Our former co-blogger, Senator Elizabeth Warren, delivered an incredibly important speech yesterday laying out the work still to be done on financial reform. This speech is a bigger deal than Senator Warren's Antonio Weiss speech or her famous Citibank speech. This speech is a blueprint for Dodd-Frank 2.0. It lays out a detailed vision of the challenges for reform work going forward:
- break up the big banks;
- a 21st Century Glass-Steagal Act that promotes narrow banking;
- a targeted financial transactions tax to reduce unnecessary volatility from excessive arbitrage;
- elimination of the tax system's preference for debt over equity financing, a limit on the Fed's emergency lending authority;
- a simplification of the financial regulatory system (does this as presaging a reduction in the number of bank regulators? The SEC should certainly feel the heat from this speech...);
- reforms aimed at the various types of short-term debt that are the hallmark of the shadow banking sector (money market mutual funds, repo).
There are three remarkable things about this speech. First, what is truly groundbreaking is that Senator Warren recognizes that the problems in the financial regulatory space are not just technocratic ones but political, and that technocratic fixes will never work until and unless the political structure of financial regulation is reformed. Senator Warren's speech says exactly what needs to be said: the power of large financial institutions not only threatens our economy, it threatens our democracy. Senator Warren has picked up the mantle of Teddy Roosevelt.
Second, as a political matter this speech announces a reform offensive. Since the high-water mark of Dodd-Frank's passage in 2010 we have seen a steady push for deregulation. For Senator Warren to take the offensive here, particularly when her party is in the minority in both houses of Congress shows real moxie. That this speech is credible in such political circumstances is also a testiment to its substantive strength.
Third, this speech presents the only vision for financial reform in the policy space. (OK, I guess the "deregulate 'em all" approach is a vision of sorts, but come on...) There isn't a competing right or left alternative out there. No one else has a cohesive reform platform. I think that makes Senator Warren's speech all the more important because this is the speech that will shape the policy field going forward into 2016. This is the yardstick against which all presidential candidates, Democratic and Republican will be measured. It will be interesting to see which ones endorse what parts of Warren's vision and how enthusiastically. Silence will be particularly telling, as it is a vote for the dysfunctional status quo that leaves the Too-Big-To-Fail banks intact and growing.
Read the speech. This is important.