15 things Bernie Sanders said about Wall Street, and whether they make any sense

If there’s one area where Bernie Sanders has radically different policies from everybody else who’s running for president, it’s in his attitude toward the rich in general, and Wall Street in particular. (Often, he uses the terms almost interchangeably.)

So, what exactly does Sanders want to do with Wall Street? He’s now come out with a very detailed speech, which gives some decisive answers to that question. And while not everything he says stands up to detailed scrutiny, a lot of his policy prescriptions are both very sensible, and very unlikely to be put forward by any other candidate.

Here’s the tl;dr of the speech, with some explanation of which bits make sense and which don’t.

1. Bernie Sanders is very worried about wealth inequality.

Sanders starts his speech by saying that “something is profoundly wrong when, in our country today, the top one-tenth of 1% own almost as much wealth as the bottom 90% and when the 20 richest people own more wealth than the bottom 150 million Americans—half of our population.” These statistics are problematic, but the underlying phenomenon—that the very rich are getting richer, while the rest of us aren’t—is a real problem which few other candidates seem to care very much about.

2. Sanders is particularly worried about the power of Wall Street.

“A handful of people on Wall Street,” says Sanders, “have extraordinary power over the economic and political life of our country.” He mostly points to money, though, as the problem, rather than the long list of Wall Streeters (think Hank Paulson, or Bob Rubin, or Jack Lew, or Rahm Emanuel) who have held powerful political positions.

It’s also worth noting that when Sanders complains about how “financial interests spent billions of dollars in lobbying and campaign contributions to force through Congress the deregulation of Wall Street,” he knows whereof he speaks. After all, he himself voted for the biggest and most damaging deregulation bill—the Commodity Futures Modernization Act—in 2000. Was that because of lobbying and campaign contributions?

3. Sanders blames Wall Street for the 2008 global financial crisis.

Specifically, he blames “greed, recklessness and illegal behavior on Wall Street,” which were certainly contributory factors to the crisis. That said, the global financial crisis was, well, global, as was the greed and recklessness which helped to cause it.

4. Sanders says that he will end greed on Wall Street.

Good luck with that.

5. Sanders also wants to end “too big to fail.”

Sanders talks about “too big to fail” as a “policy,” even if in reality it’s more of a description: some financial institutions are so big that the government cannot let them fail, because their failure would be economically catastrophic for the entire country. Either way, Sanders wants to break up all such institutions “so that they no longer pose a grave threat to the economy.”

This is easier said than done. Identifying the institutions isn’t hard—in fact, it has already been done. They’re called systemically important banks, and they include not only global giants like JPMorgan Chase, with $2.4 trillion in assets, but also much smaller domestic banks like Huntington Bancshares, with $70 billion in assets. In other words, even if you split JPMorgan Chase in half, and then split each of those halves in half, and then did that again and again and again so you ended up with 32 different baby banks, each of those baby banks would still have more assets than Huntington Bancshares, and would still be systemically dangerous.

What’s more, breaking up banks does not in and of itself solve the bigger problem. Back in the 1980s, the savings & loan crisis cost the taxpayers a whopping $132 billion—a much bigger bailout, at the end of the day, than taxpayers ended up providing during and after the global financial crisis. But that was spread over more than 1,000 different banks. If hundreds or thousands of little banks all behave in the same manner, then they’re all going to fail in the same manner too, and at the same time. The systemic effects would be identical to just a couple of big banks failing. What’s more, little banks don’t have anywhere near the level of risk controls and regulatory supervision that big banks have, which is why they can be just as dangerous as big banks, if not more so.

America already has far more banks than any other advanced economy, and it’s far from clear that increasing that number dramatically is going to solve any particular problem. Sure, it might make any individual bank small enough to fail. But even big banks are small enough to fail if they do so idiosyncratically. The real systemic problems arise when all of the banks are doing pretty much the same thing. And that’s true no matter how big they are.

Breaking up the banks in an attempt to solve “too big to fail,” then, is a bit silly, especially if those banks are already being forced to carry more capital than smaller banks. Still, that doesn’t mean that breaking up the big banks is a bad idea. The real problem with the big banks isn’t that they’re too big to fail, it’s that they’re too big to manage. JPMorgan Chase is run by Jamie Dimon, a legendary manager who is spending a billion dollars a year just on compliance, and even so he has no real ability to keep close tabs on what all of his various managers are doing with the assets under their control. If you want to be able to tell banks what they can and can’t do, their CEOs need to be able to control what their employees are doing. At a certain scale, that stops being possible.

Big banks also tend to give local branch managers less discretion than small banks do. If we want banks to start lending more to small local businesses, it definitely helps if the businesses have a choice of banks to go to, and if those banks have local knowledge rather than just running everything through a centralized underwriting algorithm. Given that there’s no particular reason to believe that big banks are more efficient than smaller banks, breaking up banks would probably mean more lending to real-world businesses, if and when those businesses want to start borrowing money in a significant manner.

6. Sanders wants to reinstate the Glass-Steagall Act.

Sanders has convinced himself that by separating investment banking from commercial banking, he will be targeting “the heart of the shadow banking system.” But Hillary Clinton is right that really it doesn’t. After all, there’s nothing shadowy about the huge banks which would get broken up if such an act were passed—JPMorgan Chase, Citigroup, Bank of America, and the like. Shadow banking, by contrast, refers to non-banks which do banklike things, in particular maturity transformation. For instance, let’s say you have money in a money-market fund; you can take that money out at any time, despite the fact that most of it is invested in bonds which might not mature for months. That’s maturity transformation, and money-market funds are shadow banks, which will be totally untouched by any Glass-Steagall Act.

Sanders also says that Glass Steagall-would have prevented the financial crisis, on the grounds that shadow banks like AIG gambled recklessly with federally-insured bank deposits. I honestly have no idea what he’s thinking here, but it’s nonsense, all the same: AIG had no access to the federally-insured bank deposits of big commercial banks, as Sanders claims. And of course there were hundreds of different causes of the crisis; no one piece of legislation could conceivably have prevented it.

And yet, again, Sanders has managed to arrive at a good policy, even if his reasons for getting there make little sense. Separating investment banking from commercial banking is a very good idea, since there’s absolutely no reason why federally-insured deposits should be used to fund the kind of activities that investment banks get up to. There’s an increasing global consensus that this is a sensible road to go down: it’s known as Vickers in the U.K., for instance, and Liikanen in the E.U. In the U.S., there’s the Volcker Rule, which goes halfway there, but there’s no particular reason why it shouldn’t be beefed up further.

A new Glass-Steagall Act would not, realistically, “contain the Street’s excesses” in the way that Sanders claims. Investment banks like Lehman Brothers and Bear Stearns were perfectly capable of blowing themselves up even when they weren’t connected to a commercial bank. But that doesn’t mean it’s a bad idea.

7. Sanders wants to jail the banksters.

Sanders says that the “illegal behavior” of Wall Street executives “caused pain and suffering for millions,” and he wants those executives to go to jail for what they did. Which is much easier said than done. Which executives, exactly, should be jailed, and what law should they be prosecuted under? Is it realistic to expect successful criminal prosecutions eight years after the financial crisis? There are a lot of hungry district attorneys out there, especially in New York, who would have loved nothing more than the opportunity to prosecute a high-profile banker. Yet no one even came close. So unless Sanders wants to start getting specific about statutes and individual executives, I’m going to say this is a promise he’s very unlikely to keep.

8. Sanders wants to tax Wall Street speculation.

The proceeds from such a tax, he says, will be used “to make public colleges and universities tuition-free.” Sanders doesn’t go into specifics about what exactly he wants to tax, but he probably has a simple financial transactions tax in mind, where you pay a small fee on every stock trade. That would reduce the amount of trading in the market, but probably not by a harmful amount. Of course, Sanders loves the pejorative terms “speculation” and “reckless gambling,” rather than the more neutral “trading,” or the positive “investment”. But they’re all different ways of describing the same thing.

9. Sanders wants to turn the credit rating agencies into non-profits.

Up until now, we’ve seen sensible policies backed by weird logic; this time we have sensible logic leading to a weird policy. Sanders is absolutely right that the ratings agencies were a large part of the cause of the financial crisis, and that their incentives were a big part of the problem. But his proposed solution—to turn them into non-profits—makes almost no sense. So long as the Wall Street banks who issue bonds are paying the agencies to rate those bonds, the agencies will be beholden to the banks. After all, non-profits always end up doing what their donors tell them to do. And Sanders isn’t proposing that anybody else pays for the ratings.

10. Sanders wants to cap credit card interest rates at 15%.

This is a great idea, at least so long as interest rates are near zero. (Maybe rates should be capped at 15 points above the Fed funds rate.) If you can’t make money lending to consumers at 15%, maybe you shouldn’t be lending to them at all.

11. Sanders wants to cap ATM fees at $2.

Why not $0? It’s zero in the U.K., 97% of the time, and it should be zero in the U.S., too.

12. Sanders wants to allow postal banking.

This is a great idea. But again, Sanders’s stated reasons are a bit weird: he seems to think the main purpose of a post office bank would be to disburse short-term emergency loans. Which, it might do that, but it wouldn’t need to. The main purpose of a post office bank would simply be to offer a bank account for the millions of Americans who don’t have one. In that sense it doesn’t provide an alternative to payday loans, since you can only get a payday loan if you already have a bank account.

13. Sanders wants to ban bankers from sitting on Federal Reserve boards.

Sanders seems to be a bit confused about how the Fed works. There are regional Fed boards around the country, which often have grand local bankers on them, whose job is to keep an eye on the economy. And then there’s the board of governors of the Federal Reserve system, which sets interest rates, and is the powerful monetary authority of the nation, and which doesn’t have bankers. Taking bankers off the regional Fed boards would be merely symbolic, with the possible exception of the New York Fed.

14. Sanders wants to end the practice of paying interest on excess reserves held at the Fed.

This is a highly complex debate, but the short version is: yes, this sounds like a good idea, but the interest rate that the Fed pays on excess reserves is a very important monetary-policy tool. If it can’t pay interest on those reserves, it could be very, very difficult for the Fed to raise interest rates when it needs to.

It’s pretty clear that Sanders isn’t a policy wonk when it comes to interest on excess reserves. “Instead of paying banks interest on these reserves,” he says, “the Fed should charge them a fee that could be used to provide affordable loans to small businesses to create hundreds of thousands of jobs.” This just doesn’t make any sense. If the banks are paying a fee to the Fed, where do the small-business loans come from? Does Sanders want the Fed to lend money directly to small businesses? That would be a very bad idea.

15. As president, Sanders would “rein in Wall Street so they can’t crash our economy again.”

Realistically, as president, Sanders would rein in Wall Street so that the big banks would end up being a bit smaller, and less profitable. But this has nothing to do with crashing the economy, or “systemic risk,” as it’s known in regulatory circles. The only way to prevent that is through something known as “macroprudential regulation,” rather than big pieces of legislation. It would be great if the president could stop the banks from crashing the economy. But no president can. Not even Bernie Sanders.