Politics

How Bernie Sanders And Hillary Clinton Differ On Wall Street

CREDIT: AP Photo/Jim Cole

Sen. Bernie Sanders (I-VT) unveiled a comprehensive financial reform plan in a speech Tuesday just a few miles from Wall Street itself, vowing to break up large financial institutions that pose a threat to the economy and complete the “unfinished business” of reform which began under President Obama.

“We need a movement which tells Wall Street that when a bank is too big to fail, it is too big to exist,” Sanders told the crowd. “If Teddy Roosevelt were alive today, he would say to the big banks: break ’em up. And he would be right.”

Vowing to begin these reforms in the first 100 days of his presidency if elected, Sanders explained he would order his secretary of the Treasury Department to establish a “Too-Big-to Fail” list of commercial banks, shadow banks and insurance companies whose collapse — without a taxpayer bailout — would “pose a catastrophic risk to the United States economy.” Within 365 days, his administration would break up the institutions on that list. Sanders also vowed to cap all ATM fees at $2, calling anything higher than that “usury,” and limit interest on credit cards and consumer loans to 15 percent.

The campaign of Democratic frontrunner Hillary Clinton, who released her own reform plan in October, immediately criticized Sanders’ proposals as too narrow and simplistic to fix the complicated, murky world of finance.

Sanders hit back directly in Tuesday’s speech, casting himself as the tougher reformer. “Secretary Clinton says we just need to impose a few more fees and regulations on the financial industry,” he said. “I disagree.”

But how different are the plans of the Democratic Party rivals? Both, for example, vow to criminally prosecute and jail bankers who commit white collar crimes that harm the economy. Yet there are a number of major issues that divide them.

1. One way to ‘break ’em up’

“I will fight to reinstate a 21st Century Glass-Steagall Act to clearly separate commercial banking, investment banking and insurance services,” Sanders said Tuesday, referring to a law established during the Great Depression that was weakened and repealed under presidents Ronald Reagan and Bill Clinton. “Real Wall Street reform means breaking up the big banks and re-establishing firewalls that separates risk taking from traditional banking.”

Clinton has questioned the value of Glass-Steagall and said the law repealed while her husband was in the White House could not have helped prevent the 2008 housing collapse. Sanders disagrees, saying the so-called “shadow banks” whose failure triggered the recession, such as AIG and Lehman Brothers, got their money from federally-insured bank deposits of big commercial banks, which would be illegal under such a rule. Regardless of whether the law could have prevented the Great Recession, Sanders argues it could curtail risky behavior in the future.

2. Small taxes, big taxes

As he has done previously, Sanders called this week for a financial transaction tax “to discourage reckless gambling on Wall Street and encourage productive investments in the job-creating economy.” The measure would impose a 0.5 percent tax on stock trades — or 50 cents for every $100 worth of stocks — a 0.1% fee on bonds, and a 0.005% fee on derivatives trading. He has vowed to use the billions such a tax would raise to make all public college tuition free.

While Clinton has also called for a tax on Wall Street, her plan focuses only on so-called high-frequency trades, a far narrower category.

“Hillary’s is kind of a half-plan, which doesn’t raise as much revenue,” Mike Konczal with the Roosevelt Institute told ThinkProgress. “The more people have looked at it, the weaker it seems. It’s not sufficient to tackle the problem, because it exempts a huge amount of trades.”

3. The right men and women for the job

The most ambitious aspects of Sanders’ plan to take on Wall Street could not be achieved through an executive order. And without a massive shift of power in Congress, it’s unlikely he could get a bill passed to drastically curtail the power of big banks. That leaves the nation’s regulatory agencies, whose leaders are appointed by the president and confirmed in the Senate. Such leaders, Konczal argued, could have a major impact on the U.S. financial system.

“Agency heads have a lot of leeway to do a lot of things,” he said. “If you had someone who is a populist or Democratic Socialist in the way Bernie is, it would change the tenor very quickly in rule-making and enforcement, especially at the Federal Reserve. Whoever Bernie puts in Janet Yellen’s role, if they think a bank is a huge systemic risk, they along with other members of the Financial Stability Oversight Council, can break it up. Those appointments could have a real impact.”

Though Sanders did not reveal who he would appoint to such roles, he did praise the economic ideas of two high profile progressives: Sen. Elizabeth Warren (D-MA) and former Labor Secretary Robert Reich. He also threw some shade at Clinton, whose chief financial adviser Gary Gensler worked for Goldman Sachs, and possibly at President Obama, who has appointed several people with pro-Wall Street backgrounds to regulate Wall Street.

“As president, I will nominate and appoint people with a track record of standing up to power, rather than those who have made millions defending Wall Street CEOs,” said Sanders. “Goldman Sachs and other Wall Street banks will not be represented in my administration.”

Though Clinton has similarly not revealed who she would appoint to lead the Federal Reserve and other agencies, Konczal says the two candidates would likely show stark differences in their nominations.

“Hillary would appoint people who think Dodd-Frank is mostly successful and just needs a little more work,” he said. “Bernie would appoint people who think our financial system is a massive problem and needs a major overhaul.”