Introducing the Too Big to Fail, Too Big to Exist Act

Right here, at the shop now I'm gonna have that for everybody, 10 987654321 good morning everybody, uh and thank you very much for joining us for a discussion that is overdue about one of the most important issues facing our country and it gets very little discussion here in Congress or in the media and I'm delighted to be joined by congressman brad sherman who is from California and brad is a senior Of the House, financial services Committee alright, thanks so much for being with us and we're also driving But my great fears and we're gonna touch on that can generally today, but overall, I worry very much that in our nation today we are moving to another gothic form of society where small number of very wealthy individuals uh in large corporations have enormous control over our economic and political life. Today we are in a country where three people, through the wealthiest people on more wealth than the bottom half of American society and 52 percent of all new income is going to the top one percent now in the midst of all of that. What we're gonna be discussing today is St Uh which, in my view, is the most powerful weapon Prices for than 27 million Americans were unemployed, underemployed or have given up looking for work. 15 million Americans lost their homes and uh many many people, many millions of people lost their life savings. American households lost over 13 trillion dollars in savings shot during retirement dreams wiping out life savings and making it impossible for families to send their kids to College now there was this was a cottages mic event Which had a dramatic impact on the lives of people all across this country and some of you will recall on October third, two thousand and eight President George W, Bush, signed legislation into law, not to help the disappearing Middle class but to provide a 700 billion dollar bailout the Wall Street banks because they were too big to fail and that's the main point we're gonna be discussing today too big to fail, that if they were allowed to go under, they would take and much of the economy with him and that was the rationale for building them out now 700 billion dollars in the us lia lot of money uh and if that was Well, that was provided to Wall Street during the financial crisis. It would amount to the largest taxpayer bailout in the history of the world, but of course, that was not all that was given to Wall Street, not by a long shot. One of the things that we did during the debate over the bail out is that I was able to get an amendment passed to order the federal Reserve uh and what we learned in fact, what is what really went on behind the scenes of the young The 700 million dollar, bella we learned that our nation's Central Bank, the federal Reserve provided more than 16 trillion dollars and financial assistance to every major Bank in the country, including city group, can chase Bank of America and Wells. Fargo not to mention large corporations flooring banks and foreign Central banks. All over the world now one might have thought that is part of the Bell out. These huge banks Which rondout because they were too big to fail, would have been reduced in size. One might have thought that somebody said hey we're. Gonna do this anymore we're gonna break. You want well. Needless to say that did not happen in fact, what has happened over the years is the very opposite today. The four largest financial institutions in this country are on average eighty percent larger than they were before. We bail them out. So the words they did not shrink in size but they're today eighty percent larger incredibly, since the financial crisis Jp Morgan chase has increase this assets by more than one point, one trillion dollars Bank of America and the other large banks have also significantly increase their assets. Listen to this today. The six largest banks in America have over 10 trillion dollars in assets equivalent to 54 percent of our gdp. Six banks have assets equivalent to 54 percent of the mirror. You comfortable with that and I'm not and that's kind of the issues that we're gonna be Talking about today, but it's not only the size of these banks but within that size uh these six financial institutions hold about half of all credit card debt control of the 90 percent of all Bank the. Reverbs underwrite about the third of our mortgage that control over 40 percent of all Bank deposits. If these banks were too big to fail 10 years ago, what would happen if any of them with the failed today, not station we're going to be discussing in my view Think you'll hear similar thoughts and moment no Bank that is too big to fail is to big to exist so the issue is preventing another collapse. Another huge ballot but there's another issue as well, and that is that not only am I worried about another collapse and bail out I'm worried about the lack of competition that we see today as result of this huge concentration of ownership and one of the manifestation of of that has to do with the outrageously high level of credit card interest rates in the sky Today, while banks borrow money from the bed to percent, two percent, they charge consumers and our veterans about 17 percent for credit cards and if you have mediocre or bad credit interest rates, could be as high as 25 or 30 percent. Thank you that is millions of people today who may not have great credit. Maybe they run and play for awhile can buy that bills paying 25 to 30 percent. These bags borrow the money at two percent. I think all the time is now to break this Bank, something that's. What the legislation is about. That we can discuss and I'm delighted that congressman I'm working on this issue for years and what this bill will do is uh cap. The size of largest financial institutions in this country. So that the total exposure to our economy is no more than three percent of gdp. That's about 500 eighty four billion play right, launched it up from their Sen thanks for having me here um brad sherman from california's best name city charlotte oaks and for 22 years of representative most of the San Fernando Valley in Congress and for 22 It's been my pleasure to work with you, senator, particularly on this bill which we have been working on sit and re introducing since two thousand and nine um 10 years ago, the largest banks in this country were able to hold us hostage. They said, if we go down we're taking the entire economy down with us and as a senator pointed out There are stronger position to do that today because they're almost there well over 50 percent larger than they were then that bill. That was signed in the law would have been even worse if it hadn't been for the efforts of the critics. The original plan for tarp was to give the banks the money in return for toxic assets the worst trash would be converted to cash The worst mortgages in the biggest volts in the biggest banks for real money that would have enrich the banks by almost by the lion share of the 700 million dollars due to the critics of that proposal. They back down just a bit and instead the 700 billion dollar uh bailout was structured as a investment and preferred stock uh and as a senator points out, though, that was just one part of the bailout that bail out um was of iowa La tion of the social compact that we have in the society that when capitalist uh invest they take the risk and reap the profits and instead we ended up with socialism for the rich form of socialism. That nobody here supports where the taxpayer takes the risk, but of course, the enormous profits have gone to to the banks um this is What would happen then would happen again. Uh. We get the call you're gonna take the entire economy down with us in Wall Street, understands that that's why the initiative paper saying that the biggest banks are able to borrow money from their creditors at eighty basis points less now. Eighty basis points as he 10 71 point sounds like a trivial about in less, you supply that to two or three trillion dollars and the savings Buy saving just point. 81 percent of that tends to be roughly equivalent to the profits of these banks. So their profits you're attributable to the fact that they can borrow money for less because everyone on the Wall Street knows if they're going down there calling us and the politics of this country, they believe with lead us to building out again now the idea of breaking up the big banks is not uh a some while we should have republicans' here it's Real capitalism, real competition and the concept of breaking up the big banks and supported by the independent community bankers Association which represents 90 percent of the Bank presidents in this country, not known to attend meetings. Um the uh uh. We need real competition that's fair where medium size and regional banks and small banks can prosper without suffering at eighty basis, point, this advantage because they bail out It's not just bad for our economy it's bad for additional system because we were told by Eric holder. These banks are too big to jail. We can tonight at any of them without bringing out the economy and what kind of license doesn't give Bank executives. If they feel they're too big to jail and it was clear disruption of the social compact in the country um. You think that wanted to break up the big banks in your hostile the banks so much, but we're doing it for Are there for a a capitalist system that's works and it's fair and it's not difficult to do. It. One of protozoa silver animal gets too big. It divides into and I'm hoping that the geniuses on Wall Street or at least as smart as the average, healthy protozoa that they can simply divide themselves into two or three units uh that will be healthy, that will compete reasonably and they will not have an unfair competition competitive the bench right thanks very much like for you Uh I'm Johnson is not only a leading economist hero to paper for the Minneapolis federal Reserve on how to break up the big banks which was the basis of legislation that brighter night uh are offering today so many what's your take on the situation. Well. Thank you, senator and congressman for taking up this issue. I think it's long overdue. I agree completely that what we're facing today 10 years off the top is the potential repeat of the same situation where you look at that the biggest banks and we are excited to make six really big mega banks that will be directly impacted shape Morgan chase Bank of America citi group will goldman sachs and Morgan stanley. Anyone of those is now on the size, great larger than brothers This course, many of the problems of 10 to two thousand eight is remember to liberty if anyone in the went down will be in the big knock-on effects across the entire economy globally and then the officials will come back to you in the Senate and the House and they say we have to save the world and you'll be placing that same impossible position. You are placed in and the septembers of so two thousand eight so the only way out of this and we got ice afforded many parts of different and has moved some dimensions of has just Available direction, more competition, more transparency, but it's not enough, including on now because that the biggest thing to come, you can bigger the largest Bank in two thousand eight the city group of two point five trillion dollars now it's jp Morgan chase and three point five trillion dollars break them up make them smaller, make them more comfortable make them more competitive is uh campus said and you'll get more of the benefits of competition and making solar politically, which is gonna dress exactly yours is about all, while supporting just the top legislation would you were you felt it would have to be had to There wiselift consequence would our end up supporting these large bags actually you said where is the bail out for the homeowners. Many people had a experience. The full in House price and we're underwater on their mortgages could make those payments if they've been able to finance that positions, those underwater positions for two to three years, like the banks were they wouldn't they're gonna, be for the House. They would not have gone bankrupcy. Would not now face high interest rates lots of health insurance and so on, so the bailouts are always some people that live in The upside is for the only knock-down side is the lemons which we get there's no support provided ever to ordinary Americans in this kind of crisis. That's why your expectations so important to avoid a repeat of the experience so let me just start of last year the question getting the situation of two thousand eight and the trump because people still feeling that the African American community was devastated, but why is there not more discussion of this issue by uh People not asking the simple question if they were too big, too big to fail in two thousand eight and the bigger today. Why do we allow this to continue. It it's a great question. Sen. This quickly and easier his problem in this country. More and more generally, uh former Fed chair Alan Greenspan and Republican, as far as I know in October two thousand nine said if it's too big, if they are too big to exist with other banks too big to exist, that you'd like to fail so at that moment, after the crisis that was great clarity across the Spectrum but unfortunately um um you know various politicians have decided that they like the status quote there's, a lot of money that comes from the banks to politicians on on both sides of the aisle. The state is provides, as it is extremely strong and people have really just forgotten or choose to ignore the lessons of two thousand eight just pick up on silas point since the 19 90 s the financial sector has given more than three point two billion in campaign cut Beauty shines and last year alone spent over 200 million dollars and love it. Maybe that has something to do with the fact, but I think if we get booked financing will be in the stronger position to deal with this and a whole lot of issues. But if you're only House financial services Committee, how do you see the power of of Wall Street related to all the list of well uh, we may see a big change probably the biggest change you've ever seen in the Committee. You served on the House Committee for many years. Our current chairman is just entering uh Our future chair, woman is maxine waters, uh. This election goes as we think it will and I cannot think of a bigger change in the leadership of the Committee in the history of our country. Um but that being said, uh Wall Street still they've got at least four networks dedicated to the worship of all St the people could be watching on their cable systems out in my area there are only three channels dedicated to the worship of jesus christ um it's not Just the money to politicians it's a National worship of Wall Street. He belief that anything that makes the markets go down is bad for America at anything that makes and markets go up. Uh I'll remember being criticized when the House we're able to stop this bill for a wild change. It uh in the markets dropped 600 points well, they dropped 600 points for a host of other reasons, as well, but the idea was your anti-american piece. You did something that Wall Street but let me has supported a free, simple What is the likelihood of another question. What do you think it's like really likelihood on that. So much I think I'm gonna crash it is absolutely something is gonna happen that the history of your blanket will happen and I'm not saying that the date time saying will you will have another major disturbance of the kind of experience in the two thousands of the history of the United States says these things do not go away the question is just the disturbance become a major crisis the catechism or the amount of cash system and then you have to provide the ban there's, a chance and that's what you're legislature's recipes which is yes, we'll have you guys will have problems that can be resolved and just with ordinary bankrupcy into the congressman's point I would say what what is more, American Learn to trust breaking up standard oil break, your is one of newmarket anti-catholic things that these also for all of our fundamental problems by the way, but they were things that were completely consistent with more competition and more even playing field for all Americans who choose to participate in the business. Did you think, is strong, likely. Another crash at some point um we'll see what God Frank does. Instead of breaking up the big banks is trying to make them um less risk which might delay the Time that happens, it's like uh throwing the dice in vegas and being told, we don't crap out with a three year of two. We only grab out with the two so um you'll be able to play the base longer. But eventually um above and beyond the fear of another collapse. What does it mean from a competitive point of view, but from the average consumer who cares but why care, if this one bankrupcy 50 bucks, what does it mean to me that you have so few banks controlling so much so many assets and such a large one of the economy. Well as you said, Sen this concerned about the high interest rates we've already seen a lot of price fixing in the London interest rate um Market at that that was a huge scandal has been fixed. Perhaps a little bit on the margins of these big players going to cook up some other version of that they can also be anything on the. Certainly write the pattern of behavior is this very large things get out of control. They used to consume as well Wells fargo extraordinary you see any fundamental change in behavior of large banks since two thousand and know that's important than other words did they learn their lesson and become good boys and girls of course they get the hands down for a while there's, a little bit of pressure But by September two thousand nine hey we're back at the same games, it didn't balmer newtritional at them off the hook they gave him the top money capital with very, very, very few strings attached. So we'll see that's just a good trade that great we make this money. We had to be handed out. Some of the downside that experience that's going on with the particular thing which was mortgages being given to people without documentation, etc. I don't think they'll make that exact steak again, but that doesn't mean the There are a hundred other ways to and that's history, financial crisis. You find another way to meltdown based on whatever you think of craziness season fashion. What does it mean to brag you;re. This issue. What does it mean that, despite the fact that many of these large banks have to pay very, very heavy, finds no major Wall Street figure was jail. What is that puts your sense of what is a totally American people that the people who cause so much pain And uh instability in this country and world none of them got a place working. What's, not of them, even got invited. None of them. Uh got a suspended sentence. No one got even close to that process and it means that a certain class of folks is above the one I hate to sound cynical but they make money on the trade. If you look at the compensation received by the top financial executives in two thousand two thousand in klum's whatever hand slaps that were subsequently with incredibly line of the personal level they made money on the tray that's all they care about. They do not care at all about anyone else, but in for themselves they're in it, for the money it was a good trade. They wanted to find a way to do it again and on the point in the fine state The companies they may have been intended headlines but for the individuals involved it's zero and who they find the finest. Stockholders and the people who would take advantage off on the last cycle. It makes no sense that they also have the propaganda point. They can say, look at this Bank. President oregano they've lost their job and the average person to that he if I lost my job, I couldn't pay the rent and I'd be desperate that is a huge punishment, but they walk away with a hundred million dollars you know if you're unemployed, with hundred million dollars it's not so bad and then you can pay the right right alright. What if we not gone over, I think we covered it. Senator. I think that the heart of the matter is and all the go-lucky and all the guarantee that it multi dimensional across many sectors but it is absolutely manifest and and very dangerous in the financial sector through the form of this very large banks, it's strange in the sense that most devastating power comes with a friend to fail because they basically giving is Do you support us which is awful all you have global cataclysm and they come to you. They will come to you as they did in September. Two thousand eight responsible people who believe in this And uh, it worked with a lot of small business, small businesses are able to get loans from small and medium size banks. Uh. I mean it me diamond testified before us and he said we couldn't find businesses in the United States to lend money to which means he had visited any of our constructs. It would be really sad, but therefore he sent the money to his London office where it was eaten by the whale real remember that the The trade and they lost many many billions of dollars. They could have been uh lending that money to small businesses but that's not their focus. If you're sitting on the seventieth floor and then on Wall Street you're, not thinking how can I love my name to appear it's arena know mall so, if we can get more of the deposits and more of the power closer to small business uh, I think they kinda worked out so this legislation is very strongly supportive. Community banking and, as you said, the innovative cleaning methods, America consistently supported this kind of size cap because they understand that the very big banks damage them day in day out and the damage they even more when there's a crisis. Our for This recent some of which we touch long this morning you're, not gonna hear this discussion too much on Cbs nbc abc and you're. Certainly not gonna see and where the Fox business channel or Bloomberg or a floors of the Congress, I'm not saying, as well alright so it is up to the American people to begin to stand up and start this discussion again. None of us online eve. We understand the power of Wall Street. We understand their ownership with many members of the Congress and the media and so forth that's all it, but this discussion has got to take place now or else we are going to find ourselves where we want 10 years ago today, with that devastating moment When the economy virtually collapse and so many people with one, -out on the streets of lost their homes in lost their life savings, we cannot allow that to happen again and we cannot allow so few people that have so much power. We can't continuous situation, but what many people have to pay 15 20 percent interest rates. You know because they may have lost their job, whatever that just use your ius that's not acceptable so this is an issue with serious discussion has got to take place and we hope It's out there will help us with that discussion on the phone call up your members of Congress find out how they feel about this issue. If they are prepared to take on Wall Street and prevent another major collapse in the ballot carol. Many thing else okay. Thank you so much. Thank you Alright good okay thank you very much bright House. One related issue that you can see if you can get about that. The bond rating agencies oh, yeah. They never go