Investigations.

Warren lamented that the financial regulators appeared to have been caught by surprise, even though the causes were years in the making, in part due to changes in the business model of banks as they elected to create products that were more complex and laden with hidden fees, much like a credit card agreement that used to be a page and a half has been expanded to more than 30 pages.

Supporters of the Dodd-Frank Act, enacted in 2010, before Warren was elected, pushed for greater transparency in financial products, and the bill established the Consumer Financial Products Bureau (CFPB) at her behest, but she asked, "Where are we now?" three years after Dodd-Frank, with the banking regulators other than CFPB way behind in implementing the law.

Warren declared that she would focus on the policy of "too big to fail," which Dodd-Frank was supposed to eliminate so that the biggest banks could not take reckless bets with insured deposits and receive a government bailout when the bets blow up. She complained that despite a lot of talk about the unfairness of backing risky Wall Street banks, those banks have only grown bigger, with the four biggest growing by 30 percent, the five biggest controlling half of all banking assets and the 10 biggest receiving a federal subsidy estimated at $83 billion.

At a recent Senate Banking Committee hearing, Warren asked Treasury Secretary Jack Lew how long Congress should wait for regulators to implement policies designed to end too big to fail, and Lew responded, until the end of the year.

In the meantime, Warren has joined with four other senators, none of whom serves on the Banking Committee, to propose what they call a 21st century version of the Glass-Steagall Act, to separate risky securities activities from traditional banking activities supported by the federal safety net.

I point out that Dodd-Frank itself provided that banks were supposed to cease conducting so-called "proprietary trading" activities within the insured banks, and the regulations to implement this so-called "Volcker rule" are supposed to be promulgated by the end of the year.

Warren rightly points out that the banks are geared up to fight any reforms "every inch of the way."

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Sen. Elizabeth Warren, D-Mass., a freshman member of the Senate Banking Committee, spoke Nov. 12 about the condition of the financial system five years after the 2008 episode of the ongoing financial crisis.
Wednesday, 13 November 2013 12:25 PM
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