Q.&A.: Sanders Looks at Financial Bill From the Left

The Deal Book from The New York Times

Senator Bernard Sanders, the Vermont independent, has won a reputation for being one of Wall Street’s toughest critics. Mr. Sanders has been pushing hard to secure a strong financial regulatory bill that would keep banks from being too big to fail in an effort to eliminate the need for future government bailouts. The Senate is expected to take a key procedural vote on the bill by Monday evening.

Mr. Sanders, a self-described socialist, acts as a goalpost from the left in the debate over the financial regulatory bill. He wants to break up the biggest banks, bring back the Glass-Steagall Act to separate commercial and investment banks, and strictly regulate the credit rating agencies.

His views have gained some traction with some members of Congress, but there have been setbacks. His proposal to break up the biggest banks failed to get out of the Senate Budget Committee last week on a vote of 12 to 10 against it. Mr. Sanders nevertheless claimed victory, saying the narrow loss was an indication of growing momentum to dismantle the large financial institutions, which he contends dominate the American economy. An amendment to break up big banks is expected as the Senate works on the financial regulatory bill.

But Mr. Sanders endorses several ideas that have gained bipartisan support, including his push for more transparency at the Federal Reserve. He has joined his Republican colleagues in sharply criticizing government regulators during the financial crisis and voted against the nomination of Timothy F. Geithner as secretary of the Treasury and the reappointment of Ben S. Bernanke as Federal Reserve chairman.

Mr. Sanders spoke with DealBook about his views on the financial crisis and the current financial regulatory bills in Congress. The following are edited and condensed excerpts from the interview:

Q.  Would you vote for Senator Christopher J. Dodd’s bill in its current form? Do you think it goes far enough to protect the investing public?

A. The bill is a good start, but there are a number of significant deficiencies in it and I intend to do my best to make it stronger. How you vote on something is how it looks when the vote takes place. I think the bill will look different when that vote comes.

Q.
Mr. Dodd may ultimately need to grant further concessions to his Republican colleagues to get the bill on the floor for debate. How much further to the right could he go and still keep your vote? What provisions in the bill are deal-breakers for you?

A.  I am not going to speculate on this. What I fear is I don’t want to see us do so-called “financial reform,” not really addressing the real problems that have caused this crisis and make the fixes that have to be made, and I am going to work as hard to make them. But again, I am not going to be speculating on how I vote because unless I am very mistaken, this bill is going to undergo a number of significant changes.

Q. Do you believe the Volcker Rule, which would bar banks from trading their own book and investing in hedge funds and private equity firms, should be included in the Dodd bill?

A. 
Yes. This is pretty simple: If somebody wants to spend money gambling and do credit default swaps and bet on whether oil prices are going to go up or down, they have a right to do that. But they certainly don’t have the right to do that with the F.D.I.C. backing them up if they go down. So, I think you need that separation.

I have co-sponsored legislation that would bring back Glass-Steagall.

Q. You are a very vocal critic of the Federal Reserve. Do you think the bill gives too much power to the Fed?

A. 
In terms of transparency, Dodd takes us a little step forward, but nowhere far enough.

We need more transparency at the Federal Reserve. I asked Ben Bernanke which financial institutions had received trillions of dollars in zero interest loans during the bailout, but he refused to tell me and that is information that the public has the right to know, as well as other information about the Fed. I have legislation to bring more transparency to the Fed, which I think now has 30 co-sponsors, both Republicans and Democrats, so we are going to push that.

Q. 
What would you like to see added to the bill? Have you crafted any amendments?

A. One of the weaknesses of the bill is that we now have only four major U.S. banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — and three out of four banks are larger than they were before we bailed them out. These four large banks write half of the mortgages, issue two-thirds of the credit cards, and they hold $7.4 trillion in assets, which is 52 percent of the nation’s G.D.P. — can you believe that?

So first of all from a “too big to fail” and taxpayer liability perspective, they have got to be broken up. But second of all, from a concentration of ownership perspective, and the incredibly dominant role they play on our economy, they have to be broken up and I intend to be actively involved in that area. I support the views of some of the presidents of regional Feds who suggested that no financial institution in America should be more that $100 billion in assets.

Also, the credit rating agencies remain problematic. As you know these credit rating agencies were giving triple-A ratings to horrendous offerings. The problem is companies like Goldman Sachs and JPMorgan are paying the credit ratings agencies so you are having a real conflict of interest.

We are going to come up with something to deal with that. Clearly, the current system has obviously failed and we are going to need to reform it but I don’t have my final view on that yet.

Q. Are there things you want taken out of the bill or things that you think should be beefed up?

A. I think we want to strengthen the Consumer Finance Protection Agency and not have it housed at the Fed.

I get calls every single week from Vermonters who are outraged that after bailing out the financial institutions they are now paying 25 to 30 percent interest rates on their credit cards. That is called usury. It’s loansharking. It has got to end.

We are going to offer legislation that mandates that private financial institutions do exactly what credit unions do and that is charge no more than 15 percent, except under exceptional circumstances. We will work with Dick Durbin on that.

Also under derivatives reform, one thing we would like to see added is the banning of naked credit default swaps.

Q. Were you surprised to learn of the Goldman fraud charges? Do you think the Securities and Exchange Commission fired its best shot?

A.  No. I think the S.E.C.’s charges against Goldman Sachs are only the beginning. I think it is not just recklessness and irresponsibility, I think there is illegal behavior, and I thought that from day one.

Q.
Do you think that this could spread to other banks and what do you think the ultimate outcome could be here?

A. Yes, it will spread. I think the political outcome will be that the credibility of Wall Street will be zero. And I don’t think that people should believe anything these people say.

Since deregulation, what these guys have done is take any action that they possibly can, legal or illegal, reckless or not, in order to make a quick buck. The damage that they have done to our economy and the world economy is incredible. So out of all of this I hope comes the understanding that we must formally re-regulate Wall Street.

By Cyrus Sanati