The president of the Minneapolis Federal Reserve and a former Treasury Department official who helped craft the 2008 Wall Street bailout warned that Dodd-Frank financial reforms won’t stop the US government from rescuing “Too Big to Fail” banks.
Neel Kashkari said Tuesday in Washington that the landmark legislation has helped “strengthen our financial system” with a variety of new regulations, but that they won’t prevent federal officials from extending publicly-funded emergency lifelines to crucial industry actors.
“[N]o rational policymaker would risk restructuring large firms and forcing losses on creditors and counterparties using the new tools in a risky environment, let alone in a crisis environment like we experienced in 2008,” Kashkari said.
He described financial crises as being like a nuclear “reactor melt down,” and said the US remains vulnerable to another one, with only a handful of banks still dominating the financial sector.
Kashkari called on Congress to to reduce this system-wide hazard by passing legislation. He said it should consider hiking taxes on risky behavior, breaking up the largest banks “into smaller, less connected, less important entities,” and “turning large banks into public utilities…with regulation akin to that of a nuclear power plant.”
“Options such as these have been mentioned before, but in my view, policymakers and legislators have not yet seriously considered the need to implement them in the near term,” he remarked. Kashkari additionally noted that “the financial sector has lobbied hard to preserve its current structure,” but that “the economy is stronger now, and the time has come to move past parochial interests and solve this problem.”
Kashkari first joined the Treasury Department in 2006, moving from Goldman Sachs to the public sector alongside former Treasury Secretary Hank Paulson. Paulson was nominated to the cabinet position that same year, and picked Kashkari to be an aide.
In the autumn of 2008, Kashkari was chosen by President George W. Bush to administer the Troubled Asset Relief Program—a widely-unpopular $700 billion bailout package that helped contain the Wall Street collapse.
Although the financial collapse has been an issue in the Democratic presidential primaries—the party’s first contest for a White House nomination since the crash—Kashkari is a Republican. In 2014, he finished second to Gov. Jerry Brown (D-Calif.) as a party nominee in California’s gubernatorial contest.
Last week, the issue of “too big to fail” persisting under the Obama administration came up in a Senate Banking Committee oversight hearing. Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.) pressed Fed Chair Janet Yellen to answer questions about Dodd-Frank rules that were supposed to decrease the possibility of future bailouts—by forcing financial institutions with more than $50 billion in assets to craft “living wills.”
The plans, which were supposed to have been completed by the end of 2013, are supposed to detail how the banks would be liquidated with minimal disruption to markets, in the event of bankruptcy.
In 2014, the Federal Deposit Insurance Corporation (FDIC) and the Fed told eleven banks that their plans were unsatisfactory. Those “living wills” are currently under review. Firms that are being examined include Bank of America, Citigroup, Goldman Sachs, and JP Morgan.
Sen. Warren pointed out that the Fed, unlike the FDIC, did not definitively find the plans to be unsatisfactory—and that the move prevents regulators from taking steps to break up, downsize, or rein in the banks.
Yellen replied, claiming as she did last year, that the Fed would be “prepared to make findings that a living will is deficient.”
“It’s a completely new process and we felt the banks need to understand what expectations were in terms of what we wanted to see,” she said. “We had felt that we had not given sufficiently clear guidance to make the decision at that time.”
She also noted that the Fed would rule on the latest living will submissions “in the not too distant future.”
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.