Elizabeth Warren, the newly elected senator from Massachusetts, has been appointed to the Senate Banking Committee, a fitting answer to the bankers who have resisted her efforts to rein them in.
Warren unseated the incumbent Republican, Scott Brown, on the strength of her powerful language in defense of middle class Americans against the depredations of the big banks. During a much acclaimed address at the Democratic Convention, she said: “Wall Street CEOs — the same ones who wrecked our economy and destroyed millions of jobs — still strut around Congress, no shame, demanding favors and acting like we should thank them.”
The news about the banks’ malfeasance keeps rolling in. It is fitting that Warren’s appointment has been announced the same week that the U.S. Justice Department has announced fines of $1.9 billion against the British bank HSBC for the laundering of Mexican drug money. That announcement provoked questions about whether the punishment was sufficient to deter future wrongdoing. When, it might be asked, would crooked bankers pay for their crimes with time behind bars?
Warren’s specialty is bankruptcy law and the consumer. She made an academic specialty studying the way the laws were stacked against ordinary Americans for the benefit of financial institutions, including credit card companies. She was an early advocate of the creation of a consumer protection bureau. After the new financial regulation law created such a bureau, President Obama appointed her to get it up and running, but opposition from the banks and from Republicans in the Senate persuaded him it would be more trouble than it was worth to appoint her as its first director.
Instead she ran for the Senate and now will be in a position to deploy her expertise on the banks and their misdeeds from her position on the Banking Committee.
The HSBC fines are only the latest evidence of criminality in the banking industry. Barclays, a British bank, has been fined for manipulation of interest rates, and the Swiss bank UBS may face a similar fine. Others such as JPMorgan Chase, Citigroup and Bank of America remain under investigation.
The U.S. unit of HSBC was accused of laundering nearly $900 million in Mexican drug money over a period of many years. The bank was also accused of violating sanctions against Iran and other nations.
These are merely the banks that have been caught. More important was the epic failure of the banking system that caused the financial collapse of 2008. That was the failure to which Warren was referring in her convention speech, and the success of bankers in evading responsibility for the havoc they caused has created a current of resentment that populists such as Warren and Sen. Bernard Sanders, as well as conservative Tea Party types, have been able to tap into.
We know now that Wall Street had engineered a vast pyramid scheme of debt founded on bad mortgages and exotic securities based on those mortgages, all of which came tumbling down when the housing market crashed. It was a fraud so vast that the criminal justice system has not been able to encompass it. Everyone was complicit, which is probably why it has been hard to indict individuals. It may be that making bad deals was not strictly against the law. The creation of new regulations to protect the public against new frauds will now be the work of Elizabeth Warren and others in Congress, as well as regulatory bodies, such as the Securities and Exchange Commission.
The election result represented a rebuke, not just of Republicans, but of the financiers whom Warren was describing, who had the audacity to resist new regulation even after their demonstrated failures and who claimed to feel put upon by the modestly critical language they heard from Obama. Wall Street needs to be brought within the purview of law, common sense, integrity and decency.