Dennis Kelleher, President and CEO

In an interview earlier this week, President Obama said the job of reigning in Wall Street’s biggest banks and protecting American families from financial crashes and more bailouts is unfinished.  He said more needs to be done to get those banks back in the business of lending money and investing in jobs and businesses that support the real economy, rather than just boosting their bonuses from gambling and trading.  Regarding Wall Street and the state of financial reform, President Obama said:

“…the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them.”

We at Better Markets could not agree more.  President Obama and his administration must do more to better protect taxpayers, American families and the economy from falling victim again to Wall Street’s unquenchable desire for billions of dollars in bonuses, which in 2008 bought us the greatest economic crisis since the Great Depression. 

Here are a few things the President should do now to get Wall Street’s biggest banks out of the gambling business and back into the banking business that invests in jobs, businesses and the real economy:

1.       Direct the Department of Justice to stop negotiating weak settlements with Wall Street banks for their crimes behind closed doors,  and order DOJ to file civil and criminal charges against the Wall Street banks and bankers and hold them accountable in the court system and the court of public opinion – the Wall Street crime spree will not end until banks and bank executives are meaningfully punished; that is all that will deter future crimes;

2.       Direct the Department of Treasury’s Financial Stability Oversight Council (FSOC) to immediately complete the Dodd Frank Title 1 resolution/living will process that requires all of Wall Street’s biggest banks (called “Systemically Important Financial Institution” or “SIFIs”)  to be resolvable under Ch. 9 bankruptcy or, as the law empowers FSOC, to order those banks to dispose of those parts of their business that cannot be resolved in an orderly way under Ch. 9 just like every other business in the United States;

3.       End the preferential treatment derivatives get in bankruptcy (the automatic stay), which is unfair and encourages trading, gambling and risk taking;

4.       Prohibit banks from engaging in any non-banking activities like commodities ownership and swaps trading;

5.       Direct Treasury/FSOC to immediately end/counter-act all subsidies Wall Street’s banks get from being backed by the US taxpayers, including increasing capital and other prudential measures even more so that they are at sufficiently high levels that the subsidies are eliminated (or, as an economist would say, make the biggest banks internalize their all costs rather than externalizing them to taxpayers);

6.       Require that all US financial reform rules apply to all of the biggest Wall Street banks regardless of where their activities are so that they can’t game the system and evade the laws and rules like last time by moving their business overseas, but still sticking the US taxpayer with the bill for their failures like AIG when taxpayers even had to fund AIG’s executive bonuses after they already blew up, failed and required $185 billion bailout;

7.       Direct that the stress tests imposed annually on the biggest banks and all the results be publicly disclosed so that their claims of stability can be subjected to independent public analysis and accountability, which is appropriate because the public is going to pay the bill if they pass tests that aren’t sufficiently stressful;

8.       Require that all aspects of the Volcker Rule banning proprietary trading (when the biggest banks make their biggest and riskiest bets) be fully enforced to the letter and spirit of the law immediately, thereby ending the gambling by the biggest banks that is the most threatening to taxpayers and our economy;  right now, Wall Street is trying to evade the rule by calling their prop trading by other names, but it has the same risks and must be ended in all its forms and guises, regardless of labels;

9.       Ensure by whatever means necessary that the regulators, especially the CFTC, are fully funded so that the regulatory cops are actually back on the Street and the CFTC can truly bring the 5 biggest Wall Street banks (that control about 95% of the more than $300 trillion derivatives markets) under regulation, transparency and enforcement, while subjecting them to true competition that should enable the marketplace to break up their current oligopoly;

10.   Order all banking regulators to thoroughly review the compensation and incentive structures (including, in particular, deconstructing the bonus pools past, present and future) at the big banks and publicly report within 6 months on how the current practices incentivize dangerous behavior and order those practices to change such that the perverse compensation incentives are ended; 

11.   Endorse and fight for the passage of the Warren/McCain and Brown/Vitter bills to restore Glass Steagall and set size limits on the biggest banks;

12.   Nominate FDIC Director Tom Hoenig to the Federal Reserve Board and nominate him to the indefensibly still-vacant position of Vice Chair for Supervision, which is supposed to be in charge of Fed regulation of SIFIs; and

13.   Reform the campaign finance and lobby laws to end Wall Street’s disproportionate and grossly inappropriate influence on law, rules, policy and politics.