At INET Conference, Warren Adds Two Pieces to Her Financial Reform Framework

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By David Dayen, a lapsed blogger. Follow him on Twitter @ddayen.

The reason I’m filling in today and tomorrow is that Yves is in Washington for the INET Finance and Society conference, which is unique because it features a dozen and a half speakers, every one of them a woman, from Fed Chair Janet Yellen to IMF Chair Christine Lagarde to the SEC’s Kara Stein to CFTC’s Sharon Bowen to Treasury’s Sarah Bloom Raskin to many more, from the U.S. and around the world. Anat Admati of Stanford University organized the event, and you can watch the webcast tomorrow at this link. Maybe you’ll spy Yves stalking the halls.

As INET’s Rob Johnson said by way of introduction at tonight’s opening dinner, “the old boy’s club was not a committee that saved the world.” He quipped that the best think you could do for financial reform is to only have women regulate it. While gender does not define a willingness to go hard at the banks for their practices, it certainly appears that a group of them represent outsiders, unwilling to accept elite spin and able to fight the prevailing wisdom. So I’m pretty excited about this conference and bummed that I couldn’t make it out to D.C.

One of those women is Senator Elizabeth Warren, who gave the keynote address tonight. I’m going to embed it here; Rob Johnson is as always quite good, but so you know, Warren’s remarks begin at about 12:00:

Let me add a couple comments. This was basically the same speech as the one Warren gave at the Minsky lecture a couple weeks ago, which set a broad framework for the financial reform we still must enact. I wrote about that speech a couple weeks ago, so you can check it out there. In short, I think one reason for Warren’s appeal is that she has a coherent vision for how the economy should work: that actions should have consequences, so all participants in a market economy have a relatively equal shot at success. This includes actually prosecuting wrongdoing, breaking up the banks, ending bailouts, extending the regulatory perimeter to cover shadow banking, and changing the tax code to end the preference of debt over equity, among other points. But you can read about that at the link, or read this piece at Bloomberg. Warren actually added two elements to that framework last night.

1) Ending, or at least severely limiting, the Federal Reserve’s 13(3) emergency lending authority. This was in the Minsky speech, so it’s not really something new. But it was a bigger point of emphasis. Here’s the key text:

Second, Congress must carefully limit the Fed’s ability to provide emergency lending to a giant bank that gets into trouble. In the 2008 crisis, the Fed used its authority to provide – I’m glad everybody’s sitting down – $13 trillion dollars in low-cost loans to a handful of Too Big to Fail banks. Think about that: it wasn’t TARP or anything the Congress voted on. On their own, the Fed just kept shoveling money at nearly zero interest rates into a half-dozen Too Big to Fail banks. Congress should step in and make clear that the Fed isn’t the personal piggy bank for biggest financial institutions in this country.

This has become more prominent because Warren actually has a Republican partner for this. Bloomberg reported last week that Warren and David Vitter were working on legislation to “carefully limit” 13(3) authority. The Fed has proposed a rule on 13(3) loans, but Warren said in the Minsky speech that it was “so weak that it might as well not exist.” It seems the Warren/Vitter end product will come closer to the Bagehot rule to use crisis funds to “lend freely, but at a penalty rate.” Only solvent banks, under a strict definition, could receive loans for a limited time at a significantly elevated interest rate. There’s apparently a bill moving from Senate Banking Committee chair Richard Shelby which may, among other things, limit the authority of the New York Fed, so getting a Republican co-sponsor on 13(3) reform could allow this to attach to that.

The old boy’s club will obviously argue that the Fed must have maximum flexibility in a crisis, but that distorts the market, because of the easy knowledge that banks will get bailed out, if not by Congress then by the Fed.

2) At the end of the speech, Warren highlighted trade. And made a point that hasn’t been been overlooked by opponents, surprisingly. Trade promotion authority, Warren said, “would prevent Congress from amending trade deals and reduce Congress’ ability to block trade deals not just for the upcoming Trans-Pacific trade deal, but for any trade deal cut by any President over the next 6 years.”

It definitely plays to tribal sympathies to point this out, that the next President could be a Republican, with access to fast track. But hey, any port in a storm: this is at root a political fight, and if Democratic House members fear fast track in the hands of a Republican and vote against it for that reason, who am I to point out the bipartisan nature of trade agreements? Warren noted that Ted Cruz wants to repeal Dodd-Frank, and fast track could help him do that. It’s a sharp political frame.

Could a President could use a trade deal to override financial rules? Well, it’s been a part of trade agreements since the late 1980s, including the WTO. In fact, WTO rules prevent firewalls like Glass-Steagall: when the U.S. negotiated it in 1997, they added an intent to repeal it, which of course happened two years later, in time for the WTO’s implementation. (Size caps on financial institutions are actually also banned by WTO rules.)

Financial services deregulation is more of an issue for the TTIP, the proposed U.S.-European agreement. European negotiators, if anything more embedded with their banks, have insisted on including a financial regulation chapter, which the U.S. has thus far rejected. By the time TTIP gets locked in, another President could be in office who wouldn’t be so rigid on that point.

A new President would have plenty of ways to undermine Dodd-Frank or any other regulation – mostly by hiring regulators who specialize in looking the other way. But setting limits in trade deals just adds an extra chip. And as a political matter, if fearing the other side works to stop fast track, well, whatever works.

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About David Dayen

David is a contributing writer to He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. Ignacio

    “New Economic Thinking” … yeah, right.

    Meet the new boss. Same as the old boss

    1. diptherio

      All of this sounds somehow familiar…

      Remember folks, talk is cheap. Remain skeptical until actual results have been shown. Remember what happened in ’08…

      1. steelhead23

        While Liz isn’t running, she may be consciously plowing ground for Bernie to seed. This is ground that needs to be broken.

        1. Jackrabbit

          I’m a lot more skeptical of Bernie’s run. Progressive-thinking people are hoping that Bernie will give voice to their concerns but I think political realists are more likely to see his candidacy as deterring stronger candidates that might pose a real challenge to Hillary. As part of the money-fueled duopoly, the Democratic Party is unlikely to be a source of real change.

          1. hunkerdown

            He will give voice to their concerns, no doubt, but the MSM has an overriding say in whether each word is admissible to their “conversation”.

            1. ReaderOfTeaLeaves

              There are now many ways to reach people that have nothing to do with the MSM.
              And just today (or perhaps yesterday), I spotted a Twitter item about Bernie. It originated from Dylan Ratigan, who is followed by Yves, Ritholtz and others. If Ratigan’s Facebook or Twitter link to Bernie, it takes me less than a minute to click and see whether the article or video is: (1) of interest, (2) in my time allowance.

              I’m not slamming the MSM.
              I read The Guardian, and a lot of McClatchey’s Econ and politics articles are extremely interesting. There is still good reporting.
              The MSM is not all bad, and it’s a reasonable guess that plenty of people are working their asses off trying to figure out how to make a living as reporters and editors.

              With that said, they now have to compete with (or leverage) Facebook, Twitter, and blogs. The Fox viewers may be in thrall to Murdock and neoliberalism, but they’re a minority.

              I’ve seen enough hand-wringing over Bernies chances to set my teeth on edge.
              I’m increasingly convinced the conventional wisdom is 95% emotion and 5% analysis.

              I don’t want to think about what Ted Cruz or Rubio intend to do with Facebook, But at the moment, from what I see, Bernie is going to surprise lots of people, none of whom will see it coming.

    2. Paul Tioxon

      Your cynicism, and much of the prevailing cynicism on this site completely ignores well organized political opposition, the substance of which results in the failure for meaningful political progress. Instead of the mystical invocation that it is all the will of god, here it is all kubuki good cop bad cop. There is no analysis just unrelenting depression over the human condition not being up to speed. The pace of change is slower than consumer satisfaction. It is fundamentally a lot of seemingly small events that have and will result in large scale change, which then must be defended and consolidated against the well organized political opposition attacks, which never seem to end from generation to generation, like the 75 year assault on Social Security that equals in time its 75+ years of success and expansion.

      1. hunkerdown

        Faith does not yield outcomes. While Establishment loyalists seem to be quite happy to treat The Establishment’s products as infallible, the rest of us see the rot in the system and aren’t willing to help them prop it up just so they can act out their little abuse drama every two years.

        Perhaps if you were more loyal to outcomes than to the process that consistently fails to deliver them unless some oligarch is willing to stick their neck out for it, and if you didn’t put stock in the risible, unhinged fantasy that voting acts as a deterrent once the fix is in, your viewpoint might have more currency.

      2. hunkerdown

        Or, put another way, it’s still incumbent on you to explain your dedication to the status quo order, and the expenditure of struggle against a beast whose existence, of negative benefit to the peon classes, is so indispensable to you that it must not be questioned or weakened in any way.

  2. Ben Johannson

    We discussed the 13(3) change from Dodd-Frank some weeks ago in the comments. That amendment of the language appeared to give the Fed even more freedom of action than it possessed in emergency lending during the GFC. Chalk another up for NC commentariat.

  3. ErnstThalmann

    While she’s at it, may Liz can add a couple of pieces to her twisted vision of foreign policy, Gaza and the Middle East.

    1. hunkerdown

      The only way it’s possible to not vote for evil is to not vote for people. Citizens must dismantle representative government entirely, or at the very least start treating politicians as hostile adversaries, not as parent figures.

    1. susan the other

      In a previous conference both Yellen and Legarde were answering questions and when someone asked them both about the risks of derivatives they both hedged their answer to simply say they were trying to understand how derivatives work and were watching them closely. Much the same here, but derivatives aren’t actually mentioned – instead they are talking about protecting the stability of not just one bank but the ” entire financial system.” Which, when you think about it, is the job derivatives accomplished because there were so many counter parties that everything froze and bail outs were unavoidable. For the 1%. That this conference is entitled INET’s “Finance and Society” conference is great. I hope someone actually speaks about society.

  4. susan the other

    What David says above about banking deregulation is absolutely stunning. It was required by WTO rules. By global trade rules back in the 90s and that is why we got rid of Glass-Steagall. And deregulated the banksters. And 10 years later we got 2008 and the GFC which was based on such a deregulated free-for-all that even the WTO was probably wishing there were firewalls – and in the meantime the banks had covered their own butts with derivatives. Trade stopped cold, naturally. Relatively. I wonder what the connection between Dodd Frank (13)3 – no Fed emergency lending authority – and these draconian deregulated world trade rules is? Does taking away this “lending authority” protect our sovereign currency and monetary authority?

    1. Chauncey Gardiner

      Re: “Does taking away this “lending authority” protect our sovereign currency and monetary authority?”

      I think not, but this is another reason why it is essential the secret TPP, TTIP and TISA agreements not be granted “Fast Track” approval and that the full text of these secret agreements be released for public review and comment.

  5. craazyman

    Didn’t they just have a conference in Paris? And now there’s one in Washington?

    What’s up with that? Is there that much new economic thinking bubbling up (no pun intended) like champagne fizz to justify two back to back conferences? Or is there nothing new, in fact, so they have to talk and talk and talk (hopefully with wine and hors d’ouvres in a festive party-like setting) until nobody notices?

    I don’t know since I didn’t go to either of them. But I’d be interested if they have any new equations. That’s the only way to really know if something’s new, if there’s a new equation for it. Words aren’t very precise. So you can say an old thing in a new way and it may seem new, and you can fool people. But if you get quite specific, with an equation of some sort using rigorous mathematics, then there’s no faking it. It’s either “new” or “not new”. If it’s “not new”, then you better get back to work. No more conferences until you’ve got it down so there’s no discussion required. People look at it and they just don’t know what to say, they’re so amazed by the blinding mind light of infinite timeless truth carved and shining like a diamond star in the firmament of thought. That’s what you can call new!

    1. Yves Smith

      Haha, you noticed!

      They would not have chosen to do two major conferences in such close succession. INET always does its big annual conference the second weekend in April. The date of this conference was determined by when they could get both Yellen and Lagarde.

  6. words


    Faith [in a monetarily supported, promoted – and forced – ideology – words] does not yield outcomes.

    That just just reminded me of a great, far lesser known, Richard Burton movie where he played a priest who, much to his horror, murdered a young, utterly innocent of the suspected crime, theology student.

    1. hunkerdown

      *removes foot from mouth* Well played, words. I should have qualified that with “favorable”. *returns to dinner*

  7. Lambert Strether

    “… but that distorts the market …”

    I think we need to assume, pace neo-liberal utopians, that all markets are always distorted; it’s only a question of by whom and what for.

  8. words

    dear hunkerdown,

    *removes foot from mouth* Well played, words. I should have qualified that with “favorable”. *returns to dinner*

    sigh honey,… I was not playing …I was dead serious (though I suspect, in your heart of hearts you had not really intended to portray me as playing a game; yet the current web nanotechno secondry faux human vernacular will not allow any dissent from game play explanations regarding any human utterance, ….another long sigh (sigh? … what a fckn understatement).

    <:0) …. ;0( …. ;0) ….

    we got soul, and we’re super ‘bad’ wee peeps …. we always were, still are, when we speak up LOUD for wee peepdom.

    yep indeed, James Brown is predominant in that above mix, ……and don’t throw out that baby james with his bath water …….. please, ….please, …please …

    (after all, we all see how he ‘died’ … he got trapped in that dirty bath water, which dirt was not his own, or his parents.)

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