Can Hillary Outflank Bernie on Wall Street Reform?

The politics of Clinton’s play are fairly easy to divine. By picking a fight over shadow banking, she can distract attention from Sanders’s focus on his more populist proposals to break up the banks and reinstate Glass-Steagall, which for many progressives is a sorer spot on Bill Clinton’s legacy than even his impeachment. Clinton also is attacking Sanders’s perceived strength, knowing that if she can dent him there, the rationale for his challenge to her becomes much weaker.

.. But what’s interesting in the divide over financial regulation is that while Clinton has adopted some of the more popular items on the progressive wish list—debt-free college, expansive proposals on immigration, gun-control, and criminal-justice reform—she is relying on a wonkier approach to Wall Street reform.

The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed

The fact that a member of Goldman Sachs’ board at the time of the 2008 crisis was the “public interest” Chairman of the New York Fed board is to put it mildly indefensible.

.. But it is hard to imagine an appropriate governance activity for business figures with respect to the Federal Reserve System. Nor is it clear why banks should in any sense be “shareholders” in the Federal Reserve System.

.. Franklin Roosevelt was hardly a pushover to the financial industry. He famously made former stock-operator Joseph Kennedy the inaugural leader of the SEC on the theory that it takes a thief to catch a thief.

.. If there are lacunae in current procedures, these should be pointed up and repaired. This is not the focus of current proposals like those of Ron and Rand Paul who would prefer to abolish the central bank and whose ideas are not so much about auditing the Fed as subjecting it to political control and straitjacketing it.

.. On the substance of monetary policy, I have been clearly on the dovish side of the Fed for quite sometime and think the risks of the last rate increase exceeded the benefits so I agree with Sanders general thrust. I prefer the “do not raise rates until you see the whites of inflation’s eyes” to Sanders rather arbitrary 4 percent unemployment target.

.. Indeed the majority of the world’s banking crises over the last three centuries and over the last quarter century have come from traditional lending especially against real estate.  Making banks safer means reducing their dependence on traditional lending activities so balances must be struck.

.. I think there is a good case to be made that capital requirements should be further increased and further graduated with size and complexity. This would tend to encourage deconsolidation and is I think the right 21st century response to the concerns about concentration in banking.

.. First, the financial regulatory agencies would be adequately resourced and would not be under pressure to kowtow to legislators pushing their contributors interest. CFTC head Tim Massad had it right when he condemned the recent budget agreement as undercutting the ability to regulate derivatives in a serious way.

.. Third, the current SEC and CFTC would be combined and charged with regulating in a coherent way all financial markets with respect to market integrity, manipulation issues, insider trading, transparency, fairness of execution, and systemic risk.

.. The current system persists only so that multiple congressional committees can maintain jurisdiction over financial regulation and reap the benefits in terms of campaign contributions.

.. And ETFs are as likely as anything else to be the source of the next major bit of financial drama.