Fed’s Bernanke agrees “100%” with Elizabeth Warren, too-big-to-fail banks are a problem

There continues to be a groundswell of support among the political class that too-big-to-fail (TBTF) banks are in fact a problem.

Elizabeth Warren has been talking about it a lot lately, including her comment in February that “too big to fail has become too big for trial.”

Two weeks later, Warren asked why the banks were receiving $83 billion each year in subsidies. (We now know that that the subsidy might be ten times that amount.) At the time, Fed chair Ben Bernanke agreed with Warren that the subsidies were a problem and should be ended.

Video:  Elizabeth Warren at the DNC – “The system is rigged”Elizabeth Warren: So I understand that we’re all trying to get to the end of “too big to fail.” But my question, Mr. Chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they are getting?…It is working like an insurance policy. Ordinary folks pay for homeowners insurance. Ordinary folks pay for car insurance. And these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. And I’m just saying, if they are getting it, why shouldn’t they pay for it?

Chairman Bernanke: I think we should get rid of it.

And Bernanke continues to talk about the problems of too-big-to-fail banks, see video below.

Fed Chair Ben Bernanke via Bloomberg

Fed Chair Ben Bernanke via Bloomberg

Bernanke has been the driving force behind the free money being thrown at Wall Street the last few years (via the quantitative easing policy), which has helped prop up Wall Street artifically. To thank the American public for this free money, Wall Street has fought bitterly against reform while continuing to hand out high paychecks and bonuses, despite not really making money on their own (even the smaller subside estimate of $83bn/year is equal to the banks’ annual profit), and their ongoing efforts to avoid paying their fair share of the very tax money that simply gets recycled to them as bailouts and subsidies.

Will this change now that Ben Bernanke is coming on board with criticism of too-big-to-fail? I’m still not convinced, Washington has the ability to put Wall Street in its place, and these words from the Federal Reserve chief certainly help the forces of reform.


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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  • tazintally

    Hopefully there are a few, probably quite few, who don’t have the Big Banks & Wall Street to thank for their re/election. Those need to be the majority not the minority. As ciitzens we need to take back our government from the corporations. They are not “people.”

  • Butch1

    Bernanke is part of the problem and now he tries to rewrite history by hiding behind her.

  • Fifi

    ” Bernanke has been the driving force behind the free money being thrown at Wall Street the last few years (via the quantitative easing policy), which has helped prop up Wall Street artificially. ”

    I’m not part of Bernanke’s fan club.I won’t forgive him for playing Greenspan’s yes-man for so long. And personally, as a net saver, I really don’t enjoy being on the receiving end of his interest rate policies, ’cause, as a general principle, I don’t like being f****d in the **** with sand paper. And that’s exactly what Bernanke’s policies are doing to my savings.

    On the other hand, there is still an economy to speak about thanks to those policies and them only, so while my savings are the s*****r, at least, I still have a job. Since 2008, Bernanke has been the only top level official in town who took the real measure of the crisis and did what he could. The problem is not quantitative easing but the two other problems that made quantitative easing the only game in town to inject some life in an economy stuck in a demand-driven depression : 1) the complete failure on the fiscal policy front which is the most effective tool to deal with a depression, an even worse failure after the half-arsed stimulus in 2009, and 2) no reform whatsoever of the financial sector, which is, like it or not, the conduit for monetary policy.

    When the rest of DC refused to budge, Bernanke had only one lever to work with and no choice but to work that lever through with the financial sector as it is.

    Both core failures lie with the executive and legislative branch, not Bernanke. And you cannot take Bernanke to task for failing to defend policies which are 1) not within his purview – he’s the Chairman of the Fed, not the President, not the Speaker of the House, not the Senate Majority Leader – and 2) no one else was willing to defend, not even those to whom those policies would have been the most beneficial, not even Obama, who wasted 2009-2011 being all consensual and post-partisan, when he had a unique opening to take on the banks, push stimulus, reform the tax code and bludgeon the GOP out of existence in one once-in-a-lifetime home run.

  • SkippyFlipjack

    It’s not as simple as ending the “subsidy”. The biggest banks are getting subsidized by virtue of preferential interest rates. If their interest rates go up they’ll raise the rates at which they lend money.

  • nicho

    They don’t see a problem. Their goal is, and always was, to destroy the middle class and further enrich the already wealthy. It’s working flawlessly.

  • http://adgitadiaries.com/ karmanot

    Bernanke is a major part of the problem and talks out of both sides of his mouth.

  • Ken

    Hmmm. $83B in subsidy = $83B in total posted profits. Therefore, true profits=0. Hmmmmn. Actual subsidy=10X$83B. Therefore, #functioning big banks=0. Thus, end subsidy, break up banks, rebuild banking industry that actually works using funds from subsidy. QED.

  • http://www.rebeccamorn.com/mind BeccaM

    Meanwhile, a bipartisan group in the House is pushing a proposal that would gut the already toothless Dodd-Frank reform law.

    http://www.motherjones.com/mojo/2013/03/swap-jurisdiction-certainty-act-house-representatives-cross-border-derivative-regulation

    The new measure would allow big international banks — which comprise all of the ‘too-big-to-jail’ ones — to shift their risky derivatives gambling to foreign subsidiaries. Rep. Carney (D-Del) actually had the gall to claim this would “protect American consumers.” Rep. Garrett (R-NJ) was more honest about the bill’s true intentions: “Our job creators—millions being crushed by overly burdensome Washington rules and regulations—deserve to be on a fair, level playing field with the international community.”

    In short, it would encourage those banks to assign their risky derivatives bets to their subsidiaries in whichever countries have the most lax regulations — and when their bets go belly up, as they inevitably will one day, they’ll come back home, hat in hand, demanding more taxpayer-funded bailouts. Heads they win, tails they win; either way, the 99.9% loses.

  • SkippyFlipjack

    I still don’t understand what Bernanke was talking about. “I think we should get rid of it.” Get rid of “it”? It what? When figuring out interest rates you included calculated risk. The low interest rates indicate that they view the biggest banks as the least risky because it’s assumed they’ll be bailed out if they crash. Is risk assessment the “it” he wants to get rid of? The phrasing of his answer makes it seem like he didn’t really get the issue.

  • nicho

    It could. That’s what’s killing Europe. because of the Euro, the individual countries can’t print money to solve their crises. It’s been an absolute disaster.

  • Naja pallida

    The problem has been acknowledged since, and probably before, 2008. It doesn’t matter if you recognize the problem if you have on intention of trying to do anything serious about it.

  • guest1

    This would be a 180 in policy for Bernanke. He thinks money printing will solve the problem

  • caphillprof

    But the House Agriculture Committee does not agree with either Bernanke or Sen. Warren and, apparently, it is they who are in charge of banking and securities regulation in this country.

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