CLINTON’S FIX FOR WALL ST. IS A SMOKESCREEN
Democratic candidate’s plan only masks her rejection of tougher financial reform
Hillary Clinton’s plan to curb Wall Street excesses, released last week with much fanfare, looks on close scrutiny like a smokescreen to mask her rejection of tougher measures proposed by her rivals for the Democratic nomination.
As the front-runner continues to sink in the polls, she has tacked further to the left ahead of Tuesday night’s first primary debate, coming out against the Keystone XL pipeline to carry dirty oil from Canada and the Pacific trade agreement she originally championed as a government official.
But her plan to extend the reforms enshrined in the DoddFrank financial reform act consists of minor tweaks to the existing law and a wish list of measures that are either vague or simply a declaration that laws will be enforced and regulations upheld.
Clinton, a briefing on her campaign website says, would “hold bad actors accountable” and would “appoint tough, independent-minded regulators to help get the job done.”
President Obama said much the same thing in 2008, and that proved to be wishful thinking as his Justice Department appointees declined to prosecute individual bank executives and his “tough” regulatory appointments, such as Mary Jo White as chair of the Securities and Exchange Commission, turned out to be paper tigers.
Talk, as we learned from the Obama administration’s lack of follow-through, is cheap, and there’s nothing in Hillary Clinton’s background to make us think she would be more diligent in her pursuit of Wall Street wrongdoing.
In fact, everything about her record — from her campaign donations from Wall Street banks and law firms to her reliance on Wall Street advisers and former president Bill Clinton’s bankfriendly policies — indicates she would not really get tough with Wall Street.
The key to her true intentions lies in the contortions she goes through to avoid the simplest, most elegant legislative solution to the problem of excessive risktaking by banks that are too big to fail: reinstatement of the GlassSteagall Act’s separation of commercial and investment banking as advocated by her primary challengers.
In an op-ed last week, Hillary Clinton acknowledged, without naming names, that such legislation was “one serious approach” being advocated to reduce the size of the banks and the risk of bailouts.
“I certainly share the goal of never having to bail out the big banks again,” Clinton wrote in
BloombergView, “but I prefer the path of tackling the most dangerous risks in a different way.” Why, really? She doesn’t give a reason for her “preference,” and her laundry list of fees and taxes and penalties to achieve some marginal ad- vance on these fronts would be difficult to define and challenging to enforce.
Clinton wants to give regulators authority to break up banks “too large or too risky to be managed effectively” — but this is authority they already have under Dodd-Frank and are unlikely to use because it’s a lot to ask of unelected regulators.
It would be much cleaner and easier for lawmakers — who are elected to make the tough choices — to achieve this with a separation of commercial banking from speculative trading that proved its worth for more than half a century under the original GlassSteagall Act.
Clinton’s pledge to regulate “shadow banking ” is another piece of misdirection.
Oddly, she refers to the role Lehman Bros., Bear Stearns, and AIG had in precipitating the 2008 financial crisis as the reason to impose regulations on “shadow banks.”
But the two investment banks were regulated by the SEC — which failed miserably in its supervision — and insurer AIG was regulated by state authorities in its insurance business (which created no problems) and by the Office of Thrift Supervision in its non-insurance activities — a federal regulator that has been shut down because it was so ineffective.
In any case, their activities threatened the entire financial system because their trading partners were the commercial banks that are its backbone. Prohibiting these commercial banks from this speculative trading activity — as did Glass- Steagall — would largely eliminate that risk.
Clinton wants to tackle other financial abuses, such as the corruption of the stock market through high-frequency trading, by penalizing one particularly pernicious practice of these computer-driven trades — faking a move in the stock market with bogus orders that are subsequently canceled.
Clinton would impose a tax on these order cancellations, which is worth a Bronx cheer because it is such a small and inconsequential change.
Vermont Sen. Bernie Sanders, Clinton’s biggest challenger for the Democratic nomination, instead would impose an acrossthe-board tax on all financial transactions.
This is a much more significant measure that would raise more revenue and more effectively tame not only the abuses of highfrequency trading but other forms of churning and short-termism dear to Wall Street’s greedy heart.
Sanders, like former Maryland Gov. Martin O’Malley, another Democratic hopeful, is backing full restoration of Glass- Steagall as well.
Next to these more radical measures, Clinton’s tweaks fall short of any meaningful Wall Street reform. They represent the compromise she tasked her advisers with at the beginning of the campaign — how to campaign on the left without really attacking Wall Street. Business columnist Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron’s, Institutional Investor and Bloomberg News service, among others.