Since her election to the Senate, Elizabeth Warren has developed a reputation for avoiding the press, going so far as to enlist fellow members of Congress to fake talking with her in the halls of the Capitol to avoid reporters. For someone who was such a well-known figure and liberal-media darling prior to the Senate, Warren has had a remarkably quiet first month in office. But yesterday, she made her presence known, per Politico:
Warren, a Massachusetts Democrat, came out blazing Thursday in her first high-profile appearance as a member of the Senate Banking Committee, ripping into regulators and starkly suggesting banks might be cooking their books. . . .
Warren’s comment at the hearing on bank accounting came after she repeatedly — and apparently rhetorically — asked a panel of top regulators to cite the last time they had hauled a big Wall Street bank into court rather than settled. There were mostly halting responses and promises to get back to Warren with more information at a later time.
That question — why there has not been more accountability for top bankers in the wake of the 2008 financial meltdown — taps into a deep vein of public anger on both the left and right. And it is Warren’s most potent political weapon.
This, to be honest, is precisely why I was rather happy Elizabeth Warren had kept her mouth shut, and why people concerned about reforming our financial system, prosecuting financial criminals, and preventing financial crises should be, should wish she had. There are serious problems with what she’s doing here — for one, it’s not at all clear that taking banks to court rather than settling should be a top priority of financial regulators, and further, it’s also not obvious that the reason they have been unable to secure convictions of bankers is that they aren’t trying. What is obvious is that this makes, as Politico explained, effective political grandstanding. Warren is extremely good at that, and combines it with a veneer of expertise and legitimacy, which is why the Left should therefore be happy she’s in the Senate. People eager to see good financial reform and strict bank regulation, though, should be rather more disappointed.
I’m inclined to think that, in fact, with a few exceptions, it would be extremely hard to secure criminal convictions of banks who behaved unethically or irresponsibly during the financial crisis — in large part because what they did was very unethical or very risky, but was simply not illegal. There are a variety of problems that make financial prosecutions hard, period: The people who staff and advise banks are inevitably smarter and better-resourced than the people who are regulating them; partly because the resources involved in securing those convictions would be of prohibitive cost for the U.S. government; partly because the government would then risk the bankers getting off with no penalty whatsoever (as the Bear Sterns hedge-fund managers brought to court were) when a large settlement could have been possible, etc.
For these reasons, given our current regulatory system, I think it actually makes a lot of sense for regulators, limited in their resources and powers, to force banks into large punitive settlements rather than trying to secure an inevitably much smaller number of prize-belt convictions that send a few individuals to federal prison for a few years.Obviously, Elizabeth Warren might disagree: It is possible that those criminal convictions, and fear on the part of individuals about actually going to jail, rather than just seeing their firms profits hit, would more effectively dissuade banks from breaking the rules. If she were the policy-based reformer, really concerned about making our financial system safer and more honest, that her liberal fans like to say she is, she might earnestly be calling for criminal prosecutions. But that’s clearly not what Warren’s doing here: She’s instead simply whipping up the anger on both sides of the aisle toward Wall Street, which she then harnesses to pursue liberal policy ends, such as higher taxes on the bankers she has just suggested should be sent to jail, or onerous regulations that would make the financial industry less profitable but not more stable.