A Cornell law professor recently helped craft a legislation with Sen. Bernie Sanders (I-Vt.) and says that his work on financial institutions was obscure when he started teaching — right before the 2008 financial crisis. Now, his goal is to “make [his] job obscure again.”
Prof. Robert Hockett, Edward Cornell Professor of Law, whose primary research interests are organizational, financial, and monetary law and economics, contributed to Sanders’ “Too-big-to-fail” legislation, which unveiled on Oct. 3.
The bill, which was introduced on the 10th anniversary of the Wall Street bailout, calls for large financial institutions to downsize if their total asset portfolio comes out to be about three percent of the U.S. GDP. Until this downsize occurs, they would also be denied access to federal bailout facilities.
“It is important to discourage institutions from gambling and taking needless risks, because right now they can say ‘we are too big to fail and need to be bailed out, or else we will take down the entire economy with us,’” Hockett said.
According to Sanders’ website, the six largest banks in the U.S. control assets worth over half of the GDP. The four largest banks are on average 80 percent larger today than they were before the bailout.
Sanders stated that capping the amount that banks can borrow could prevent a repeat of the 2008 financial crisis. The legislation would break up Wall Street’s biggest firms, including JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, as well as non-bank financial companies such as Prudential Financial, MetLife and AIG.
The legislation also addresses Hockett’s concern that “our larger banks currently invest more in secondary market speculation because they find this more profitable than lending to small businesses and homeowners in the real economy. “
“This is one of the reasons we find high interest rates and high fees in consumer and small business lending, because much of the capital is directed toward speculation in those secondary markets,” he added.
According to The Washington Post, Hockett believes that Sanders’ legislation will gain public support more easily and is a great improvement over previous banking legislation, such as the 2010 Dodd-Frank bill.
“Dodd-Frank is very long, very nuanced, and very difficult to explain to people,” Hockett told the Washington Post. “It’s so much easier to explain Sanders’s bill.”
Hockett has had previous experience writing legislation.
“This legislation is really at the core of what I do. I have done a lot of work with Bernie Sanders, as well as with Elizabeth Warren. I helped Senator Warren’s team with her ‘Territorial Relief Act’ in July and her ‘Accountable Capitalism Act’ in August. Both senators’ concerns align with my academic work,” he said.
Hockett said that if he is “lucky” he will get to continue working with both Sanders and Warren, whose integrity and concern for the middle class he admires.
“Because Sanders and Warren are both possible presidential candidates, we can view their legislation as good indicators of what they believe the biggest issues will be going forward. These are the issues they determined that people care enough about to vote on the basis of,” Hockett said. “Both believe that the way we organize corporations and banks are both important subjects, likely to be big topics of debate in the midterms and 2020 election.”
Hockett earned his B.A. and J.D. at the University of Kansas, his M.A. at Oxford University, and his LLM and JSD from Yale Law school. He joined the Cornell Law faculty in 2004, and has been an Edward Cornell Professor of Law since 2014.
Before entering academia, Hockett worked for the International Monetary Fund and clerked for the Honorable Deanell Reece Tacha, Chief Judge of the US Court of Appeals for the Tenth Circuit. He is a fellow of the Century Foundation, a progressive think tank, and a regularly commissioned author for the New America Foundation, another U.S. think tank.
Hockett also does regular consulting work for the Federal Reserve Bank of New York, Americans for Financial Reform, the ‘Occupy’ Cooperative and other legislators and local governments.
Hockett will also likely be working shortly with Sen. Kirsten Gillibrand (D-N.Y.) on employee ownership of firms and has worked since 2011 with Rep. Brian Higgins from New York’s 26th district, which is Buffalo, on infrastructure investment legislation.
“There is a lot of opportunity to help out legislators with these urgently necessary projects,” he said.