What needs to change about Wall Street in 6 words (and some charts)

An inside look at an issue that will shape our economy for years to come (yeah, it’s that important).

What needs to change about Wall Street in 6 words (and some charts)

An inside look at an issue that will shape our economy for years to come (yeah, it’s that important).

Hillary recently announced her plan to reform Wall Street, address dangerous risks in our financial system, and—here comes a really big one—prevent another financial crisis. We sat down with our colleagues Mike Shapiro and Mike Schmidt from the economic policy squad (known around the office as “the Economikes”) to talk about what her plan would do—and why this issue is so important.

Q. So before we start, where did “the Economikes” come from?

Schmidt: Did you come up with that, Shapiro?

Shapiro: I mean, we’re both named Mike, we both work on economic policy. So … Economikes.

Q. Describe Hillary Clinton’s Wall Street reform agenda in five words or fewer.

Schmidt: More accountability, tougher rules, stronger enforcement. Wait, that’s six words.

Shapiro: So I can do it in five. Ready? Wall Street working for Main Street.

Schmidt: That was pretty good.

Yours was six words too. You know, for numbers guys …

Schmidt: We’re off to a really good start.

Shapiro: Well, we tried.

Schmidt: How about this? Less risk, more accountability.

Shapiro: Oh, that’s good. That’ll work.

Q. Why does Wall Street need to be reformed?

Schmidt: In 2008 we had a devastating financial crisis. It caused $13 trillion of wealth to disappear. It caused millions of families to lose their homes and 9 million workers to lose their jobs. We’re still recovering. And Secretary Clinton believes that there are a couple of fundamental lessons that we can draw from that experience. The first is that risk on Wall Street can have devastating consequences for hardworking American families—again, our economy lost 9 million jobs.

What needs to change about Wall Street in 6 words (and some charts)

And the second lesson is that you need tough and smart regulations for the financial sector. There was a general philosophy before the crisis that said that financial crises were a thing of the past, that large financial institutions could more-or-less regulate themselves. That was a damaging philosophy, and it was squarely rejected in the aftermath of the crisis.

So what happened? The Obama administration enacted the Dodd-Frank Act in July of 2010. And the Dodd-Frank Act took a number of really important steps. But Secretary Clinton believes that there’s more to do to protect Main Street from risks on Wall Street. There’s more to do to ensure that bad actors in the financial sector are held accountable. There’s more to do to protect American consumers and investors from unfair and deceptive practices. So Secretary Clinton’s plan is a comprehensive approach to creating less risk and more accountability.

Q. Not to put too fine a point on it, but what is Dodd-Frank?

Schmidt: Dodd-Frank is the bill that Congress passed and President Obama signed after the financial crisis. What it did is it looked at the crisis and said, you know, we don’t want this to happen again. We need a safer, stronger financial system. And it took a number of measures to make that happen.

For example, it established a Consumer Financial Protection Bureau. This was Senator Warren’s conception—she wrote an article in Democracy Journal that suggested we have an agency that focused solely on protecting American consumers from unfair and deceptive practices. That is what the CFPB has done, and it has helped millions of consumers. The CFPB is just an awesome achievement, and it’s one that Secretary Clinton is committed to defending.

Dodd-Frank also said if you’re a big bank that poses more risk to the system because of your size, you’re not just going to get normal bank regulation—on top of that, you’re going to have to be subject to a stronger set of constraints. So now the biggest financial institutions have stronger, what I like to call, shock absorbers. If something goes wrong, there is more there to ensure that they don’t fail and that they don’t bring the whole economy down with them in the event they fail.

And that’s just the tip of the iceberg. Dodd-Frank strengthened regulation of derivatives and shadow banking, gave the government new tools to wind down big failing firms, and more.

Barney Frank himself has actually been out talking about our plan.

Shapiro: Yeah, he’s been advising us, we’ve been talking to him.

He seems fun.

Schmidt: He’s awesome. He’s the man.

Q. How important is this policy compared to other policies Hillary has announced?

Schmidt: Extremely important.

Hillary talks about her plan to raise incomes for hardworking Americans at The New School in New York.
Hillary talks about her plan to raise incomes for hardworking Americans at The New School in New York.

Shapiro: It’s one of the most important economic policies that she will put forward on this campaign. People should understand that this is not a new issue for Secretary Clinton. She was representing New York at the beginning of the financial crisis, and she went to Wall Street and warned about some of the practices that led to the crisis. She talked about it during the 2008 campaign. And as this campaign was starting, one of the first things she did was demand an aggressive and robust plan for financial sustainability and making sure that we’re taking on risks and holding people accountable. This plan is the result of months of effort, and talking to people who maybe disagree with us and think there are other ways to do this, people who have experience as regulators, people who advocate for consumers. Her team basically turned over every stone and working really hard for months, because this is such an important priority.

Schmidt: Hillary Clinton has defined the central economic challenge of her time as raising incomes for middle-class Americans. This is central to Secretary Clinton’s economic vision because it’s not just that we need to make the investments and have a fair tax code and all that to get wages rising—it’s also that we can’t let risk from the financial sector wipe that all away.

What needs to change about Wall Street in 6 words (and some charts)

Q. When you talk about “risk,” what exactly are you talking about?

Schmidt: Let’s be clear about something: We want an economy where people are taking risks, right? The entrepreneur who decides to start a business is taking a massive risk, and that entrepreneur is the same person who might build some of the greatest companies in America, employ thousands of people, drive wages up, and improve our standard of living. And we want a financial system that really fuels that kind of responsible risk-taking.

Shapiro: We want to kind of create an economy that works for exactly the type of entrepreneurship that Mike’s talking about. We need to contain risks that don’t help our economy. But it’s also important to remember the economic logic of policies like the Affordable Care Act, paid leave, and child care: it enables families and hardworking Americans who want to go start a small businesses or who want to maybe go back to school to be able to take those risks, to try to get ahead without worrying about their health insurance coverage, or care for their children.

Q. What makes Hillary’s plan different from other plans to fix Wall Street?

Shapiro: There might be different approaches that different people in the Democratic Party have put forward, but one thing we all agree on that we need to take on excessive risks in the financial system and hold people accountable for financial fraud and misdeeds.

If you listen to what the Republicans are saying, a lot of them want to get rid of Dodd-Frank. And there are active efforts underway by Republicans in Congress to try and roll it back. So the most important difference among the plans is that we Democrats agree that we need to build on and strengthen Dodd-Frank and go further, and Republicans want to get rid of the crucial protections that we’ve seen, even in the wake of a financial crisis that was devastating for American families.

Q. What can Hillary’s plan do to change the culture that has led to this problem? Or if not change the culture, at least punish people who continue to act badly.

Schmidt: Secretary Clinton believes fundamentally that the vast majority of people in finance are hardworking, law-abiding people. But there are people who break the law and compromise the public’s trust in our markets. So Secretary Clinton has a set of proposals aimed at increasing individual accountability. For example, she wants to enhance whistleblower rewards so good people have an incentive to come forward and kinda flag illegal activity. And on top of that, she’s said that none of this is going to be possible if we continue to under-resource our prosecutors and regulators.

But Secretary Clinton is also proposing mechanisms that say, you know what, even if as a supervisor you weren’t involved with a problem, you didn’t engage in wrongdoing yourself, we should have a regulatory regime in place where you feel some consequences if really bad stuff happens on your watch—for example, by having it affect your pay.

Q. You guys seem to know this policy inside and out. Do you, like, have favorite footnotes?

Schmidt: Do I have a favorite footnote? That’s a really good question.

Shapiro: That’s a REALLY good question.

It is?

Schmidt: Footnote 13 is pretty substantive.

What needs to change about Wall Street in 6 words (and some charts)

Q. Bottom line: What is the problem that you’re trying to solve, and how does this policy solve it?

Schmidt: The problem that we’re trying to solve is that excessive risk-taking in the financial sector can devastate the real economy. And we’re trying to solve it by taking a comprehensive approach to addressing excessive risks in the financial system, so that we are encouraging the financial system to fuel the type of long-term investment that drives broad based-based economic growth and raises middle class incomes.

Shapiro: Americans shouldn’t have to worry when they’re putting their savings away that that could all go away in a massive financial crisis like the one we saw in 2008. We cannot have an economy that allows those risks to everyday American families to persist. So we are going to hold people accountable and take on those risks, to make sure that doesn’t happen again.

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