For decades, people concerned about financial reform and protecting individual investors against predatory industry practices have accepted the fact that they must work in a very confined space in order to advance even modest reforms.
Democratic presidential candidate Bernie Sanders has changed that perception.
Sanders is an unabashed, long-time advocate of breaking up the nation’s largest banks. He has forcefully opposed global bank CEOs and even numerous Federal Reserve Board executives about their viewpoints and practices, as these YouTube videos show.
Sanders pointedly questions Allan Greenspan.
Sanders pointedly questions Janet Yellen.
Sanders pointedly questions Ben Bernanke.
Yes in his latest speeches, Sanders unequivocally says he will eliminate the “too-big-to-fail” banks. When a presidential candidate says this in a national debate, he has expanded the boundaries about what is possible for financial reform.
The very fact that Sanders said this in a national forum has pushed Wall Street banks and their lobbyists back on their heels. No longer can the lobbyists swagger through the halls of Congress thinking that a long-shot presidential candidate publicly says these banks are not working for the common good of all Americans or acknowledging that a large number of Americans think big bank CEO should have gone to trial for their roles in causing the 2008 global recession.
How a Big Bank Breakup Would Advance the Fiduciary Standard
Take the case of adopting a straightforward, un-truncated ERISA-style fiduciary standard for the broad financial services industry. As I noted in my book, this proposed regulation (which can be traced to industry advocates in 2005) has been intentionally derailed so many times by financial industry forces that it is almost impossible to explain in a single sentence.
The industry has inserted so many contingencies and conditions on when and whether to tell less-sophisticated investors the truth about the selling agent’s conflicts-of-interest and hidden fees that it will be ineffective in actual client encounters. In October 2016, the U.S. House of Representatives (under Republican control), voted to kill the DOL’s pro-investor efforts. This is the intention of the established financial services industry.
The Sanders proposal to rein in the large banks would enable a huge push towards establishing a
straightforward fiduciary rule. That is a rule that could be posted on the wall in every financial professional’s office and the rep would not need a billboard-sized wall to do it.
While Sanders’ proposal to break up the global banks strikes a resonant chord with the vast majority of Americans, his proposal should also encourage industry financial reformers to think out-of-the-box about the possibilities of pushing for more reforms. The way the industry has stacked the deck against financial reform, any minor rule changes are subjected to a barrage of hearing, reviews, and an industry input that is all designed to promote the pro-industry status quo. The illusion of reform has fooled many concerned professionals who simply give up because they get fed up with the system. But that is precisely the point.
Already, the idea of any Sanders’ political advance invariably enrages industry lobbyists and the global banks, but the adoption of this straightforward rule will help naïve investors find out more about the expenses associated with getting financial advice. Breaking up the big banks will derail the status quo and expand the industry. Who knows: Maybe giving people the facts will help the nation’s retirees as they approach the looming retirement crisis.