Independent Vermont Senator Bernie Sanders joined MSNBC's The Ed Show last night to talk about "too big to fail" banks, and whether JP Morgan's $2 billion trading loss could be used to get more regulations passed through Congress. Sanders explained to Ed Schultz that "the truth is that Wall Street regulates the Congress" and that "the big banks regulate what Congress does."
Except, apparently, when it comes to Dodd-Frank, which Sanders said "was a step forward" but "did not go far enough" (maybe because much of it is still TBA or because its so complex even its supporters don't understand it). That the big banks would spend their "unlimited amounts of money" to get the deregulation they want but then sit on their thumbs while Dodd-Frank was becoming law just doesn't pass the smell test. The truth is deregulation did not create "too big to fail" the way the liberal orthodoxy would like to have it. Anthony Randazzo aptly debunked that myth almost three years ago and Sanders, and Schultz, ought to give it a read.
Christopher Whalen, meanwhile, traced the "too big to fail" phenomenon through American history in his book Inflated:
The Latin Debt crisis [of the 1970s and 80s] illustrates how Paul Volcker and many of his contemporaries laid the intellectual and practical foundations for policies such as "too big to fail" for the largest banks. The tendency to bail out large financial institutions and eventually whole countries in the 2008-2010 period dates from the late 1970s and the tenure of Paul Volcker at the Fed and James Baker at Treasury. Whether one speaks of the WWI and WWII loans to Europe or the bad foreign debts of the largest banks, Washington's tendency in the twentieth century was to paper over the problem with more debt and inflation.
American history is littered with bank bailouts and government-created moral hazard. Calling for more regulation of Wall Street might be a crowd-pleaser, but it's counterproductive if your goal is to stem "too big to fail", nurtured as it was by some of the same regulations of which Washington now wants more. But it's so much easier to just blame everyone else!
Instead of the rest of the Sanders video, here's Reason TV with Tom Easton explaining why Dodd-Frank is a terrible law (he says "the single most indicting read on Dodd-Frank is to read Dodd-Frank itself," how many Congressmen do you think have?)