Editorial Roundup

The Valley News (N.H.), April 20:

Critics of Sen. Bernie Sanders’ call to break up the biggest Wall Street banks contend that Sanders fails to appreciate the unique role those financial institutions play in the global economy and that the reforms instituted under the 2010 Dodd-Frank financial overhaul legislation provide adequate regulatory oversight.

The first contention is that size affords such a competitive advantage that breaking up the big banks would amount to ceding American leadership in global finance to foreign rivals. This is a case that the banks and their lobbyists make, along with another: that size provides strength and resilience when problems do arise. Sanders’ counterpoint is that the 2008 financial crisis demonstrated very clearly that too-big-to-fail banks pose such a danger to the American economy that they cannot be tolerated. The deep and abiding unpopularity of the taxpayer-financed bailout of the banks during the meltdown suggests that the average voter probably is with Sanders on this one.

The second question, whether Dodd-Frank is sufficient to curb risky behavior by the big banks, is complex, but a couple of things seem likely. One is that current law would not allow regulators to force banks to downsize absent another impending crisis and that specific congressional authorization would be needed to do so. (Sanders has introduced legislation to that effect). Another is that despite the regulatory safeguards embodied in Dodd-Frank, the biggest Wall Street banks are still too big to fail – indeed, they are bigger than they were before 2008. That suggests strongly that if another debacle started to unfold, they would still need to be bailed out.

Support for this view came last week when the nation’s top bank regulators found that five of the eight largest banks lacked credible plans for how they would wind down their business in a crisis. “The goal to end too big to fail and protect the American taxpayer remains just that: only a goal,” said Thomas M. Hoenig, vice chairman of the Federal Deposit Insurance Corp. The banks have until Oct. 1 to make adjustments to these so-called “living wills,” which are required under Dodd- Frank. If after a couple of years the plans are still deemed inadequate, regulators do have the power to require the banks to sell assets and businesses, with the goal of rendering them less complex and difficult to wind down in a bankruptcy filing. The banks will no doubt make every effort to get their living wills in order rather than risk having to downsize.

The idea that the largest banks should be broken up is not confined to the Sanders wing of the Democratic Party. Back in February, Neel Kashkari, in his first speech as the new president of the Federal Reserve Bank of Minneapolis, told an audience at the Brookings Institution that, “I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy.” Kashkari is no wild-eyed radical. He is a moderate Republican and a former Goldman Sachs employee who, as a senior Treasury Department official in the Bush and Obama administrations, worked during the 2008 financial crisis to save those same banks. In his view another such crisis is apparently a clear and present danger – and an entirely preventable one. “The question is whether we as a country have the courage to actually take action now,” he said.

One way to look at the whole arcane argument about whether Dodd-Frank is sufficient to keep the biggest banks on a short leash is that the law supplies regulators with some useful tools that they appear to be making good use of at present, as in the “living wills” process. But a regulatory regime is only effective to the extent that regulators are zealous in enforcing it. Should the Obama administration be succeeded by one more solicitous of Wall Street’s sensibilities, there’s every reason to fear that the leash would be relaxed, with all the dangers to the economy that implies. For that reason, we think Sanders is on target when he calls for breaking up the behemoths on Wall Street.

The Providence Journal (R.I.), April 23:

Brazil is in the final stages of preparation for the Summer Olympics in Rio de Janeiro. Unfortunately, a political scandal threatens to dampen what should be an exciting time for this country .

At the center of this controversy is Dilma Rousseff, who became Brazil’s first female president in 2010.

The longtime political activist was jailed (and reportedly tortured) from 1970 to 1972 because of her fierce and brave opposition to the previous military dictatorship. She eventually became a populist force who achieved great electoral success.

Rousseff ’s popularity has crumbled in recent years, however. Rather than boost the country’s economy, the ninth largest in the world, her policies– combined with a crash in oil prices –have driven it into a deep recession, the country’s biggest economic downturn since the Great Depression. And now she faces a serious impeachment challenge led by a political rival, lower house Speaker Eduardo Cunha.

Rousseff was accused of breaking the country’s budgetary laws. Instead of sticking to a budget, she borrowed from state banks to cover a deficit, in part to keep paying for social programs. This reportedly happened just ahead of her 2014 presidential reelection bid.

The impeachment motion passed 367-137 in the lower house on April 17. The focus now shifts to the Senate, which will decide her fate.

The Brazilian president insists she’s the victim of a coup by opposition parties. She has also argued that other leaders have done similar things. “The acts that they accuse me of,” she said, “they were practiced by other presidents of the republic before me. And it wasn’t characterized as being illegal acts or criminal acts. They were considered legal.”

It’s a rather weak defense on her part, since two (or more) wrongs don’t make a right. In addition, she seems to have borrowed vastly more than previous leaders did.

Some see corruption on the other side too. While Brazilian columnist Celso Rocha de Barros, in an April 19 New York Times op-ed, dismissed her notion that the impeachment proceeding was a coup, he also said this “doesn’t mean it’s right.” He contends that the impeachment process “may very well turn out to be the way the old political class reasserts control over the country– and escapes jail” under her leadership. In addition, the Supreme Court is packed with judges from Rousseff ’s own party, and may “review” her impeachment.

Still, it does seem clear that, in Latin American country after country, populists elected on the notion of redistributing wealth and bowling over anyone who gets in their way have run into some hard realities of economics. There needs to be a vibrant economy to sustain big government spending, and the rule of law is essential to a vibrant economy.

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