My guest today Economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC.
JB: Welcome back to OpEdNews, Dean. I'd like to discuss your recent piece, DC Press Corps Spins Itself Silly Over Sanders' Specifics. What are you referring to specifically?
DB: Senator Sanders had an interview with the New York Daily News last week. The paper's editorial board asked him questions on his plans to break up the big banks, as well as in a number of other areas. Sanders in several cases gave fairly general answers.
The paper's editorial board jumped on these answers, as implying that Sanders did not know what he was talking about and was not qualified to be president. Many others in the media quickly jumped on Sanders as well. For example, Chris Cillizza at the Washington Post, David Graham at the The Atlantic, and Tina Nguyen in Vanity Fair all quickly wrote columns deriding Sanders' answers. Secretary Clinton's campaign also pointed to the interview as raising questions about Sanders' qualifications.
JB: That doesn't sound very good for Bernie.
DB: The irony is that in most of the cases where Sanders supposedly did not know what he was talking about, he was actually largely on the mark. For example, he was asked how he would break up the banks. He said that the Treasury Secretary could have the authority to do this. This is actually correct. The Treasury Secretary sits on the Financial Stability Oversight Council (FSOC), along with the heads of most of the other financial regulatory agencies. Most of the heads of these agencies are appointed by the president, although their terms mostly do not coincide with the president's term. Nonetheless, the new president would before long be able to appoint a majority of this board, so that he or she could ensure that they would support the decision to break up the banks.
The Daily News editorial board also seemed to think it was a gaffe that Sanders said he didn't know how to break up JPMorgan, that he instead would leave that to JP Morgan. This is exactly the route that almost every economist who has given the issue thought would endorse. The Treasury Secretary, or other government officials, don't know the most efficient way to break up JP Morgan. JP Morgan does. It has incentive to break itself up in the most efficient possible way to preserve value for its shareholders. The government's role in this story is set the size caps and give the bank a timeline, not to get in the specifics of what a downsized JP Morgan and its broken off companies should look like.
The paper's editorial board also seemed to think it was a big deal that Senator Sanders did not know the specific statute under which bankers could be prosecuted for fraud. That seemed a rather strange concern. We all believe people should be prosecuted for murder, yet I suspect very few people, other than those who actually do the prosecution can cite the specific statute for murder. Knowingly placing fraudulent mortgages in a mortgage backed security is of course fraud. We will never know whether the Justice Department could have proven the case against top Wall Street executives. We do know that President Obama's Justice Department did not try.
JB: What else?
DB: On two other questions in this area, the Daily News editorial board was just being silly. It asked Sanders whether the Fed has the authority to break up the big banks. Sanders said he did not know. Under Dodd-Frank the Fed oversees the "living wills" prepared by the big banks. These living wills are supposed to ensure that if the banks got into trouble they could be unraveled without creating a larger financial crisis. It is not clear what the Fed can do if it determines that the living will is inadequate. Arguably it could order the bank to downsize itself, although I don't think there is any consensus that this is a power given to the Fed under Dodd-Frank.
The editorial board also asked Sanders about a District Court decision overturning the designation of Metropolitan Life Insurance as systemically important institution by the FSOC, and therefore subject to special oversight. Sanders said that he didn't know the implications of the decision since he had not seen it. The decision had just been issued at that point and was not published, so it's hardly unreasonable for Sanders not to be in a position to comment on its implications.
Anyhow, the bulk of the interview seemed to be in this vein. The editorial board seemed to view its job as trying to embarrass Sanders rather than elicit his views on important issues.
JB: Not to blame the victim, but should Bernie have been savvier about what to expect from the Daily News or was it a lose-lose situation? It certainly laid the groundwork for a lot of disparaging comments, articles and editorials. And how much will this affect anything, going forward?
DB: It certainly doesn't look like Sanders was prepared for the hostile reception he received. He certainly should have been given the way the media have treated his campaign. On the other hand, I'm sure this campaign has been very draining. It is hard to be 100 percent all the time, but this was certainly a bad moment to let your guard down.
Since someone just sent me the transcript of the Clinton interview, let me take the opportunity to make a contrast. The first question was why she failed to deliver the 200,000 jobs for upstate New York that she had promised in her 2000 senatorial campaign. Clinton responded: