Bernie
Sanders is right: we need to rein in the big banks. But we shouldn't
just break them up — we should socialize them.
Nicole
M. Aschoff
Ten
years ago Neil Barofsky got the call. His country needed him. The
financial sector had collapsed in what would end up being the biggest
financial crisis since the Great Depression, and it was up to Uncle
Sam to save the day. Barofsky packed his bags and headed to
Washington, determined to do his part as the special inspector
general overseeing the Troubled Asset Relief Program (TARP).
Unfortunately,
Barofsky’s unwitting role in the drama was to provide cover for the
very institutions that had caused the crisis, “foaming the runway”
for the banks so they could return to business as usual. And return
they have. Today, America’s financial behemoths are bigger than
ever.
On the
tenth anniversary of TARP’s founding, another man has decided to
take on the banks. Bernie Sanders introduced a bill in Congress last
week — the “Too Big To Fail, Too Big to Exist Act” — to cut
America’s biggest financial institutions down to size and,
hopefully, prevent a second Great Recession. The primary aim of the
legislation is to force the “breakup of any financial
institution with a total exposure greater than 3 percent of our
nation’s GDP, $584.5 billion.” It targets JP Morgan Chase,
Citigroup, Wells Fargo, Goldman Sachs, Bank of America, and Morgan
Stanley — which, according to the bill’s summary, control over
$10 trillion in assets or 54 percent of the US gross domestic
product.
Sanders’s
bill is a step in the right direction. But if we want to transfer
power from Wall Street to Main Street, we’re going to have to think
bigger.
Preventing
the next crisis
The
timing of Too Big’s release commemorates more than just the debacle
of Wall Street fat cats getting paid while millions lost their homes,
jobs, and pensions in the 2008 crisis. It’s also a reminder that
even though a decade has passed since the financial meltdown, the
country is still in crisis. The US economy is doing well by many
accounts — low official unemployment and inflation, strong
corporate profits and stock market — yet we feel an overwhelming
sense of foreboding. Hand wringing and murmurs about getting out
ahead of the next big one have checkered the pink pages for months.
Getting
out ahead is a central aim of Sanders’s bill. The logic is simple:
if we don’t let banks get too big, they won’t bankrupt us if (and
when) they fail. The bill compels banks to shrink down (within two
years), and limits their freedom to gamble with insured deposits
while they restructure. It also requires insurance companies and
other “near-bank” financial institutions to publicly report their
exposure, and increases oversight from the Federal Reserve vice-chair
for supervision and the Financial Stability Oversight Council.
So would
Sanders’s bill prevent a catastrophe like the 2007–8 US crisis
and bailout? The experts will no doubt weigh in. It’s worth
remembering, however, that the 2007–8 crisis was a “black swan”
event. Even observers who were deeply uneasy about the housing bubble
had little sense of the magnitude or the mechanisms of the coming
crash. When Lehman Brothers tanked, nearly everyone (except maybe
that guy in The Big Short) was stunned.
While
it’s impossible to say how the next big financial crisis will play
out, the global financial system remains highly integrated and
unstable — so it’s a safe bet that the conflagration won’t be
contained to a handful of big US banks. As a bill focused primarily
on American financial institutions, Too Big does little to address
the global nature of financialization, making no attempt to
restructure global financial markets or regulate capital flows. This
is likely to limit its efficacy, especially considering how the
ripple effects of the 2008 financial crisis were felt in nearly every
corner of the world. It’s hard to imagine how we could prevent or
ameliorate the next big one without addressing the interlocking
nature of global finance.
Tackling
global financial hegemony is a tall order, however, so it’s unfair
to dismiss the bill for not doing so. Sanders is right to go after
the big US banks. They should be reined in. But we should also be
clear-eyed about Too Big’s limitations.
The
bill’s supporters — including left-liberal heavyweights like
James Galbraith, Robert Hockett, and Dean Baker — view it as a big
step in the effort to “revitalize Main Street and cut Wall
Street back down to size.” Brad Sherman, a cosponsor and fellow
break-up-the-banks advocate, says, “By breaking up these
institutions long before they face a crisis, we ensure a healthy
financial system where medium-sized institutions can compete in the
free market.”
Proponents
of the bill further contend that by limiting the size of financial
institutions, credit will flow more widely and smaller banks will
multiply, serving Main Street instead of Wall Street and ameliorating
the annoying fact that big banks would rather earn a profit on hedges
and derivatives than lend money to communities and households. If we
just restore competition, the “free market” will work its magic.
This is
a fantasy. A “healthy financial system” would force banks (no
matter their size) to loan money to ordinary people at low interest
rates. It would place strict limits on how banks could use federally
insured (and publicly backed) deposits. It would guarantee community
access to affordable loans. It would ban the predatory practices of
banks in poor neighborhoods, especially poor neighborhoods of color,
and expand basic affordable financial services to the millions of
American households who are either unbanked or are forced to rely on
financial predators. The bill does none of these things.
Sanders’s
bill is perfectly fine as a stopgap measure. But if our goal is to
reduce the power of financial logic to shape life according to the
needs of the rich, we need a bigger vision. Too Big, alongside
legislation like New York senator Kirsten Gillibrand’s postal
banking bill (which Sanders and others support), could be part of
this bigger vision — but they can’t be the anchor point of
radical reform.
Rethinking
Finance
As
Jacobin authors have repeatedly argued, we need a more expansive
understanding of finance’s role in everyday life. Finance makes the
economy go. It allows countries, communities, households, and
individuals to plan, build, and grow. It is central to capitalism and
would be just as central to socialism.
As such,
finance should be a central part of any socialist vision. Instead of
band-aid reforms and free-market fantasies, we should socialize
finance, re-envisioning it as a public utility rooted in
decommodified institutions that enable us to collectively decide upon
and enact projects oriented toward people instead of profit.
Neoliberal
capitalism is in the midst of a deep crisis of legitimacy. This
crisis has exacerbated long-standing divides, putting a monster in
the White House and people in the streets. It is also why, for the
first time in decades, we have a genuine political opening in which
to demand something better than a return to the status quo. Now is
the moment to rethink finance so it can be used to build a better
society, rather than settling for solutions that “restore
competition” in the banking sector in the hope that next time will
be different.
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