In her bid for the White House, Sen. Elizabeth Warren, D-Mass., is lagging in the polls. But while the RealClearPolitics average shows her in fifth place nationally, many liberals see her as the “policy leader” worth copycatting in their rhetoric and the substance of what they’re proposing.
Long considered a policy wonk, Warren is now driving policy debate in the party with a continuous rolling-out of policy designed to break up various “Bigs.” Big Tech and Big Agriculture have been her focuses so far.
But there’s an irony here: When you look at Warren’s traditional, pet policy focus, financial services, she actually has quite the record of backing policy that has led to megacorporations that may not technically be monopolies, but sure as heck are not vast in number within their economic sector.
Warrren was, of course, a major supporter of the Dodd-Frank financial services overhaul bill. While she was not in the Senate when it was passed — ironically, her opponent, former Sen. Scott Brown, R-Mass., actually voted for it — she was a champion of the legislation.
Eight years after its passage, though, Dodd-Frank has had some pretty perverse effects, some of which were alleviated with last year’s financial services overhaul. The simple version is, big banks got bigger, and even more “too big to fail.”
Dodd-Frank imposed a ton of regulatory hurdles on smaller, especially community, banks. The effect of that was to ensure that big banks could fare better under its regulatory environment.
This is totally logical and rational: The bigger an institution, the more money and resources it can devote to compliance costs.
Dodd-Frank quite simply created a competitive advantage for big banks in America, further entrenching their market position and therefore ensuring that if one of them got into trouble, it would be even harder for politicians to resist bailing said institution out. As Neel Kashkari, former Troubled Asset Relief Program sherpa and head of the Federal Reserve Bank of Minneapolis put it to Marketplace, Dodd-Frank’s supposed “ban” on “too big to fail” would not be adhered to in practice. “Just because Congress declares something to be true doesn’t make it true,” Kashkari said. “Congress could outlaw cancer. That’s not the same thing as a cure.”
Dodd-Frank being good business for the biggest banks is perhaps part of the reason why Goldman Sachs CEO Lloyd Blankfein stated his opposition to actual repeal of Dodd-Frank in 2016.
In 2018, when Dodd-Frank amendments were being mooted, Bank of America’s Brian Moynihan flatly stated, “Dodd-Frank is fine. None of us are trying to touch it.”
For both Goldman and Bank of America, part of this is about ensuring the safety of the financial system and the financial foundation of the Federal Deposit Insurance Corporation, which large banks fund the most and therefore want protected the most. But no way is that the whole story.
Ultimately, last year, Dodd-Frank was overhauled to limit the regulatory thumb on the scales it had produced for big banks. Warren voted against that overhaul. Then, she went out and attacked her fellow Democrats who did, even though their vote almost certainly has guaranteed more competition in the banking space — something Warren, with her trust-busting, pro-competition 2019 policy narrative would seemingly be inclined to support.
That’s a narrative that conservatives should look at closely. America has seen a lot of consolidation in various business sectors that may not be good for consumers, long term — and which, if it proves not to be, could either be solved by more robust antitrust enforcement or Congress getting really heavy-handed with regulation.
As a right-of-center libertarian, my preference is for the former. The fact is, even extremely robust antitrust rules aren’t going to take out some of Warren’s apparent targets. For example, I’m unconvinced that a bullish reading of antitrust law would hammer Amazon. But antitrust-based efforts to keep the biggest banks from becoming even bigger seems like a better way of ensuring both better customer service in financial services and the avoidance of “too big to fail” going forward than Dodd-Frank, which mostly just screwed community banks and entrenched big bank power.
There’s an element of hypocrisy here, and hypocrisy often rightly tanks presidential campaigns.
Liz Mair is the founder, owner, and president of Mair Strategies LLC, a boutique strategic consulting firm that works on financial services and tech policy issues, including anti-trust.
