Attorney General Eric Holder made a shocking admission to Congress on March 6:
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”
With these words, Holder confirmed the assumption many had made about why not one Wall Street executive was in jail for crimes related to the financial crisis: Not only are America’s banks “too big to fail” — bigger now than before the taxpayers had to bail them out –they’re also “too big to jail.”
Holder’s admission seemed to enrage freshman senator Elizabeth Warren (D-MA), who as a consumer advocate and a TARP watchdog has long been at odds with the big banks — which opposed both her nomination to lead the Consumer Financial Protection Bureau she created and her election to the Senate. The next day, she challenged Treasury officials to define a standard for shutting down banks that participate in drug laundering.
Warren’s efforts are not going unnoticed by Wall Street. “Bankers are bracing for the start of more severe anti-money laundering exams as regulators rework their standards and prepare to issue another round of guidance tackling the issue,” American Banker magazine reported last week.
But Warren’s focus isn’t just laundering, it’s the size of the banks that troubles her most.
In a post on her blog, Warren recently wrote, “When banks are too big to fail, too big to jail, too big for trial, too big to manage, too big to regulate, too big to shrink, and too big to reform… they are just too big.”
And Warren may have some unlikely allies in her efforts — conservatives.
Senator David Vitter (R-LA) has teamed up with Sherrod Brown (D-OH) — author of the the Safe, Accountable, Fair & Efficient (SAFE) Banking Act, which would prevent any institution from becoming large enough that its collapse would necessitate a bailout. Vitter and Brown have directed the Government Accountability Office (GAO) conduct a study into the benefit “too big to fail” banks receive from the perception — real or imagined — that they are backed by a taxpayer subsidy.
Bloomberg recently did a study that found taxpayers provide an $83 billion subsidy to the nation’s largest banks. Bank lobbyists disputed the study but Vitter and Brown are hoping the GAO will prove that the subsidy exists and indicates a larger problem.
“Despite the claims made by the paid cheerleaders of the megabanks, Too Big To Fail is alive and well, and the banks receive taxpayer subsidies,” Vitter said. “Chairman Bernanke knows it, the market knows it, and the taxpayers know it. This is exactly what we believe our GAO study will get to the bottom of – the facts.”
Vitter isn’t the only conservative worried about the size of the banks. Jon Huntsman expressed similar concerns in his failed White House run, as has Timothy Carney of the Washington Examiner. The American Enterprise Institute’s James Pethokoukis has valiantly waged a campaign suggesting that taming big banks is a winning issue for conservatives.
“Some conservatives want to make more clear the distinction between being pro-market and being pro-business,” he wrote in his blog. “They see a large and concentrated financial sector as being the result of corporatist policies rather than as a market outcome. It is also a way of signaling middle-income voters that center-right policymakers are concerned about more than just the capital gains rates paid by the wealthy, particularly those on Wall Street.”
Other conservatives express doubt that this issue is good for the right — especially considering the costs.
“Ending corporate welfare and breaking up the big banks may sound swell, it may be the right thing to do, but you won’t see a Republican politician advocating these policies because that politician depends on campaign funds from banks and corporations,” wrote The Weekly Standard‘s Matthew Continetti. “And you won’t see defense hawks or social conservatives really get tough on Wall Street, either, because that’s not a priority for them.”
The financial sector supported President Obama in 2008 and Mitt Romney in 2012. And their generosity to candidates is bipartisan. But Republicans understand they’re more closely associated with Wall Street than ever. Another crisis forcing another emergency rescue of the banks could either end in financial calamity or a political nightmare for the right.
And conservatives may be ready to listen to those calling for a breakup of the big banks.
Perhaps the right is learning a valuable lesson: If you can’t beat Elizabeth Warren… join her.
AP Photo/Cliff Owen