The New York Daily News has now posted transcripts of the editorial board’s meetings with both Democratic candidates, first Bernie Sanders and then Hillary Clinton. It is interesting to read both, and I think there is little doubt that Clinton came across as far better prepared to answer questions in detail.
Some here will dismiss that statement, because I am a Clinton supporter.
So instead of just asking you to take my word on it, I thought I would provide answers from BOTH candidates on the same topic. It is a signature issue for Senator Sanders, and is an answer for which he has taken a great deal of heat. It is that of breaking up the too big to fail banks.
I will start with the exchange the board had with Senator Sanders:
Daily News: Now, switching to the financial sector, to Wall Street. Speaking broadly, you said that within the first 100 days of your administration you'd be drawing up...your Treasury Department would be drawing up a too-big-to-fail list. Would you expect that that's essentially the list that already exists under Dodd-Frank? Under the Financial Stability Oversight Council?
Sanders: Yeah. I mean these are the largest financial institutions in the world….
Daily News: And then, you further said that you expect to break them up within the first year of your administration. What authority do you have to do that? And how would that work? How would you break up JPMorgan Chase?
Sanders: Well, by the way, the idea of breaking up these banks is not an original idea. It's an idea that some conservatives have also agreed to.
You've got head of, I think it's, the Kansas City Fed, some pretty conservative guys, who understands. Let's talk about the merit of the issue, and then talk about how we get there.
Right now, what you have are two factors. We bailed out Wall Street because the banks are too big to fail, correct? It turns out, that three out of the four largest banks are bigger today than they were when we bailed them out, when they were too-big-to-fail. That's number one.
Number two, if you look at the six largest financial institutions of this country, their assets somewhere around $10 trillion. That is equivalent to 58% of the GDP of America. They issue two-thirds of the credit cards in this country, and about one-third of the mortgages. That is a lot of power.
And I think that if somebody, like if Teddy Roosevelt were alive today, he would look at that. Forgetting even the risk element, the bailout element, and just look at the kind of financial power that these guys have, would say that is too much power.
So far, good points. But then he is asked followup questions:
Daily News: Okay. Well, let's assume that you're correct on that point. How do you go about doing it?
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don't know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, "Now you must do X, Y and Z?"
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.
Key — note how he addressed the answer, and the absence of specifics.
Now let’s take a look at Clinton’s interview.
Daily News: Wall Street, too big to fail.
Clinton: Too big to fail.
Daily News: How do you stop too big to fail? What needs to happen?
Clinton: Well, I have been a strong supporter of Dodd-Frank because it is the most consequential financial reforms since the Great Depression. And I have said many times in debates and in other settings, there is authority in Dodd-Frank to break up banks that pose a grave threat to financial stability.
There are two approaches. There's Section 121, Section 165, and both of them can be used by regulators to either require a bank to sell off businesses, lines of businesses or assets, because of the finding that is made by two-thirds of the financial regulators that the institution poses a grave threat, or if the Fed and the FDIC conclude that the institutions' living will resolution is inadequate and is not going to get any better, there can also be requirements that they do so.
So we've got that structure. Now a lot of people have argued that there need to be some tweaks to it that I would be certainly open to. But my point from the very beginning of this campaign, and it's something that I've said repeatedly: big banks did not cause the Great Recession primarily. They were complicit, but hedge funds; Lehman Brothers, an investment bank; a big insurance company, AIG; mortgage companies like Countrywide, Fannie and Freddie — there were lots of culprits who were contributing to the circumstances that led to the very dangerous financial crisis.
Note that Clinton is able to cite specific provisions of Dodd-Frank, and notes how the provisions are intended to work.
It is important that she goes further with her words about non-bank institutions, which she has pointed out multiple times, would not be addressed by merely reinstating Glass-Steagall.
But the board asked a followup question, and here is that exchange:
Daily News: Should some of those culprits have been prosecuted, and in prison, successfully? Does that rankle you?
Clinton: Well, it rankles me that I don't believe we had sufficient laws, sufficient prosecutorial resources to really go after what could have been not just dangerous, unethical behavior but perhaps illegal behavior. I've talked with some of the people responsible for trying to determine whether there could be cases brought. And they were totally outresourced.
We haven't adequately resourced the regulators — SEC, Commodity Futures Trading Commission, FDIC — and we have not sufficiently resourced the Justice Department and U.S. attorneys to have the expertise and the ability to go after anything they sought.
Daily News: There's two slightly different questions. One is, was it a problem of law or was it a problem of prosecutors not being sufficiently resourced?
Clinton: The prosecutors tell me it was the problem of the law. Other analysts, as you well know, have said that there could have been more vigorous efforts that might have led to prosecutions. Now there were cases brought in some of the mortgage companies. There's also a problem with the statute of limitations, because these are difficult cases to bring. They take a long time. I think we should certainly extend the statute of limitations.
So I'm not going to second-judge people who I believe were acting in good faith, because I think they were — U.S. attorneys, Department of Justice prosecutors. But they concluded that they could not make cases. So I think we have to have a very robust analysis of what were the real reasons they couldn't make cases. Are the laws insufficient? Therefore how do we try to make them tougher as a deterrent and make it clear to people in the financial services industry that there's a new sheriff in town so that there will be additional legal requirements and we will resource better.
So I think we have to take a hard look at this, and I believe we can do that.
Daily News: If I hear you correctly, Dodd-Frank has got mechanisms for looking at institutions that are grave perils to the United States' economy. Do you believe now that any of the banks are inherently a grave threat to the United States' economy?
Clinton: At this point, I am not privy to the analysis that is being conducted under Dodd-Frank to make that determination. I am however quite concerned about the recent district court judgment overturning the regulators' assessment that MetLife should be considered an institution under the too big to fail rubric, because I don't think that the Financial Stability Oversight Council acted precipitously when they so labeled MetLife. And they clearly did their homework and came to that conclusion. And for a district judge to in a sense substitute her judgment for FSOC concerns me.
So right now, I don't know what the analysis of the existing potential for a grave threat or the suitability and completeness of their living wills might be. But I want to stress I will be looking for regulators who I have confidence in will be able to make those hard calls. We can't ever let what happened happen again.
But we've got to go further. We've got to have more transparency with hedge funds. We don't even know what kind of risk they pose. We need to look at repurchase agreements, which need more collateral so that they can't be used for the leverage that they were used before. That was a big problem with Lehman Brothers. We have to look at money market funds. One of the problems with one of the big money market funds back then was that it had too much Lehman Brothers debt in its portfolio and the government had to step in to boost it back up.
So my point has been continuously: The banks always have to be under now a tight regulatory oversight. But if all you do is look at the banks, you are missing shadow banking, and I have put forth a plan that everybody from Paul Krugman to professors of finance have said is a top-to-bottom, comprehensive look at not just what happened in the past but how we prevent risks in the future.
Note that Clinton takes the issue further to connect it to some of the problems beyond too big to fail banks that helped cause the financial crisis that occurred during the 2008 election cycle.
Sanders also addressed the MetLife case in passing. Allow me share that a bit:
Daily News: Okay. You would then leave it to JPMorgan Chase or the others to figure out how to break it, themselves up. I'm not quite...
Sanders: You would determine is that, if a bank is too big to fail, it is too big to exist. And then you have the secretary of treasury and some people who know a lot about this, making that determination. If the determination is that Goldman Sachs or JPMorgan Chase is too big to fail, yes, they will be broken up.
Daily News: Okay. You saw, I guess, what happened with Metropolitan Life. There was an attempt to bring them under the financial regulatory scheme, and the court said no. And what does that presage for your program?
Sanders: It's something I have not studied, honestly, the legal implications of that.
Daily News: Okay. Staying with Wall Street, you've pointed out, that "not one major Wall Street executive has been prosecuted for causing the near collapse of our entire economy." Why was that? Why did that happen? Why was there no prosecution?
Sanders: I would suspect that the answer that some would give you is that while what they did was horrific, and greedy and had a huge impact on our economy, that some suggest that...that those activities were not illegal. I disagree. And I think an aggressive attorney general would have found illegal activity.
Daily News: So do you think that President Obama's Justice Department essentially was either in the tank or not as...
Sanders: No, I wouldn’t say they were in the tank. I'm saying, a Sanders administration would have a much more aggressive attorney general looking at all of the legal implications. All I can tell you is that if you have Goldman Sachs paying a settlement fee of $5 billion, other banks paying a larger fee, I think most Americans think, "Well, why do they pay $5 billion?" Not because they're heck of a nice guys who want to pay $5 billion. Something was wrong there. And if something was wrong, I think they were illegal activities.
Daily News: Okay. But do you have a sense that there is a particular statute or statutes that a prosecutor could have or should have invoked to bring indictments?
Sanders: I suspect that there are. Yes.
Daily News: You believe that? But do you know?
Sanders: I believe that that is the case. Do I have them in front of me, now, legal statutes? No, I don't. But if I would...yeah, that's what I believe, yes. When a company pays a $5 billion fine for doing something that's illegal, yeah, I think we can bring charges against the executives.
In fairness, Clinton is a lawyer and Sanders is not, and that should NOT be held against him per se. But note that Clinton is able to explain the legal reasons why there were not prosecutions and to offer suggestions of how the law might have to be changed.
This is one of the few topics where it is possible to do direct comparisons between the two interviews. But even in this comparison I think we can see a clear distinction, one that in my reading was consistent throughout each interviews.
To his credit, Senator Sanders is quite good at identifying problems, but even on issue on which he is passionate, there is a surprising lack of detail on how to address them, even when in the case of the large banks there is specific authority under Dodd-Frank to address the issue. By contrast, Clinton can go into a great deal of detail explaining possible solutions — perhaps too much for someone who is not wonky, but since I teach both government and economics at a college level, I found that very useful. I suspect that on topics on which I knew less I would nevertheless be pleased that the person seeking the highest office in the land had taken the time to think through how to address specific problems, and was prepared to offer specific ideas.
This in only the fourth time Clinton has herself run for public office. That pales with the number of times Sanders has run for office. He is a far more experienced campaigner, even though she was involved in ALL of her husbands campaigns — his failed attempt for the House, his successful run for AG of Arkansas, his successful runs for governor sandwiched around one losing campaign, and his two runs for President. Thus she is not a stranger to the campaign trail, but it is a far different think campaigning for someone else than it is for oneself.
People can draw their own conclusions as to who was (a) better prepared for the interview with the Editorial Board, and (b) who is more ready to be President.
For me it is no contest. Clinton is head and shoulders above Sanders, and were I to do comparisons on the international issues, that would be very clear.
That said, Sanders is still far better than any of the Republicans, and the only one close is Kasich.
One last point. Were I still on the fence between Sanders and Clinton, reading the COMPLETE transcripts of the interviews each have would easily bring me to the point I cam last Fall — I am supporting Hillary Clinton as the best possible President among all those who have actively sought the position this cycle.