A panel of five economists questioned by Sen. Elizabeth Warren at a Jan. 9 Senate Banking Committee hearing, were unanimous in declaring that neither the Volcker Rule nor the entire Dodd-Frank Act has removed the “too-big-to-fail” danger of the Wall Street banks which brought down the economy in 2007-08. Warren responded to the panel’s judgments by stating that it is time for Congress to take additional action; she is one of the prime sponsors of Senate legislation to restore “a 21st Century Glass-Steagall Act” and break these Wall Street banks up.
The hearing, in Sen. Sherrod Brown’s subcommittee of the Banking Committee, was called to receive a new report by the Government Accountability Office (GAO) on how much the big banks were bailed out in the crash, whether they are still subsidized, and whether the Dodd-Frank Act had ended the threat of a new crash and massive bailout. GAO economist Lawrence L. Evans summarized his conclusion, “Dodd-Frank aims to restrict future government support, but implementation is incomplete and effectiveness remains uncertain.”
GAO’s criticism was directed at “Title II” of the Dodd-Frank Act, the orderly liquidation or so-called “bank bail-in” scheme.
Well-known economists Luigi Zingales of the University of Chicago, Simon Johnson of MIT, Alan Meltzer of Harvard and Harvey Rosenbaum of the Dallas Federal Reserve Bank and now Southern Methodist University, all debunked Title II in the course of testimony and questioning.
But Warren brought the hearing to a point by asking all the witnesses, first, “Will the Volcker Rule [another part of Dodd-Frank—ed.], if vigorously enforced, end ‘too big to fail’?”
All answered “No”, with Rosenbaum adding, “Hell, no.”
Warren then asked whether all the regulations of Dodd-Frank, if completed and vigorously enforced, would end the too-big-to-fail danger. Again all responded “No”, with Meltzer and Rosenbaum emphasizing that only action by the legislature, not relying on myriad rules and on regulators, could solve the urgent problem.
Having teed the ball up, Warren then drove it down the fairway, saying that Treasury Secretary Jack Lew had agreed at an mid-2013 Banking Committee hearing that if “too big to fail” Wall Street was not reined in by the start of 2014, a different attack was needed; and concluding that it is now time for Congress to act again. The reference to her Glass-Steagall restoration legislation was clear, and is the next obvious subject for a hearing in Senator Brown’s subcommittee.
Video of Warren’s exchange with the witnesses and concluding remarks can be seen on Senator Warren’s YouTube page.