March 09, 2018

Senator Warren Delivers Third Floor Speech in Series Against Senate Bank Deregulation Bill

Video (Facebook)

Washington, DC - United States Senator Elizabeth Warren (D-Mass.) today continued speaking out against the Senate's effort to roll back rules on the biggest banks in the country. In her remarks, Senator Warren spoke about the history of financial deregulation in America.

The full text of her remarks, as prepared for delivery, is available below.

Remarks by Senator Elizabeth Warren
*As prepared for delivery*
March 8, 2018

Ten years ago, millions of American families were on the verge of devastation. The failure of Bear Stearns in March of 2008 was the first major signal of a coming financial crisis that would cost nine million people their jobs, and millions more their homes or their savings. Lives and plans and dreams would be crushed - and even after the economy started to regain its footing, millions of American families would have to spend years just to get back to where they were before 2008.  A lot of those families have given up the dream of homeownership forever and many are still struggling today.

But in the next few days - with broad support among Republicans and far too much support from Democrats - the Senate is on the verge of passing a bill that puts American families in danger of that same devastation all over again.

Over the last few days, I've talked about what this bill will do. I've explained how it strips consumer protections for American families who are trying to buy a home - particularly in low income communities and communities of color. I talked about how this bill will peel away vital safeguards we put on large banks after the financial crisis to make sure they can't crash the economy all over again.

Now, as the bill is on the verge of passing the Senate, I want to stop and just ask: why? Who is asking us to do this? Our constituents hate it - a recent poll showed that an overwhelming majority of Americans oppose this bill. So why is it that the only thing Washington can agree to do on a bipartisan basis in this Congress is to help out giant banks?

I'll tell you why. Washington's amnesia is legendary. We go through the same cycle like clockwork. When the economy is looking good, lobbyists flood Congress and tell politicians it's perfectly safe to roll back the rules on the big banks.  It's always the same arguments: America needs more lending for more economic growth; our country is losing ground to our competitors; banks have learned their lesson and don't need the rules to behave responsibly.  And the kicker: What could possibly go wrong?

And it works!

It works even though the lessons of history are clear.  Strong financial rules help create a strong economy that works for everyone. And when we weaken the rules, it sets the stage for another financial crisis. A crisis that - every time - hits America's working families the hardest. 

Let's go back to the beginning of the 20th century. A lot of our financial regulations in the United States come from the Great Depression. Before then, Washington ignored the booms and busts that rocked the country every few years, but after the unemployment rate topped 20 percent in the 1930s and the U.S. economy shrunk by about 30 percent, Washington finally got its act together to pass some laws.

Here's what they did. First, they looked at all the places where people put their money - banks, homes, markets - and then they built regulators for all these different types of investments. And Congress did something smart. In a law called the Glass-Steagall Act.  It broke up the biggest banks, and it separated banks that take deposits and make mortgages from higher-risk institutions like investment banks.

This worked reasonably well for nearly half a century.  There wasn't a single major financial crisis.  But then, in the late 1970s and early 1980s, bankers, looking for higher profits and bigger paychecks, set their sights on government rules. They wanted less regulation and more freedom to trick their customers, trap their customers, and cheat their customers.

It started in the savings and loans industry. These institutions, which specialized in home mortgages, started to become insolvent because of rising inflation and flaws in the business model. And, the bank lobbyists had a solution - deregulate! They said, instead of just safe mortgages, why don't we let these institutions put out some riskier stuff in hopes that some of these gambles will pay off big. The Reagan Administration agreed, but the plan failed. Over the next decade, taxpayers spent $132 billion to bail out these institutions.

But why stop there? Deregulating the thrifts, as disastrous as it was, was small ball. Thrifts were only allowed to gamble with a chunk of their own money. The lobbyists wanted to tear all the barriers down, throwing savings accounts and risky complicated securities into one big institution and letting the bank gamble with all of it.

They dreamt of a Wall Street where banks could take the money in grandma's checking account and use it to gamble in the markets.  They wanted to tear down the wall Glass-Steagall had created between boring banking and high-risk trading.

In 1999, the conditions were perfect to rip up rules. The economy was cruising. Unemployment was at 4.2 percent. The markets were on fire - the Dow, the S&P 500, and the Nasdaq smashed every record in their paths. In fact, the Nasdaq grew 85.6 percent in 1999, the biggest annual jump for a major index in US history. One respected finance professor gushed "It's amazing, (e)very year we say it can't be another year of 20 percent-plus (gain) - and then every year it's 20 percent-plus."

It was prime time for the bank lobbyists to strike. They swarmed Capitol Hill, pushing and pulling and cajoling. Running from the House to the Senate and back again. Most of this was behind closed doors, but on a clear, cold day in February 1999, eight bankers and two lobbyists testified in front of the Senate Banking Committee. The knives were out for Glass-Steagall.

The euphemism people used was "modernization." When lobbyists start talking about modernization and clarification, it's time to buy a parachute.

Let me tell you about KeyCorp, one of the banks that would be taken off the watch list in the bill we're voting on in the coming days. Back in 1999, the CEO testified that the "(f)inancial law modernization that strengthens our financial institutions in and of itself will enhance safety and soundness." Behind the buzzwords, that CEO was making the amazing claim that if banks were allowed to take more risks and make more short-term profits, it would actually make the financial system safer. In other words, if we just deregulate the banks they will become safer. 

And he wasn't the only one with a claim like that. The Vice Chairman of J.P. Morgan said "There is a consensus shared by most financial firms and their customers, as well as policymakers, that these rules restrict competition, reduce consumer choice, and are not necessary to protect consumers or insured financial institutions." In other words, rules are the problem. If banks could just do whatever they wanted, everything would be great.

The pitch worked! Nine months later, in late 1999, a bill to repeal key parts of Glass-Steagall and roll back other financial rules passed both houses of Congress overwhelmingly. Ninety Senators voted yes. Senator after Senator - including quite a few who are here today - came to the Senate floor and praised the bill for modernizing our financial rules and getting rid of unnecessary and outdated requirements.

But not everyone was fooled. Some Senators knew better.

Senator Paul Wellstone from Minnesota warned that Congress ''seem(s) determined to unlearn the lessons from our past mistakes....(and) is about to repeal (Glass Steagall) without putting any comparable safeguard in its place."

Senator Byron Dorgan of North Dakota was especially prescient. He said, ''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010... We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

But, Congress ignored their warnings. For the bargain price of $300 million in lobbyist bills, the big banks saw their wildest dreams come true. With the repeal of Glass-Steagall, Too Big to Fail megabanks were born.  Citibank became Citigroup.  JP Morgan became JP Morgan Chase. The banks got bigger and bigger and bigger. 

But the lobbyist weren't done yet. Over the next decade they tried over and over again to expand the loopholes they had punched until regulators and regulations gave way.  By the middle of the decade, the conditions were right. Markets broke records. The unemployment rate was below 5 percent. It was the go time.

Hand-tailored suits and Gucci loafers swarmed Capitol Hill. Meetings were scheduled. So were fundraisers. Their efforts again occasionally spilled out into the public in hearing rooms. This pitch might sound familiar:

In 2006, the head of risk at Citigroup on behalf of the Financial Services Roundtable told the House Financial Services Committee. "The U.S. needs to modernize its capital regulations, and there are a variety of new approaches that all represent a significant improvement over the current system." In other words, the regulations are outdated.

Steve Bartlett, a former Congressman who was a lobbyist for the 50 biggest banks, told the Senate Banking Committee in 2005: "Outdated laws and regulations impose significant, and unnecessary, burdens on financial services firms, and these burdens not only make our firms less efficient, but also increase the cost of financial products and services to consumers. " In other words, set the banks free and let them do whatever they want.  What could possibly go wrong?

In 2005, the head of the American Bankers Association told the Committee, "the cost of unnecessary paperwork and red tape is a serious long-term problem that will continue to erode the ability of banks to serve our customers and support the economic growth of our communities." In other words, in the end, these rules hurt consumers.  Let the banks do whatever they want to their customers.

And then, just as the lobbyists were gaining momentum, the economy they created crashed. It was 2008 and millions of families lost their homes, millions lost their savings, millions lost their jobs.

But the lobbyists didn't lose their jobs. Nope, the peddled myths about the economy and the financial system, and they kept right on working for the big banks. All during the efforts to pass financial regulations to get our economy out of the ditch, the bank lobbyists were there.  They pulled in more than a million dollars a day lobbying against financial reform.  And when the American people were stirred to demand action, the reforms passed anyway.  But the lobbyists didn't give up. Before the ink was dry on Dodd Frank, they jumped right back in and started lobbying to roll back the new rules.

And here we are again. It took years, but the economy is humming again. In 2016, the unemployment rate dipped below five percent for the first time since before the crisis. In 2017, the Dow jumped 25%, the Nasdaq grew by 28%.

You know what that means: the bank lobbyists have taken center stage, insisting that, sure, it's safe to deregulate their clients again. All in the name of economic growth and empowering consumers, of course.

It's the same arguments as before. Last Spring, bank lobbyist Greg Baer said "After nearly a decade of fundamental and continuing changes to financial regulation, now is an opportune time to review the efficacy of our current bank regulatory framework. My testimony will focus on reforms that could directly and immediately enhance economic growth." In other words, turn the big banks loose and see what they can do.

Harris Simmons, the CEO of Zions Bank - which will be kicked off the watch list under this bill - recently testified that "the uncertainty surrounding (Dodd-Frank reforms) can cause banks to withdraw or limit certain types of lending." Or, to put it another way, get out of the way and let the big banks cheat customers again. It's good for bank profits.

Here we go again!

Sure, our financial regulations need work. There are things we could do to reduce the load on community banks. And there are still big dangers to consumers we should take up. But this bill isn't about the unfinished business of the last financial crisis. This bill is about laying the groundwork for the next one.

So I will make a prediction. This bill will pass. And, if the banks get their way, in the next ten years or so, there will be another financial crisis. Of course, when the crash comes, big banks will throw up their hands and say it's not their fault, nobody could have seen it coming. They'll run to Washington to beg for bailout money. And they'll probably get it. But just like in 2008, there will be no bailout for working families. Jobs will be lost, lives will be destroyed. The American people - not the banks - will once again bear the burden.

And then, caught in a fog of amnesia, the lobbyists and regulators and elected officials in Washington will scratch their heads and wonder how in the world it could have possibly happened again. But the American people won't be confused about it - they never are. They're much smarter than the people around here give them credit for. They won't wonder why it happened - they'll know. They'll know it was because people in Washington ignored working people in order to do the bidding of the guys in the fancy suits and handmade shoes who write fat campaign checks. 

Look at the numbers. 78% of people think big banks have too much control on Members of Congress. That includes 68% of people who voted for Donald Trump. Everyone knows Congress sold them out last time. And everyone expects it to happen again this time.

So as we prepare to vote on this bill, I ask my colleagues one last time - do the job you were sent here to do. Stand up for the people who sent us here.  Stop doing the bidding of big bank lobbyists and start working on the things that can make a difference in the lives of working people in this country. 

The American people need it. They deserve it. They will demand it. And if you refuse to do it, don't be surprised when they hold you responsible.