Important new book on the role of finance in society: “What is finance for?” is a rarely asked question, but it was a hot topic at a book event Better Markets hosted with the International Political Economy program at the Johns Hopkins School of Advanced International Studies (SAIS) last week for leading academic and Financial Times columnist John Kay’s Other People’s Money: The Real Business of Finance. The event was moderated by Matthias M. Matthijs, Assistant Professor of International Political Economy at SAIS, and featured remarks and questions from Better Markets President and CEO Dennis Kelleher.
The event included a discussion of the role of finance in society, the causes of the 2008 financial crash, and steps policy makers could take to avoid another devastating financial crisis – the type of topics that are all too often under-discussed or not talked about at all.
Mr. Kay highlighted how the role of finance has shifted over time away from serving the real economy, saying, “A lot of people who ask me these questions think that what banks do is they collect our saving and they lend them to business. But if I explain that as far as British banks are concerned, lending to other non-financial businesses amounts to about 3% of their assets and lending to other financial institutions amounts to about 70% of their assets they’re quite surprised.”
As Mr. Kelleher said at the event, “Why is this such an important book?…We have to remind ourselves that there’s only one industry in the world that poses a threat to the global financial system, the economies and the standard of living of everybody in this country…And that threat solely comes from the global too-big-to-fail banks.”
Hillary Clinton releases her Wall Street plan. All candidates should do the same: Anyone who wants to be President of the United States owes the American people a detailed, comprehensive plan showing how they will protect the American people from Wall Street’s recklessness. Former Maryland Governor Martin O’Malley led the way, releasing a comprehensive policy plan in July aimed at preventing a repeat of the 2008 financial crash.
Hillary Clinton deserves credit for doing that this week. We’re encouraged that her plan targets predatory high frequency trading that is ripping off too many investors and killing public confidence in our markets, helps reform broken practices at the SEC, recognizes the need to strengthen the Volcker Rule to keep Wall Street from gambling with taxpayer dollars and takes a number of other important steps.
However, everyone knows that Wall Street and its army of lobbyists will continue trying to evade regulations meant to end their high-risk gambling that endangers the country. That’s why any effective plan to rein in Wall Street must have multiple layers of protections of different types: regulatory, supervisory and structural. We’ve done that before, which is what protected the country for 70 years after the Great Depression. Failure to have all three pillars or an overreliance on any one pillar puts the American people needlessly at risk.
One key concern we have with the Clinton plan is the lack of a strong structural firewall and what appears to be an overreliance on regulators. Wall Street will continue finding every last loophole to avoid regulations meant to stop their recklessness and hold them accountable. Relying only or mostly on regulators to stop Wall Street just isn’t realistic. It is grossly insufficient to protect the American people. Not only is there the corruption of the revolving door and the problem of regulatory capture, but even if all regulators are acting in sincere good faith and were given the budgets they need (which has never been the case), they aren’t likely to both outfox and stand up to Wall Street. In fact, history shows that neither will actually happen. Remember, widespread regulatory failure was one of the key reasons for the 2008 financial crash. That’s why the next President must prioritize concrete structural and supervisory changes, not just strengthening regulatory tools.
The public cannot afford a repeat of the 2008 financial crash, which cost more than $20 trillion and resulted in millions of people losing their jobs, homes, savings and so much more. We encourage all the candidates on both sides of the aisle to release their comprehensive proposals to protect the American people from Wall Street’s recklessness and another devastating financial crash.
Joining with members of the House of Representatives in support of the Department of Labor protecting retirement savers: Better Markets this week joined with the more than 90 House Democrats that recently sent a letter to Labor Secretary Tom Perez endorsing the need for the Department of Labor’s best interest fiduciary rule. In a letter to Secretary Perez, Mr. Kelleher outlined how the current loophole is exacerbating the retirement crisis facing this country, and highlighted the monumental shift in the retirement landscape since it was enacted four decades ago.
Following the recent unprecedented four-day public hearing, multiple comment periods lasting more than 150 days, and years of input, the Department has all the information it needs to finalize this rule. As the letter makes clear, it should do so quickly to help millions of Americans retire with dignity and security. To view the letter, click here.
Better Markets in the News:
Clinton Lays Out Plan for Reining in Wall Street: The Charlotte Observer (McCatchy Washington Bureau) by Kevin G. Hall and Anita Kumar 10/8/2015
Clinton Offers Incremental Vision of Wall Street Reform: American Banker by John Heltman 10/8/2015
Clinton’s Wall Street plan comes under attack: The Hill by Kevin Cirilli 10/8/2015
Hillary’s Wall Street Crackdown: Less than Meets the Eye: Politico by Zachary Warmbrodt 10/8/2015
Credit Suisse wins exemption for US pension business: Financial Times by Gina Chon 10/1/2015
News You Don’t Want to Miss:
My Plan to Prevent the Next Crash: BloombergView by Hillary Clinton 10/8/2015
Senate Democratic Inquiry Targets Banks, Wall Street Settlements: Wall Street Journal by Aruna Viswanatha and Ryan Tracy 10/7/2015
Credit Suisse Prepares Substantial Capital Raising: Financial Times by Patrick Jenkins and Ralph Atkins 10/8/2015