Bernie Sanders recently announced that if elected President, he promises to break up the banks that are “too big to fail” within his first year in office. Throughout his entire campaign, Bernie Sanders has made one of his key points the corruption and power that the Wall Street banks have and has even called out fellow Democratic candidate Hillary Clinton for her involvement with Wall Street. However, I strongly believe that breaking up certain banks in the United States will have many repercussions.
The U.S. and the American dream were built upon the principle of a free market that allowed businesses to compete and win out as long as a company did not have a complete monopoly. Banks in no way have a monopoly considering the amount of competition. In addition, if Bernie Sanders was able to actually break up the banks, it would have devastating effects on the U.S. economy. Investment would be way down and the American economy could possibly collapse. While the big banks were contributors to the economic crash, in no way were these banks the sole cause of the crash of 2008. Furthermore, all the money that was given to bail out the banks was paid back by the banks, so the government was not giving these banks free money like some people believe. Bernie Sanders claims that smaller banks would give loans at more affordable rates to small and medium sized businesses do not seem very logical as well. However, smaller banks would be less likely to loan out money to people that have subpar or even average credit scores, since a bank with less assets is less likely to loan out money. There certainly needs to be some changes to the current regulations to ensure that such an event does not occur again, but breaking up the banks is not one of them.
Additionally, I believe that Bernie Sanders will have a hard time breaking up these banks if he is elected President. He thinks that the Dodd-Frank Act passed by President Obama in 2010 will allow him to break up these banks. However, it is the Federal Reserve that has the power to break up these banks under the Dodd-Frank Act, not the President of the United States. The current board members for the Federal Reserve were appointed by President Obama serve 14 year terms and the five members terms don’t expire until between 2020 and 2026. The chair and vice-chairs of the board will remain in their positions until 2018, meaning that Bernie Sanders will not have the opportunity to change any of the board members during his first year in office, if elected. It is very far fetched to believe that the current board will break up these banks simply because Bernie Sanders tells them to.
Bernie Sanders has constantly tried to speak out against Wall Street and the “billionaire class” but many of his plans are either not plausible or logical. Do you believe that breaking up the big banks makes sense for the American economy? If elected will Bernie Sanders actually be able to break up the banks within his first year? Lastly, how do you think this will impact Bernie’s results in the upcoming polls and primaries?
2 comments:
I think the big problem with Bernie as a presidential candidate (other than self-identifying as the dreaded s-word) is that he hasn't moved beyond his economic revolution shtick. He takes every one of his speeches from zero to ten in an instant, all the while soap-boxing about how the evil corporations in this country are exploiting the everyman and how we're drowning in wealth inequality. He's certainly justified to be concerned about the influence of corporations in government, and wealth inequality is a definite problem in this country. That's all well and good. But, Bernie, what else do you have to say?
We know you abhor the banks. We know you want to make college free. We know you want to raise taxes on the rich and corporations. We know what defines you as a candidate. You aren't swaying any more potential voters with all this talk about guillotining the corrupt bankers and bulldozing Wall Street. Bernie, you seem like a good guy with his heart in the right place, which is more than I can say about the rest of these candidates, but your plans are convoluted, impractical, and confusing to the American people. No one understands your immigration policy, the college tuition plan would never happen, and we need the banks. Your presidency would be an unproductive one. But you seem like a good guy.
The banking system is in dire need of increased regulation. Most people agree that subprime and exotic mortgage-backed securities were the cause of the Housing Crisis in late 2007, along with the entire recession following it in 2008. Anyone who takes Economics understands, however, how important these institutions are. They are vital, you can't let them fail or the recession becomes much worse. Bernie's rhetoric may be appealing to the lower middle class, appealing to a certain Marxist desire for equality. But imagine those same people going to their bank to withdraw their money and the bank replies "well all of your money went into unsound mortgages and we don't quite... you know... have any money. Why? Well two minutes before you came, 50 other people withdrew. Usually, the Federal Reserve would try to buy any security we possibly had. Maybe the government would bail us out money so we can actually give you something. But sadly, Bernie says we're too evil of an institution to be able to function normally. Good day sir." His logic is flawed with wanting to lower interest rates too. As you said brandcow, making banks smaller makes the bank assets move slower. Not only will this drive up interest rates, because banks can't have as many liabilities, it actually lowers money velocity. If the rate in which banks can give out loans is slowed dramatically on a macroeconomic scale, the frequency in which all consumers invest or consume is also slowed. This causes MASSIVE repercussions, and it basically means that we'll have to pump even more money into banks during a recession than usual. And small businesses are less likely to get loans, meaning that GDP plunges. When Bernie says he wants to break up banks, it is all symbolic rhetoric (I hope it is at least). It is even more annoying that he repeats himself, as RubyThursday pointed out. I don't know if Bernie has as much steam going for his campaign, especially since now even Democrats are starting to actually digest and think critically about what he is suggesting.
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