When the U.S. economy was in a free fall in 2008, Sen. Bernie Sanders took to the Senate floor to blast what he called a bailout for billionaires.
Pushing for more regulation of Wall Street, Sanders ripped regulators’ ability to keep a handle on the United States’ largest financial institutions, including those that constitute the so-called shadow banking system, that act as intermediaries for many of Wall Street’s commercial and investment banks. Because of their unique role and the fact they don’t take deposits, these institutions are not subject to the same oversight as more traditional financial firms.
“Legislation must be passed which undoes the damage caused by excessive de-regulation,” Sanders said on September 19. “That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.”
Sanders is now running for president. And his top Democratic opponent, Hillary Clinton, has goaded the senator into a fight over the somewhat obscure shadow banking industry.
The reason: Sanders has backtracked on the role shadow banks played in the 2008 crash and is now downplaying their impact.
Instead, Sanders is choosing to push for the reinstatement of Glass-Steagall, a Depression-era banking that separated commercial and investment banks until its repeal under President Bill Clinton.
“Now, my opponent, Secretary Clinton says that Glass-Steagall would not have prevented the financial crisis because shadow banks like AIG and Lehman Brothers, not big commercial banks, were the real culprits. Secretary Clinton is wrong,” Sanders said during his Tuesday policy address about Wall Street. “Shadow banks did gamble recklessly, but where did that money come from? It came from the federally-insured bank deposits of big commercial banks — something that would have been banned under the Glass-Steagall Act.”
Sanders did pledge in the speech that within the first 100 days of his administration, he would establish a “too big to fail” list of banks whose collapse would pose “catastrophic” risk to the U.S. economy and break them up. This pledge included shadow banks.
But the Clinton campaign says that isn’t enough.
Before Sanders’ speech, Gary Gensler, Clinton’s chief financial adviser, accused the senator of taking a “hands-off approach” because his plan does not address shadow banking. After the speech, Gensler said Sanders “failed to put forward a single new proposal that addresses” shadow banking.
The Clinton campaign wants a fight with Sanders on Wall Street, viewing the senator as not as genuine on the issue as he makes himself out to be. But Clinton’s campaign has been careful to not hit Sanders broadly on Wall Street — a bedrock issue for a senator who prides himself on his distance from wealthy Americans — and is instead focusing on the shadow banking industry, turning what many progressives see as a weakness for Clinton into an attack line.
Progressives have long been skeptical of Clinton’s ties to Wall Street, including the amount of money that has been poured into her campaign coffers from bankers and Wall Street executives.
“Yes, Wall Street has enormous economic and political power. Yes, Wall Street makes huge campaign contributions, they have thousands of lobbyists and they provide very generous speaking fees to those who go before them,” Sanders said Tuesday in a not-so-subtle knock on Clinton, who has given paid speeches to a handful of big banks.
“Goldman Sachs and other Wall Street banks will not be represented in my administration,” Sanders added in an apparent reference to Gensler, who worked for Goldman Sachs before joining the Obama administration.
Clinton fired back in Sioux City, Iowa, the same day.
“With respect to my opponent, who is a friend of mine, I think I have a broader, more comprehensive set of policies about everything, including taking on Wall Street,” Clinton said, adding that she wants to “go after everybody who poses a risk to our financial system” while Sanders doesn’t.
The shots over Wall Street represent a new development in a Democratic nomination race that has, until recently, been largely defined by subtle and indirect attacks.
This was evident on Tuesday, when, after hitting Sanders directly over Wall Street, she offered a more veiled attack over his experience.
“I’m a progressive who likes to get things done and I will get into that White House,” Clinton said. “I don’t need a tour. I know right where the Oval Office is.”