WASHINGTON -- Sen. Elizabeth Warren (D-Mass.) appeared to offer a thinly veiled rebuke of liberal economist Paul Krugman on Wednesday by highlighting a "scary" too-big-to-fail ruling from federal bank regulators.
The Federal Reserve and the FDIC said Wednesday that five of the biggest banks in the country cannot credibly be unwound safely without bailout money from taxpayers.
"This announcement is a very big deal. It's scary," Warren said in a written statement. "After an extensive, multi-year review process, federal regulators concluded that five of the country's biggest banks are still -- literally -- too big to fail. They officially determined that five U.S. banks are large enough that any one of them could crash the economy again if they started to fail and were not bailed out."
The banks -- Bank of America, Wells Fargo, JPMorgan Chase, State Street and Bank of New York Mellon -- were all given until Oct. 1 to present more credible plans for how they'd enter bankruptcy, or face penalties from regulators. If they continue to fail to present credible "living wills," regulators will eventually be required to break them up.
But Warren directed her sharpest words at an unnamed set of people who have recently downplayed the role of big banks in the financial crisis and questioned the value of breaking up big banks -- an apparent reference to the Nobel Prize-winning Krugman.
"There's been a lot of revisionist history floating around lately that the Too Big to Fail banks weren't really responsible for the financial crisis," Warren said. That talk isn't new. Wall Street lobbyists have tried to deflect blame for years. But the claim is absolutely untrue."
"There would have been no crisis without these giant banks," Warren continued. "They encouraged reckless mortgage lending both by gobbling up an endless stream of mortgages to securitize and by funding the slimy subprime lenders who peddled their miserable products to millions of American families. The giant banks spread that risk throughout the financial system by misleading investors about the quality of the mortgages in the securities they were offering."
On Friday, Krugman argued that the financial crisis wasn't really a problem of too big to fail, but rather a failure to regulate so-called shadow banks -- a broad term including just about every financial activity beyond traditional loans and deposits.
"The crisis itself was centered not on big banks but on 'shadow banks' like Lehman Brothers that weren’t necessarily that big," Krugman wrote.
"Revisionist history is dangerous because it can blind us in the present - and bind us in the future," Warren countered. "Today's announcement should remind us of the central role that the big banks played in the last crisis - and it is a giant, flashing sign warning us about the central role they will play in the next crisis unless both Congress and our regulators show some backbone. ... Today, our top regulators warned us about the danger of the biggest banks - and we would be foolish to ignore their warnings."
Zach Carter is a co-host of the HuffPost Politics podcast “So, That Happened.” Subscribe here or listen to the latest episode below: