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Over the last week, Washington politicians on both sides of the aisle have started voicing their support for limiting the size of Wall Street banks.Yesterday, after Attorney General Eric Holder testified that the Justice Department held off in prosecuting some banks because they were too big, the pile-on has gotten larger.
Holder was testifying in a Senate Judiciary Committee hearing about HSBC. Last year, the bank paid a $1.9 billion fine for laundering money for Mexican drug cartels, suspected Middle Eastern terrorists and more. Congress wanted to know why no executives were prosecuted criminally for those actions.
Holder said he wouldn’t discuss HSBC’s case specifically, but he admitted that size was a deterrent in prosecuting banks.
“That is a function of the fact that some of these institutions have become too large,” Mr Holder said…
The size of large banks “has an inhibiting influence – impact on our ability to bring resolutions that I think would be more appropriate”, Mr Holder told lawmakers. “And I think that is something that we – you all – need to consider.”
In isolation, these comments are significant enough. Holder is probably the most senior Obama official who’s ever come out and said that Wall Street’s so big that its above the law.
On top of ‘too big to fail,’ we now have ‘too big to, jail.’
But what’s more, Holder’s comment is not in isolation. Over the last week Congressional banking hearings in the House and the Senate have been the stage of confrontations between witnesses and politicians demanding answers about ‘too big to fail.’
First it was Elizabeth Warren confronting Ben Bernanke. She said that because investors believe in ‘too big to fail’, big banks have a free insurance policy. Because of that insurance policy, Wall Street banks are seen as safer bets, and that means more money for them.
“Last week Bloomberg did the maths on it and came up with the number $83 billion that the big banks get in what is essentially a free insurance policy,” Warren said to Bernanke. “So I understand that we’re all trying to get to the end of TBTF, but my question Mr. Chairman is, until we do, should those biggest financial institutions be paying the American tax payer that $83 billion subsidy they’re getting.”
The next day, in the House of Representatives, Mike Capuano (D-MA) followed Warren’s lead and asked about ‘too big to fail’ when he got his shot at Bernanke as well.
A few days later a bipartisan duo of Senators joined Warren and Capuano’s cause. Senators Sherrod Brown(D-OH) and David Vitter (R-LA) both gave big presentations on the floor of the Senate about ending “too big to fail.
From Brown’s presentation (the full text is on his website):
Just about the only people who will not benefit from reining in these megabanks are a few Wall Street executives.
Congress needs to take action now to prevent future economic collapse and future taxpayer-funded bailouts.
I want to thank my colleague, Senator Vitter, who recognises this problem and is joining me in doing something about it.
I am pleased to announce today that we are working on bipartisan legislation to address this “Too Big to Fail” problem.
It will incorporate ideas put forward by Tom Hoenig, Richard Fisher, and Sheila Bair.
Tea Party politicians have been outspoken about the size of Wall Street banks for a while, but Vitter is no Tea Partier. He’s a mainstream Republican joining with Democrat on this issue.
And there’s evidence that other rank and file conservatives could join him. When Marco Rubio went to visit with Blackstone’s Steve Schwarzman, conservative thinkers from Peggy Noonan to James Pethokoukis said that the GOP should be moving away from Wall Street, not closer to it.
“I’m going to steer this party away from Wall Street and toward what used to be called Main Street and doesn’t have a name anymore. Our economy won’t take off again until our pigsty of a tax code is cleaned up. People have to feel everyone’s being treated fairly, that the rich aren’t calling the shots and gaming the system. And all future growth could be stymied if you guys make a half-trillion-dollar wrong bet tomorrow because some trader in London was high as a kite on Ambien. That could bring down the system the way it crashed in ’08. So we have to change the system. Too big to fail is too big to live.”
This morning, the Senate Banking Committee is meeting for a session called “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement.” You can bet that Holder’s comment will come into play there.
Wall Street’s ears should be burning.
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