Dems to New York's main industry: drop dead

Goldman Sachs may have paid Hillary Clinton $675,000 for three secret speeches, as Bernie Sanders keeps helpfully reminding us. But Thursday's Brooklyn debate shows that the bank is certainly not going to get its money's worth.

That may be good news for free markets, but bad news for New York's business-as-usual economy.

“This is what I've been saying for the past year,” one candidate said last Thursday. “No bank is too big to fail, no executive too powerful to jail.”

No, that wasn't Sanders. That was Clinton.

Clinton may be the last candidate on either side of the aisle to grasp that eight years after 2008, voters are still mad at the unfair bailouts that financial firms got. But she finally gets it.

Consider how her words have changed since November.

Back then, when Sanders challenged Clinton on her ties to Wall Street, she defended the financial industry. “I represented New York on 9/11,” she said. “Where were we attacked? We were attacked in downtown Manhattan where Wall Street is. I did spend a whole lot of time and effort helping them to rebuild. That was good for New York.”

True enough, but now Clinton is no longer backing her home-state industry.

As the two candidates spent a full 20 minutes on Thursday talking about financial firms, the issue was no longer whether to control their size, but how.

“I will appoint regulators who are tough enough and ready enough to break up any bank,” Clinton said.

For months, Clinton surrogates criticized Sanders for running a one-issue campaign: break up the banks. With Sanders having won seven primaries in a row, Clinton appears to have decided if she can't beat him decisively on this one issue, she'll join him.

Those victories helped Sanders, but so did the facts.

The day before the debate, federal regulators announced that after carefully studying five of the nation's largest banks for years, they determined that yes, indeed, the banks are still too big to fail. Sanders didn't sound so crazy after that.

As it turns out, the official federal process for fixing this deficiency is exactly what Sanders has been saying he would do for a year, to jeers from supposedly more sophisticated people: If the banks can't show that they could credibly fail – which they can't – the banks themselves decide how to sell off their assets to make themselves smaller.

And now Clinton is on the offensive, not the defensive. Not only will she “move immediately to break up any financial institution, but I (will) go further,” she promised Thursday, “because I want the law to extend to those that are part of the shadow banking industry,” including insurers and hedge funds.

As with any grand-scale debate, there's not much nuance here.

Two weeks ago, federal regulators actually lost a case in court in trying to designate MetLife, a major insurer, as too big to fail, with a judge questioning the government's authority under Dodd-Frank. To move aggressively on this front, then, either a President Clinton or a President Sanders would need Congress to strengthen the law.

Plus, it's not actually clear that breaking up the banks fixes our gravest financial problems.

If 10 medium-sized banks fail because they've all been investing in the same types of investments at the same time, they cause just as big a crisis for the economy as the failure of one big bank. The 2008 problem wasn't just that one big firm had screwed up, but that many had.

But the implication for what is still New York's most lucrative industry is clear. Big Finance is likely not going to benefit as much from the implicit government subsidies that allowed the industry to grow so big and so profitable over the nearly three decades from 1984 – when Washington first started rescuing large banks – to 2008.

It’s worth noting that Wall Street is still missing nearly 16,000 of its nearly 190,000 pre-2008 jobs. That matters, because these jobs, with an average income of just above $400,000, pay nearly six times the salaries of the city's other private-sector jobs, the state comptroller notes. Without a too-big-to-fail financial industry, our tax base is still healthy, but smaller.

That would be fine – except the city would have trouble, long-term, budgeting within its new means. No matter who is mayor, public employees don't want to give up the pensions and health benefits that now cost us $19.2 billion a year.

Whether it's Clinton, Sanders, or (yes) Donald Trump, New York is likely to get a hometown president. But we won't get a cheerleader for our major industry – as all of these potential presidents surely know that a bailout on their watch would be fatal to their legacy.

Nicole Gelinas is a contributing editor to the Manhattan Institute's City Journal. Twitter: @nicolegelinas.