Elizabeth Warren Throws Down Gauntlet, Calls for Genuine Financial Reform

At the Levy Conference, Elizabeth Warren launched a new campaign for tough-minded, effective financial regulation. This ought to be a straightforward call for restoring banking to its traditional role of facilitating real economy activity. Instead, in this era of “cream for the banks, crumbs for everyone else,” common-sense reforms to make banks deal fairly with customers and remove their outsized subsidies will no doubt be depicted by pampered financiers as an unfair plot to target a successful industry. But as we’ve stressed, Big Finance gets more government support than any line of business, even military contractors. They are utilities and should be regulated as such. Thus even Warren’s bold call to action falls short of the degree to which the financial service industry need to be curbed.

Below is the video of her speech; I’ve also embedded the text at the end of the post.

From Adam Levitin at Credit Slips:

This speech is a bigger deal than Senator Warren’s Antonio Weiss speech or her famous Citibank speech. This speech is a blueprint for Dodd-Frank 2.0.  It lays out a detailed vision of the challenges for reform work going forward:

  • break up the big banks;
  • a 21st Century Glass-Steagal Act that promotes narrow banking;
  • a targeted financial transactions tax to reduce unnecessary volatility from excessive arbitrage;
  • elimination of the tax system’s preference for debt over equity financing, a limit on the Fed’s emergency lending authority;
  • a simplification of the financial regulatory system (does this as presaging a reduction in the number of bank regulators? The SEC should certainly feel the heat from this speech…);
  • reforms aimed at the various types of short-term debt that are the hallmark of the shadow banking sector (money market mutual funds, repo). 

There are three remarkable things about this speech.  First, what is truly groundbreaking is that Senator Warren recognizes that the problems in the financial regulatory space are not just technocratic ones but political, and that technocratic fixes will never work until and unless the political structure of financial regulation is reformed.  Senator Warren’s speech says exactly what needs to be said:  the power of large financial institutions not only threatens our economy, it threatens our democracy. Senator Warren has picked up the mantle of Teddy Roosevelt. 

Second, as a political matter this speech announces a reform offensive. Since the high-water mark of Dodd-Frank’s passage in 2010 we have seen a steady push for deregulation. For Senator Warren to take the offensive here, particularly when her party is in the minority in both houses of Congress shows real moxie. That this speech is credible in such political circumstances is also a testiment to its substantive strength. 

Third, this speech presents the only vision for financial reform in the policy space. (OK, I guess the “deregulate ’em all” approach is a vision of sorts, but come on…) There isn’t a competing right or left alternative out there.  No one else has a cohesive reform platform.  I think that makes Senator Warren’s speech all the more important because this is the speech that will shape the policy field going forward into 2016.  This is the yardstick against which all presidential candidates, Democratic and Republican will be measured. It will be interesting to see which ones endorse what parts of Warren’s vision and how enthusiastically. Silence will be particularly telling, as it is a vote for the dysfunctional status quo that leaves the Too-Big-To-Fail banks intact and growing. 

And from Simon Johnson:

Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers…

The second proposal is to end the greatest cheat of all – the implicit subsidies received by the largest financial institutions, structured so as to encourage excessive and irresponsible risk-taking. These consequences of these subsidies have already caused massive macroeconomic damage – this is why our crisis in 2008-09 was so severe and the recovery so slow. Yet we have made painfully little progress towards really ending the problems associated with some very large financial firms – and their debts – being viewed by markets and policymakers as being too big to fail.

Warren also hits important targets forcefully in her speech. She attacks the Department of Justice for its failure to take cases against big financial institutions to trial or to pursue their executives and managers who engage in fraud. She singles out the SEC as an even worse actor. She criticizes both agencies for entering into “cost of doing business” settlements as opposed to calling for (at a minimum) full disgorgement of their ill-gotten gains (the problem here, of course, is that both agencies tend to pursue only isolated examples of bad conduct, such as the SEC’s settlement with Goldman on only “Abacus” CDO out of a program of 25).

I hope readers will support Warren’s efforts. Her campaign will put a spotlight on the fealty of both parties, but particularly Hillary Clinton, to major financial players, and will expose inconsistencies between their messaging and their actual loyalties. It also serves to undermine the banking industry’s pretense that the crisis is over and nothing more needs to be done, when the Fed remains backed in a negative real interest rate corner that is a large, ongoing subsidy to trading and speculation, the very sort of activities that have been identified as negative from the perspective of economic growth.

But while I endorse Warren’s initiative, I feel compelled to highlight why it falls short. The notion that removing subsidies will end the “too big to fail” problem is misguided. Notice how Warren and her backers maintain that they are trying to make markets work better. Yet one big problem with our current system is that so much financial services activity has been moved off bank balance sheets into financial markets. During the crisis, the authorities didn’t bail out firms because they were too big to fail; they bailed them out because they were critical players in markets deemed too big to fail. Virtually no one would have deemed Bear Stearns to be systemically important prior to its rescue. So why was it salvaged? It was a big player in credit default swaps, and also a prime broker, meaning a large lender to hedge funds. Similarly, why did Federal and state banking regulators paper over the mess of mortgage chain of title, refuse to fix servicing (none of those firms remotely approached TBTF size), punt on securitization reform, and enter into an appalling “get out of liability almost free” Federal/49 state mortgage settlement? Because the officialdom deemed the mortgage backed securities market to be too big to fail.

The underlying problem is that in the US and far too many economies around the world, growth in private debt, particularly household debt, served to shore up stagnant worker incomes. But high household debt levels are actually a dampener over the longer term to growth. Yet the officialdom sees consumer relevering as positive and resisted the sort of widespread debt reduction and restructuring that could have set the financial services industry and consumers on a sounder footing.

As long as we have a market-based credit system, those markets, and the critical actors in those markets, will continue to be too big too fail. Recall that the comparatively modestly sized Bank of New York Mellon is also a “too big to fail” player by virtue of its role in clearing and tri-party repo. And rather than fix mortgage securitization, that market has instead been put on government life support via the fact that over 90% of residential mortgage issuance is now guaranteed by the Federal government.

So don’t kid yourself that removal of subsidies will do the trick. The officialdom will ride into the rescue if markets or institutions deemed to be essential start looking wobbly. Removal and reduction of subsidies needs to be accompanied by prohibition, particularly of low societal value/high risk activities like many over-the-counter derivatives. Regulators need to reject complexity and opacity. If they don’t understand a product and its risks thoroughly, they should not allow it to be offered. And that prohibition has to extend to lending or even taking anything more than trivial counterparty risk to firms that create or trade those products.

But this is a case where having Warren put serious financial reform back on the agenda opens up the topic of what is wrong with our current financial system up again for badly needed scrutiny. And instilling more spine in regulators would be a big step forward. So I hope you’ll press your Senators and Representative to join Warren’s campaign. It’s time to start taking ground back from an oversized, papered, and too often predatory industry.


Print Friendly, PDF & Email


  1. financial matters

    Great speech. She describes what a difficult undertaking this is:

    “First, what is truly groundbreaking is that Senator Warren recognizes that the problems in the financial regulatory space are not just technocratic ones but political, and that technocratic fixes will never work until and unless the political structure of financial regulation is reformed. Senator Warren’s speech says exactly what needs to be said: the power of large financial institutions not only threatens our economy, it threatens our democracy. Senator Warren has picked up the mantle of Teddy Roosevelt. ”

    From Michael Hudson’s ‘Beyond the Bubble’

    ‘Financial institutions have become the major economic planners of our epoch, usurping the former role of governments. What they evidently oppose is planning by elected officials with a broader set of social concerns than those of monetarist technocrats.’

    ‘Society therefore faces a choice between (1) saving the economy, by writing down debts to the ability to carry without stripping the economy; and (2) saving the financial sector, trying to preserve the fiction that debts growing at compound interest can be paid’

    ‘Financial capitalism has become a network of exponentially growing interest bearing claims wrapped around the production economy’


    These problems are well understood by Stathis Kouvelakis in his recent interview in Jacobin ‘Dangerous Days Ahead’

    AB (Alain Badiou)
    I think the deeper reason why these social-democratic, traditional left, etc. governments are not interested in helping Syriza is that their main propaganda argument is the idea that the choices they make are forced upon them. These aren’t people who talk about some extraordinary program of transformative changes; no, they claim their hands are tied.

    If Syriza succeeds, then that will prove that their choices aren’t as forced as they say, and that they make them only because they have no properly political answers that would allow them to come up with anything different.

    And I think that this is an essential point. That here, too, you bear an extraordinary responsibility — and when I say “you,” I mean the Greek people . . . and you personally, too! — namely to provide the first demonstration, anywhere in Europe, that in this kind of conjuncture, it’s possible to implement a different policy in practice.

    That would really be a political earthquake in Europe, if the Greeks could shine a magnificent beacon showing that it is possible to interrupt Europe’s constant neoliberal slide and its being governed according to capital’s financial and economic needs, to use some old-school language . . .

    But in neoliberal capitalism that’s not possible anymore. So even to get relatively modest reforms which at other times would have been perfectly compatible with the system’s functioning, we need to have major confrontations and conflicts on a large scale. And we’ve seen as much in Latin America: the countries like Bolivia or Venezuela or Ecuador that have left governments are not socialist, but even this partial break with neoliberalism required lethal struggles: blood was spilt for it to be possible for Evo Morales to be elected.

  2. Northeaster

    I’m not a Warren supporter due to her personal hypocrisies and misrepresentations, but I could certainly can get on board these particular issues pointed out in the statement. Now let’s see some follow through, some pushing, and some action.

    1. Barry Fay

      what “personal hypocrisies and misrepresentations” would those be? Just engaging in ungrounded character assassination is pretty poor form and could be suspected of being the workings of a clever troll.

    2. david

      Northeaster you said: “I’m not a Warren supporter due to her personal hypocrisies and misrepresentations”

      Pray tell what would those transgressions be? and how would they compare to Ms. Clinton’s spotless record for representations? Further if William Safire, probably the most noted wordsmith of our time, calls Hillary in 1997 a Congenital Liar (which means from birth), How would that compare to your standards?

      1. diptherio

        Check out her foreign policy stances. Same ol’ war-mongering BS. And “lesser-of-two-evils” thinking is just as sloppy when considering two Dems as when opting between a D and an R.

        Warren may be better than Hillary (on some things) but that doesn’t make her great, by any stretch. And anyway, “better than Hillary” is saying almost exactly nothing…Remember, all politicians are guilty until proven innocent. Despite EW’s feisty rhetoric, I’m still waiting to see some actual reform–some perp-walks and orange jumpsuits on CEOs–before I get all excited about some talk coming out of Washington (even if it’s saying something good for a change). Show me the prosecutions: until then, it’s all hot air in my book…

        1. RUKidding

          I agree with you vis EW. It is good/useful to see at least ONE politician in the District of Criminals speaking sensibly about the very very huge issues with banks, our finance sector, etc, and EW has done a better job at elaborating more clearly what the issues are, along with proposed real-world solutions. I, too, can get behind them IF anything appears to come to sort of fruition. For better or worse, so far, most of what EW has said is just that: talk. It may not be all her fault, but … eh? Words? Lotta words come out of the District of Criminals, and they signify very little.

          EW is very much a Zionist, and personally, I have issues with that (others are free to disagree), and EW is a huge war hawk.

          So color me skeptical but not entirely unsupportive. But I, too, would like to see at least a couple of perp walks, and so far, that ain’t happened. Most we can say is there’s been very few sternly worded letters and a couple of light taps on the wrist. Please awaken me when some real bona fide consequences occur to the big cheeses (not just to a few much lower down on the food chain).

        2. theinhibitor

          So in your mind, you will absolutely NEVER find a politician of merit?

          At least Warren has a moral backbone, something that currently 99% of the politicians in America lack.

          Clinton has no backbone, she is absolutely corrupt. So Warren is already miles better than Clinton.

          I find it funny how you say politicians are guilty until proven innocent, but then attack Warren on her foreign policy. Ever heard of picking your battles? She’s already against big finance. Now you’d want her to big against the military industrial complex? She, like many other bright politicians, has realized what you clearly haven’t: that to enact any change in America you have to be either a Dem or a Rep, and therefore you have to somewhat cater to your Party’s interests.

          Your dream politician doesn’t exist for a reason diptherio.

          1. jrs

            Looking for a politician of merit that will enact those merits while winning the Presidency seems absurd. So what about $ huh? Who will fund a Warren run enough so she could in theory win? Not the banksters? Alright then, the MIC instead maybe as she’s sufficiently hawkish? And if it does what quid pro quo will it want? 4 more wars, but financial reform?

            I don’t really care that much how people vote when presented with non-choice choices, at that point the parameters of the game are very limited, but to believe the game isn’t ruled by big money is naivete far beyond any naivete present in idealism.

            I mention the Presidency in this context because the name Hillary Clinton got into this, so ….

          2. jrs

            If not fantasizing about Presidents and all you are saying is call your congress person to support the proposal or “re-elect Warren if you live in MA” ok. But call your congress people on Fast Track and the TPP/TPIP first. It will make this pretty irrelevant I think. In fact it’s arguably what all bully pulpits like Warren’s should probably be used for at this time, though that’s strategy, and on strategy people may differ.

          3. ian

            Its all very well and good that she is taking these positions, but seriously, how many people are really paying attention? She isn’t running for any office and this won’t go anywhere in the senate. I wish she were running for president – her positions might get a bit more attention and would be a great contrast with Hillary.

            1. Demeter

              Exactly. With no action contemplated or started, it’s all talk.

              Which means it will be ignored. We have ample proof that grassroots cannot accomplish meaningful change in this area…they throw the public a social policy bone now and then, but the stuff that really counts? Not a chance.

        3. NotTimothyGeithner

          There is an important difference. Warren discusses policy, and that alone demonstrates empathy. Warren knows enough to ask questions and be informed. Hillary’s rollout shows she has such great contempt for voters who keep asking Democrats what their policies are. She could easily come out, lie for a few months, and then business as usual. Hillary doesn’t care enough to even do that.

      2. Northeaster

        Pray tell what would those transgressions be?

        For starters, for someone who chastises TBTF banks, her personal primary account is with one of the worst: Bank of America. Then, go check Oklahoma County Registry of Deeds, she took pretty good advantage of the mortgage market before it crashed with some decent profits too on the flips. Her misrepresentation on her racial background was a joke here in MA, but even worse is her misrepresentation regarding college costs. She was a beneficiary of the ridiculous costs of college, and she’s completely wrong on the fix (lower interest rates).

        Now, would I vote for her over Clinton? Absolutely. If Republicans could present a decent candidate, I might even vote for one of them, unfortunately Clinton will be walking into The Oval Office and my dog will be written in for President.

        1. Yves Smith Post author

          College costs were NOT ridiculous when she went to college. She’s older than I am, and when I went to college, middle class parents could afford to pay for an Ivy League education. Mine even paid for grad school and gave my two brothers (who did not attend) cash amounts after they graduated from college equivalent to what they spend on my graduate degree to be fair to them. My parents were not affluent by any stretch of the imagination and got no money or inheritance from their parents. She came from a poor family, and if she got a scholarship, it was either merit or need based. She described how her father lost his job and her mother had to work hard to keep them going at a much lower economic level.

          I’m amazed at the degree to which people will distort facts to attack Warren.

          1. Carla

            Perhaps Northeaster was referring to EW’s career as a Harvard University law professor. That’s what I thought was meant.

        2. run75441


          Pretty much anecdotal in content.

          – There is no conclusive evidence she ever claimed to be of Indian descent on any application other than Brown’s alleging she did do so on applications. Her very own statements of family stories were much along the lines of being as anecdotal as your claims she made such a claim. Some of her family remember the stories and some don’t . Unfortunately for you, Brown’s conflating of the issue did not work for him. At least she did not swear to having shown up at National Guard training. http://www.washingtonpost.com/blogs/fact-checker/post/everything-you-need-to-know-about-the-controversy-over-elizabeth-warrens-claimed-native-american-heritage/2012/09/27/d0b7f568-08a5-11e2-a10c-fa5a255a9258_blog.html

          – Election Funding: That is rich Northeastern coming from someone who might vote for a Republican. The Koch Bros. out spent the top 10 Unions in 2012 which represent how many people as compared to the two of them. Literally their modus operandi was to defeat any and all election laws to identify donors as evidenced in Wisconsin and Michigan. The split in election fund raising was $36 million to $32 million with Elizabrth no more or no less than what Obama did in donations. I do not remember the Dems working to strike Election Laws with United Citizens?

          – TBTF means TBTF; Wasn’t that Rubin along with Greenspan, Levitt, Graham and Wendy Graham, Geithner, etc. who repealed Glass-Steagall and changed the National Banking Act as signed by Clinton and passed by a Repub Congress to allow Citibank to move forward for Sandy? Today’s environment is the result of Republicans looking for what Cheney called; “Finally, something for us with the passage of the 2001/2003 tax breaks.”

          – College Costs? Isn’t it time you start thinking about the rising cost of colleges and how they are occurring? You toss these little one liners out here and we are supposed to guess what you are driving at today. In Michigan state funding for state schools went from 60% to 20% under a Republican led legislature. The same has happened in many other states.

          Student loans have been at ridiculous interest rates and getting one is as easy as signing your name. Unfortunately, they are little more than roach motels. Today we also have the Republican minded Jason Delisile, Matt Chinagos, and Beth Akers funded by Lumina attacking efforts of Warren to lower the cost. I am even older than Yves or Warren and my education was funded by state grants and the VA, amazing heh? College for a year at ~$1300. Who do you believe pushed for no discharge on student loans through bankruptcy? Warren? or was it Republicans again thinking of the 1%.

          As far as loaning at Fed Rates to student loans? Why not? We do it to GS and other Investment Firms that were declared banks and Main Street pays for this. Interest rates do matter over the life of the loan contrary to what Akers and Chingos think. She did not get it wrong, you drank the kool-aide.

  3. Barry Fay

    Writing “personal hypocrisies and misrepresentations” without mentioning even one example is pretty low behaviour. I, too, however am all in favour of backing Mother Theresa´s new plan!

  4. tim s

    Senator Warren puts forward two main sets of proposals. The first is to more strongly discourage the deception of customers

    Call it what it is – fraud, not “deception of customers”, and call us what we are – fellow humans, not customers or consumers. Once we get to this point, we can agree that if we humans are defrauded by our fellow humans, then we should reserve the right to do more than “strongly discourage” these fraudsters. I’ll start with a pound of flesh in retribution, and I reserve the right to choose where that pound comes from.

    1. MaroonBulldog

      Don’t be so hard on another person’s choice of words. In my legal community, “fraud” and “deceit” are synonymous terms–fraud and deception are words that just go toeghter well–so “deceiving customers” sounds the same as “defrauding customers” to me.

      It sounded especially the same to me when my witness in a hearing exclaimed, “I was deceived.” More natural, more trustworthy, more convincing than “I was defrauded” would have been.

      “Unfair and deceptive practices” doesn’t sound mealy-mouthed to me when compared to “fraudulent practices”.

      1. tim s

        I could have lived with “deceived” – it was really the “strongly discourage” that got me going. Those are weasel words that draw a line nowhere. If it is fraud and theft, which what else would be the purpose of deceiving a customer, draw a line that is definitive and let there be an actual define punishment. Otherwise what? Allowing a pass on such nonsense gets us nowhere other than where we already are.

        Besides, word choice deliberate and powerful for all kinds of purposes, from legal arguments to propaganda to love letters. I wouldn’t underestimate the importance of word choice.

        1. Vatch

          Our laws strongly discourage murder, but don’t prevent it. But our laws certainly do not strongly discourage fraud/deception by big finance. We can’t completely prevent fraud/deception, but I think it would be a huge improvement if we really would strongly discourage it.

      2. Kurt Sperry

        To my non lawyerly ear “deceptive” sounds much, much softer than “fraudulent”. In colloquial use one can be deceptive in a thousand ways without approaching criminality, whereas “fraudulent” practically demands a legal remedy. “Deceptive” in legalese seems instead to often be used as an exculpatory euphemism for “fraudulent” or “lying”.

        1. Vatch

          If “deceptive” is softer than “fraudulent”, then it’s good that she wants to strongly discourage deceptive behavior. Fraud is necessarily a proper subset of the softer and more inclusive deception. She’s against the more severe fraud, as well as the less severe deception. That’s pretty close to having a zero tolerance attitude about financial misbehavior.

  5. PJKar

    From above: “….common-sense reforms to make banks deal fairly with customers …”. Your romanticism is absolutely charming Miss Smith and greatly appreciated, but the question still remains. What good does it do to regulate an industry that is basically run by a bunch of psychopaths?

    1. Vatch

      Well, if enough of the psychopaths are imprisoned by real regulators with backbones, some of the vacancies might be filled by people who actually have a conscience.

      1. PJKar

        Well, if enough of the psychopaths are imprisoned by real regulators with backbones
        Well sure Vatch but to quote what Santa Ana screamed at the idiots in the Alamo “Si la reina tenía cojones ella sería rey”.

        Its been 7 years and nothing has happened. No accountability, Nothing. Teachers go to jail for cheating on tests. Cheating bankers? The legal system is basically defunct. Wealth transfer continues from the poorer class to the rich. Why should we think that it is ever going to stop when the system has been bought, wrapped and delivered to the oligarchs. . Dodd-Frank? Lets spare ourselves…we know its being written by the lobbyists. If you go to the Levy Institute website they have the audio recordings of the presentations. Listen to Michael Greenberger’s talk. He advises on these issues see what he says about it. So is Elizabeth’s for that matter. She was raving about a $5B return to cheated consumers. The economists detail the wealth transfer well into the trillions owing to the bailout etc.So who’s kidding who here? The BS story that has had everyone mesmerized since the days of de Tocqueville has run its course and was never real to begin with.

        1. Ellie Kesselman

          I wish that this weren’t true, but it is, and it is bleak:

          PJKar: Its been 7 years and nothing has happened. No accountability, Nothing. Teachers go to jail for cheating on tests. Cheating bankers? The legal system is basically defunct. Wealth transfer continues from the poorer class to the rich. Why should we think that it is ever going to stop when the system has been bought, wrapped and delivered to the oligarchs. Dodd-Frank? …we know its being written by the lobbyists.

          I don’t know why everyone is lobbing accusations at PJKar and Northeaster. They aren’t saying that Senator Warren is wrong, or misguided or corrupt. Hillary is all those things!

          I think that most legislators know what Warren does, about the need for genuine financial reform, but she is the only one to actually speak about it. Therein is the problem: She is the ONLY one. She likely has the support of the majority, i.e. the populace of the United States. No one with any money or power is interested in the financial reforms that she espouses, as they would adversely impact the people who are benefiting from the fraud and wealth transfer from poor and middle class to the elite. This is a pathetic situation of course, but try reading The New Republic and their warnings against “majoritarian governance”. I don’t recall details, and they likely refer to social issues rather than regulatory, but it scares me because it seems to be applied to banking too.

          We, the majority, are not given any voice in stopping the destruction of the middle-class and barriers to upward social mobility, because… why? We’re too ignorant? That’s what Hillary’s message seems to be. Senator Warren is one, lone voice, when there should be many, from both parties! Warren is better than a lot of Democrats, because she actually does form alliances with GOP lawmakers who want the same things accomplished: stop fraud and wasteful spending that helps narrow special interests at the expense of the majority. In both parties, there are good lawmakers like Warren, but they have no powerful money PACs, little visibility and no one but the powerless majority is supportive of their policy proposals.

          1. Vatch

            Yes, things are bleak. One thing you can do, and I certainly hope that you have been doing it, is to write to your elected representatives.

            Just this year, I’ve written to my Representative criticizing him for voting for HR37, thanking him for voting against HR185, asking him to oppose trade promotion authority for TPP, TTIP, and similar agreements, and expressing my disgust over Andrew Bowden’s remark.

            I’ve sent similar letters to my Senators, except I’ve asked them to oppose HR37 either in committee or if it come up for a vote. Just yesterday, I made follow up phone calls to my Senators’ and Representative’s local offices opposing trade promotion authority.

            In previous years I’ve written about the need to strictly regulate credit default swaps and my desire for a return of the Chinese wall of separation between investment banking and savings banking (a portion of the Glass Steagall Act). I’ve also expressed my extreme disappointment that Eric Holder’s Justice Department hasn’t prosecuted any major financial criminals.

            I’ve also written about some environmental issues.

            Most of my letters end up being nearly meaningless, because there aren’t enough others who write similar letters. But that’s not my fault; we need more people to become active. If you haven’t been sending letters like this, please start today. If enough people write letters about these types of issues, some in Congress will start to pay attention. If you don’t know how to contact people in Congress, ask. Someone will post the contact information. On second thought, I’ll do it now:



            1. Vatch

              I almost forgot. I also sent letters this year to my 3 DC legislators asking that the US Postal Service be protected. Material published on NC is what prompted to me to do that, along with several of my other letters. Again, I hope plenty of other NC readers did the same.

    2. Yves Smith Post author

      Unwarranted attacks on the hosts earn you troll points. I also see you are showing your youth and inexperience. When the SEC had Stanley Sporkin as its head of enforcement in the 1970s (who was rumored to be able to induce heart attacks by the fierceness of his depositions), the industry was vastly cleaner than now and securities firms were afraid of the SEC.

      And did you miss that I recommended prohibition? If you prohibit the risky, high profit activities, and cut off their air supply by restricting lending to them (which will not stop them necessarily but will shrink them by making them more costly to finance), the psychopaths will leave because there won’t be enough money left in the game to interest them.

      Even the weak tea reforms implemented so far are leading bankers to dislike their jobs, since the pay levels covered for a multitude of other issues with them. See this from a Financial Times article last week:

      The work is dull, the pay flat and your colleagues lousy. But that could well be your lot in financial services, according to a global survey that has uncovered deep frustrations at the heart of the industry.

      According to the survey, carried out between January and March by Options Group, a New York-based executive search and consulting firm, just one-fifth of participants said they were content with their job, their firm, their pay and their prospects. Half of the 100 people interviewed — in a range of mostly senior positions at banks, brokers and asset managers — said they were unhappy on all four fronts.

      “In an environment where pay and bonus pools are stagnant, brute politics and internal credit-stealing are ascendant,” said one anonymous investment banker, who works at a US bank in the UK and has about a dozen years’ experience.

      Other reasons cited for low job satisfaction included a proliferation of rules turning brokers into “utilities”, ultra-easy monetary policy causing “pathological prices”, and “greedy senior managers only interested in protecting their own privileges”.


      Translation: the sharks are already starting to feed on each other.

  6. susan the other

    Yves says in her caveat about Liz: “…so much financial services activity has been moved off bank balance sheets into financial markets” that to do too much to regulate the banks will bring down the markets and it is actually those markets that are TBTF. It is the market created by the banksters that is the foundation of the economy now. As Jon Stewart said c. 2010, “we have a foreclosure based economy.” That is the beauty of capitalism – given enough incentive it can make a market out of an old ham sandwich.

    1. susan the other

      To extend my thought, I think this is why I have been disappointed with Liz, until this speech which I like alot. Clearly Liz is aware of the fragility of our whole financial market construct. That doesn’t detract from her proposals to restructure the system because what she recommends is all good. But looking at the foreclosure mess and the chain of title debacle is an interesting case: Liz said the Fed board “didn’t even vote” on the decision to reimburse harmed homeowners – that it was a decision made by the executives. This is a telling observation because clearly the Fed knew, as well as every person who read about the debacle here on NC, that the banks had screwed up not just the note (shredding 80% of them), and the title, but the very securitizations of the MBS beyond repair. And then they just sold the stupid things on to all the greater fools. And to shut down further publicity and investigations, etc, the Fed (surely in a panic) just rushed thru a few skimpy checks to compensate for the harm done – checks which didn’t come close to compensating those homeowners for being the victims of a huge financial fiasco. And Janet Yellen was the short straw – she got to do the presser. So its a bright and shining illustration of how the housing industry, aka the housing market, had to be saved – but finance also had to be saved. And the old dilemma of which loved one you save first in a flood comes to mind.

  7. Oregoncharles

    Good stuff – but given the present structure of our politics, it’s just window dressing.

  8. monday1929

    Obama says a lot of good words too.

    The reforms will come AFTER the Crash. The Sociopaths will regain control quickly.

    Yes, I am cynical. I do appreciate the efforts of those who are not, and try to improve our lot.

    Occupy should re-form, conduct all of their business publicly, online, to neuter the FBI plants and link up with Ron Paul types to fight for a return to a Rule of Law, and outflank the Right by calling for elimination of 90% of all financial regulations. Just outlaw Fraud and punish offenders with hard time.

    1. Ellie Kesselman

      Occupy clearly needed to be militarized, and if re-formed, should be. They also need to have clearly stated objectives (demands). Unless they have specific demands, which require appeasement in a very explicit way, nothing will be accomplished. I don’t think the FBI is the enemy. They care about us, they ARE us, much more than the oligarchs (Obama and Hillary). The Tea Party is us too.

      monday1929 is a great user name for your comment! I probably should have chosen something like that, rather than post this under my own name….

      1. monday1929

        Many IN the Tea Party are well intentioned, and perhaps a few in the FBI – have you read up on the history of the FBI and the evils they have wrought? Decent people do not rise far any longer in our fascist police state. Look what they did to the 911 whistle blowers.
        It is brave to post under your name, but it may affect your career – e.g CLG- “career limiting gestures” if I recall correctly.

        Full disclosure: I continue to be short Spanish banks, and one of the criminal US ones.
        1929 will seem a walk in Zucatti Park when the trillions in bad debt, the hiding of which is the reason for zero and negative interest rates, are finally realized.

  9. Steven

    “Writing “personal hypocrisies and misrepresentations” without mentioning even one example is pretty low behaviour.”

    Maybe someone can furnish the link but I assume diptherio is referring to Warren’s endorsement of Israel’s latest attack on the Palestinians. This is more important with regard to economic issues than it might seem. IMHO it is Chomsky rather than PC Roberts and others who has it right – Israel is the junior partner in a U.S. a Middle East full spectrum dominance, hegemonic enterprise. (If any foreign state is calling the shots on US foreign policy I’d put my money on Saudi Arabia.)

    The point here is that to fund the US role as the world’s self-appointed global policeman, maintain domestic tranquility by offering new credit lines to the growing ranks of US poor, etc those financial markets have to keep operating to entice the financial proceeds from the operation of the world’s ‘real economy’ into Wall Street and other Western financial centers. If Warren does indeed believe the US hegemon and its junior partners in the Middle East and around the world are the indispensible foundation of the global economy, then even the ‘political’ solutions she offers are mere technocratic window dressing.

    I haven’t read Warren’s speech yet but unless she proposes something along the lines of Hudson’s “saving the economy, by writing down debts to the ability to carry without stripping the economy”, the same criticism applies. (Hudson seems to be turning into a flaming moderate. Whatever happened to odious debts?) The bigger picture is to be found in Hudson’s “Super Imperialism” and its contemporary sequel, Yanis Varoufakis’s “The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy (Economic Controversies)”.

    What’s described there is a failure of economic leadership that goes far beyond the regulation of banking and financial markets. What is required is “planning by elected officials with a broader set of social concerns (like national and global envirnment and economic sustainability – Steven) than those of monetarist technocrats”. Those monetary technocrats serve two masters: a global financial elite whose only real interest is piling up more claims to the world’s present and future wealth (AKA money or “debts that can not be repaid”; a Western political elite that long ago realized it was more expedient to borrow than to tax in funding its quests for power (kills two birds with one stone?)

    NC readers have perhaps unfairly been picking on the likes of Schauble and Weidemann. They are after all defending the whole system of Western political economy in Greece.

  10. MaroonBulldog

    As far as the proposal to use the tax code as a regulatory code goes, the proposal to phase out the interest expense deduction for thinly capitalized banks may not go far enough, and it may be a little oblique to the right direction. If there are identifiable transactions that ought to be prohibited, either because they are unduly risky to the system or the institution, or because they are fraudulent, then those ought to be punitively taxed, as in, for example, a 100% excise tax on the gain from any any such transaction that produces a gain, combined with a 100% disallowance of any loss incurred on a transaction that produces a loss–so of course there could be no netting of gains and losses before computing the amount to be taxed. (Maybe the 100% tax should be on the gross proceeds to any such transaction, with no deduction for the expenses incurred in obtaining it, but that could sometimes result in ta taxation of losses, and I don’t think it’s a good idea to go that far.) Furthermore, I would not be averse to a rule exposing the responsible officers and employees to personal liability for such taxes, along the lines of rules that expose such persons to personal liability for unpaid payroll taxes.

    I don’t think my proposed solution exposes any systematically important institution to additional risks of ruin, since I am not proposing to tax the losses on prohibited transactions; I merely propose to prohibit subsidizing such losses through the tax system.

    Would this proposed tax chill innovation in the banking industry? Absolutely it would. Is that a bad thing? Looking back, weren’t mortgage-backed securities and collateralized debt obligations innovations that should have been chilled, nay, frozen to death? Yes, I am all in favor of chilling fraudulent innovations.

  11. Pelham

    It’s worth noting in counterpoint to Sen. Warren’s remark that the Fed isn’t the big banks’ personal piggybank that, in fact, the Fed is OWNED by the banking industry. So in its very essence the Fed is indeed a piggybank for the banks — or whatever else they want it to be.

    I recognize the need for a central bank. And I understand the desire that the central bank be somehow “independent.” But the Fed as it exists is the prime, shining example of the very opposite of independence, which itself is probably impossible.

    Better to make the Fed fully transparent and directly accountable to the American people.

    1. MaroonBulldog

      I disagree with your idea that the Fed is owned by the stockholder members of the regional Federal Reserve Bbanks. That would require that member banks have some power to control the regional Federal Reserve Banks. Legally, they don’t. Practically speaking, they don’t, either.

      Since Berle and Means published “The Modern Corporation and Private Property” in 1932, the majority of corporate lawyers and law professors have come to accept the view joint stock corporations (the regional Federal Reserve Banks included) are not owned by shareholders: all shareholders own is a right to receive performance of whatever obligations the governing corporation law and corporate charter and bylaws happen to say the corporation owes them, and these obligations never add up to amount to the property law concept of private ownership. In the real world, corporations (including the regional Federal Reserved Banks) are so organized i as to prevent the stockholders from having any control, or any use, or much if any say, concerning what goes on in them.

      There is a formal legal argument to explain my reasoning, property law defines “ownership” as the exclusive right to possess and use a thing; “property” is defined as a thing that is owned. Corporations are not “things” that are capable of being owned in this sense. Also, “private property” is property owned by private “persons” (including private business associations fictitiously treated as persons). A regional Federal Reserve Bank can’t be “private property” of shareholders if they don’t collectively own exclusive right to possess and use the regional Federal Reserve Ban, and they do not own any such right to possess it, or use, exclusive or otherwise.

      So, if the Federal Reserve Banks aren’t the private property of their members, who owns them? The answer is: no one owns them. The Federal Reserve Banks themselves are fictitious corporate persons that own their bank buildings, office furniture, and other assets, as the private property of the Federal Reserve Bank. The regional banks themselves are not the private property of anyone. (They’re not public property owned by the state, either. No one owns a “Federal Reserve Bank” as such. No one owns any joint stock corporation, as such.)


      1. Vatch

        However, don’t the member banks get 6% dividend (or interest) payments on their shares (or deposits) in their regional federal reserve bank? That’s a pretty good deal, assuming it’s true. I would be delighted to get 4% on my savings!

  12. Adam Eran

    Gratifying to read that not everyone is taken in by EW. She has many admirable accomplishments, but looks far too much like the establishment’s attempt to flank the left, at least to me. Now Bernie Sanders, or Jill Stein (Greens) are the genuine article… No, I doubt they would win, but they don’t have to win to be influential. All those People’s Parties, Socialist Party, etc. kept the D’s safe(r) from attack during the New Deal. Same story here. The left has to be willing to be a spoiler, or the D’s will simply crush them like an old cigarette butt.

    1. Yves Smith Post author

      I suggest you do more homework on Bernie. He carried the Administration’s water and played a linchpin role in watering down Audit the Fed.

  13. Out of Bounds in Utah

    About time someone other than Bill Black grew pair, sorry Yves No pun intended. Ya, it would be nice to see someone like Warren scare the heck out of Wallstreet. Most people commenting here are like a fool and his money. You don’t know what really matters till you’ve lost it. I Am a male retired flight nurse, and ICU manager who takes care if a severely disabled wife. I have been viewing this blog since before time, and it is one of the main reasons I am debt free. But you know, I have a friend who for thirty years has been a big commercial fisherman in Alaska, and another who works for Goldman S. One says the Ocean and what he catches are disappearing, the other says that w this financial engeeniering, things are not going to end well. Both I have known and trusted for years, and this scares me. It should scare most of you. Warren isn’t perfect, but she can see that we are close to being like the Movie’s (Roller Ball, and Soylent Green.) Ya know I thought we had something in Obama, after all the crap from Reagan(Ruskin draw, Jelly beans, and death valley days was his best), and the Yale/Texas/Mideast buddies Bushies, and Clinton’s(Well Hillary the Face, but probably better than any Man!!!), and allas Obama, the only thing good he did his whole term, was to make preexisting conditions, and maximum amount of money your allowed by your health insurance policy and your sick go away. We got totally screwed by premiums of health CO insurers. And, PE/Vulture/Hedge/Banks got the housing rentier thing going after pushing 100 years into 10 and flushing it all, and getting the Mikey Mouse broom bailout and getting it going again. No I think People are going to need alot more than money to make a go of it soon. My kids used to laugh when I used to.bring up those two Old movies, but they aren’t laughing now!!!! Get a life folks and every day ask yoirself what really matters. Ask the people who think they have it all, and then they don’t!!!!! USA used to have priorities now it doesn’t, Glad I live in Utah, and I am not even Mormon. And you gotta ask when the poop hits the fan, are your neighbors, and friends going to be there for ya, or against ya!!!!! Good luck Senator Warren, a voice of reason in a truly dark world. This is my first and last Rambling post, but i do wish you all well, and especially you Yves. Carry on or carry out as they say.

    1. Ellie Kesselman

      Bill Black in Missouri is wonderful! He has almost zero visibility though.

      I liked your post! I didn’t find it rambling at all. I know a very bright man, a corporate attorney in Kansas, who was saddened and appalled by what Dodd-Frank was evolving into, back in 2011. I remember how I felt, confused by his seeming cynicism. He was correct though: Dodd-Frank’s 11,000 pages of legislation wouldn’t accomplish what FDR’s elegant, less than 100 pages long Glass-Steagall did. Obama was no different than those that proceeded him, and Hillary isn’t either. I recall Rollerball, accidentally watching it when I was a little girl, never wanted to see it again. Soylent Green is another; haven’t seen but know the plot. I wish more people were good, and did good works, like you: caring for the ill and infirm for decades, raising children, and caring for your wife.

      1. Out of Bounds in Utah

        Ellie, thanks for you kindness. It was late, and hope is an ephemeral thing. I have been taking care of the love of my life for 15 years after she came home from skiing at the ripe old age of 40 and fell over from a stroke. I have been an investor for alot longer. Ya, as a kid raised i was overseas on military bases, even Gitmo in 59, 6 months before Castro, and then finished my young life in Northern Cali, before moving to the land of Utah, that time forgot, still alot like leave it to beaver land. I became a working ski bum BC(before children). Funny, as a kid i was at a Bart ceremony in Walnut Creek in 1969 i think, and guess who was there, the Big Dick(Nixon), and remember my dad telling me about how we were going off the gold standard, the beginning of the end for regular world. Of course I did not know what he was talking about then, ha ha. Hmm,100 pages the GS ACT, what a wonderful simple thing to just throw away. Thanks Yves, and those who post on this site, as most are quite intellectual, insightfull and stimulating to read. Go occupy anything, and get back what we lost. I am afraid I am too busy to do more than cheer leed. Opps made a second post, my bad, ha ha

Comments are closed.