Global Development: Views from the Center
By Vijaya Ramachandran - This post is joint with Casey Friedman. Today, the World Bank launched a new report, "Growing Africa: Unlocking the Potential of Agribusiness." The report argues that agriculture and agribusiness should be at the top of the development and business agenda in Sub-Saharan Africa. The Bank is right to emphasize this issue–of the $25 billion of food [...]Saturday, March 16, 2013
Over $1 Trillion to 1 Percent of Charities: How Do We Measure the Results?
Ken's Commentary
This post, originally published in The Huffington Post, was co-written by Ken Berger and Dr. Robert Penna.The U.S. has the largest nonprofit sector in the history of the world. It is estimated to contain over 1.1 million public charities, which account for somewhere around $1.5 trillion per year in revenues; and the nonprofit sector as a whole employs over one out of every 10 workers in this country. Therefore, with massive government budget deficits, tax increases on top earners, along with payroll taxes hitting millions of workers, America is at a critical juncture and needs to know that charitable revenues are being used as effectively as possible. Even more amazing is a fact most of the general public does not realize -- roughly 1 percent of the charities in the USA (perhaps 15,000 organizations) garner over 85 percent of that $1.5 trillion that comes into the sector each year.*
While we feel better for our efforts, the truth is that we can't actually measure the social impact that most of these expenditures lead to because the vast majority of charities (those nonprofits that have 501 (c) 3 status, and provide you with a tax deduction for your donation) do not publicly report meaningful information on the results of their work. Any private investment of this magnitude would demand a measurable indicator of the result, what about measures of the results for the non-profit sector to create social value (meaningful change in communities and peoples' lives)? Indeed, a substantial number do not have anything to report at all, even privately, because even they do not know whether they are truly effective. As a consequence, both philanthropists and average donors are often forced to use proxies to make their social investing/charitable giving decisions. These proxies typically include financial metrics and other indicators of best practices. Although we believe strongly that financial management and best practices are important and should be considered carefully in making an informed decision about which nonprofits to support, it is clearly not the same as knowing directly about whether the charity is meeting its mission and truly helping people with its programs.
This state of affairs is completely unacceptable. In a day and age when we can access data on virtually anything in nanoseconds, it is long past time for charities to get serious about reporting on the results of their work. Thankfully, there are some bright stars that are showing the way through the fog that covers the sector. Groups such as the Harlem Children's Zone, headquartered in NYC, ROCA in Boston, and Nurse Family Partnership in Denver have built state of the art systems to manage toward and measure their results. As a consequence, they have adapted over time, as they learn ways to become more efficient and effective. They are proving that many more people and communities can be helped in a much more significant and measurable way than many of their fellow service providers have been able to accomplish.
Not surprisingly, there is a chorus of opponents that offer a host of arguments for why managing, measuring, and reporting on results cannot and should not be done. They say it is too expensive to do so; they claim that they are unique and their services are not measurable; they claim that being held accountable is too much of a burden for both the nonprofits and those they exist to serve... and on and on go the excuses. There is a kernel of truth to some of these arguments; but there is also a hidden reality that most Americans do not realize that cloaks the situation: Almost half of all charities in the U.S. have $25,000 or less in annual revenues (and garner less than 1 percentof the revenues that come into the sector each year).** Obviously we are not anticipating a robust performance management and measurement system from these groups! Rather, we are talking about the charities at the other end of the spectrum -- that 1 percent we mentioned earlier. It is simply disingenuous for these larger charities to hide behind the excuse that it is too expensive to know whether or not they are having a meaningful impact. Furthermore, even if they cannot find measures to track all the services they provide, surely they can start somewhere.
As a long time nonprofit evaluator and colleague of ours often says, "If you do not manage your performance, you cannot measure it, and if you cannot measure it, how can you be accountable"? We believe that it is high time that the larger charities, in particular that 1 percent at the top tier of funding, become accountable for all the resources they collect and the efforts they claim those resources support.
Another challenge facing donors of all types is to be found in the claims of those charities that say they are managing and measuring toward results when, in fact, they are not. Rather, they use the jargon of the outcomes field to suggest that they are effective; but actually provide little if any real evidence to support the claim. For example, an employment program might tell you that over 1,000 people graduated from their employment program last year. Unfortunately, that is merely a measure of activity, and speaks not at all to effectiveness. A much more meaningful result could be determined by learning how many people secured jobs as a result of the training... and kept them for a period of time after they graduated from the employment program. Sadly, as calls increase for charities to report on the results of their work to get funded, we also see an increasing amount of false claims of such results. Our collective challenge is to break the long-standing reality in which "the charity that does the best marketing wins" and replace it with "the charity that provides reliable evidence of the most meaningful and lasting change in people's lives wins".
Indeed, we believe the country is currently witnessing a battle for the very soul of the nonprofit sector. The final outcome of this battle will be determined by the amazingly generous American public which donates two to three times more than any other country in the world. With a growing amount of information available, the donating public (we hope), will soon realize that the vast majority of nonprofits seeking their support cannot provide evidence that they are providing meaningful and lasting change that helps people and communities. When this realization becomes common knowledge, our society will truly be at a crossroads. The end result will be that either charities provide meaningful, reliable evidence of their performance, or their donors will abandon them in disgust and frustration.
We often hear from angry donors who, upon repeatedly reading headlines about charity scams and scandals, become even more cynical and skeptical when they learn of the lack of evidence of charity effectiveness. They understandably wonder whether any charity is doing any good. For the nonprofit sector, this is a disastrous conclusion for donors to be arriving at. There are great charities out there doing amazing work; the public simply needs to get the relevant information to find them. But donors also need to remember that giving should not just come from the heart (although it is a great place to start); but also from the head (the place where you can confirm through research that the charity meets the heartfelt impulse). Even a little research can go a long way in finding the high performing charities out there.
Charity Navigator has been and intends to continue to help donors in their research to find those great charities as quickly and easily as possible. As more donors focus on giving to the best charities based on research, more and more charities are striving to become high performers. We know this because within the first year and a half after we launched a revised rating system in 2011 (which we called CN 2.0), roughly 50 percent of the charities we evaluate have made changes to their governance and other practices to assure they met our new standards. This year we launched CN 3.0 which begins to evaluate the quality of how charities report the results of their work. This is the central question that must be answered so that we, the donating public, get the best return on our "social investment" and so that those people who need to be helped, get the best services possible. If we win this "battle" for the soul of the nonprofit sector, many more people will be helped and the world will be a much better place. That's the outcome that really counts!
*The Urban Institute estimates that of the approximately 1.1 million public charities (i.e. 501(c)3 organizations that file with the IRS), only 366,000 report data to the IRS each year. Of those 366,000, 4 percent expend (and also receive revenue) 86 percent of the $1.5 trillion each year. The remaining roughly 800,000 public charities get such a minimal amount of funds it does not even enter into the calculation. Therefore 1 percent of the 1.1 million public charities are garnering roughly 1 percent of revenues/expenses.
**The Urban Insitute report on the Nonprofit Sector (http://www.urban.org/UploadedPDF/412674-The-Nonprofit-Sector-in-Brief.pdf) notes that one-half of one percent of expenses (and also revenues) of the 366,000 public charities that report to the IRS are 100,000 or less. In the full report they indicate that roughly half of nonprofits are less than $25,000 in annual revenues. The amount is therefore, significantly less than 1 percent of revenues and expenses for this group.
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Measuring Impact: Keep It Clear and Simple
SSIR Opinion & Analysis
By Larry Probus
It's a truism that what gets measured gets done. But in the case of international NGOs seeking to measure the effectiveness of their programs, the doing is often in the hands of local communities, and the funding that fuels the doing comes from donors on another continent. Keeping measures simple and highly meaningful to both donors and those in the local community can make all the difference in motivating stakeholders toward a shared vision of healthy lives and livelihoods.
Take for example World Vision's experience in scaling up access to clean water in Africa. Three years ago, we changed our approach to ensuring that communities had access to clean water, sanitation, and hygiene (WASH), and set an aggressive goal to reach five million in need over five years. The effort would require a rapid expansion of the program, including building enough wells to help roughly 200,000 people annually in three countries of West Africa and helping five times that population per annum across ten countries. The new approach also required that we partner with five times the number of local communities—communities that would own, plan for, invest in and maintain the project.
Nothing could be more important for the health and welfare of children in the region, as contaminated water and poor hygiene and sanitation account for more than half of childhood deaths in sub-Saharan Africa. But to attract funders and to seriously engage local communities, World Vision needed to measure and communicate both the challenge and potential impact in ways that felt relevant to villagers, teams drilling the boreholes for new wells, and potential donors.
A starting point was to adopt a uniform measure of the need: access to clean water. This is something that each country in the program heretofore defined differently. We settled on the following definition in dialogue with communities: Access would mean having a protected clean water source available 12 months of the year within a 30 minute round-trip walk from a person's household. By this measure, only 45 percent of the people living in African communities where World Vision donors had longstanding investments actually had access to clean water. That left 15 million in need. These numbers alone sounded a wake-up call. Even more people lacked latrines and safe hygiene practices. By creating a simple metric that described the challenge, we were able to communicate the need to donors and set an aspiration for local communities: to reduce their daily trek for clean water to 15 minutes each way.
The next set of measures related to ensuring that clean water access could be sustained (a critical element of any improvement). Important measures to that end include forming community water committees that are responsible for the water point, establishing a process for collecting $1-$2 annually from individuals accessing water to save up for future repairs, and training 7-8 people nominated by the committee to perform routine maintenance. The committees must also ensure that villagers understand the importance of keeping water pure by using water containers with lids, building a protective apron around the pump, and keeping animals away. Beyond measuring these inputs, we also measure outputs—both the pace of drilling and their upkeep ten years out. One such study in Ghana indicated that 90 percent of boreholes drilled more than ten years ago are still operational; but it also found that the pacing of maintenance was sometimes erratic.
These simple measures of need and community commitment allowed us to grow funding, which in turn allowed us to hire the expertise we needed to grow activity. We used our measures to make a strong business case to existing donors—among them, David and Dana Dornsife, who have invested in our West Africa water program for decades. Entrepreneurs themselves, they pledged $35 million over five years to fund additional technical expertise, retain contractors, purchase equipment, and implement an ongoing system of measurement. The increased managerial capacity allowed us to flex our approach to operations so that we could hire contractors, identify local volunteers, and collaborate with government and private drillers to quintuple the pace of accessing clean water across ten countries. The Dornsifes observed that we had "the right people … in place to accomplish this scale-up, particularly at the senior management ranks in Africa and the US, "and their commitment attracted additional donors. Thanks to simple measures and multi-year commitments from donors, World Vision WASH teams could plan activities over several years for the first time and not be hamstrung by fluctuations in year-to-year budgets.
Finally, any project needs simple metrics of effectiveness and results. In scaling up WASH, we measure our effectiveness in reduced cost per family member accessing clean water. In the first two years of the program, we've seen this drop from $80 to $50, thanks to creating more productive water points and adapting drilling technology to the needs of the terrain—in some cases inexpensive, manual augers are doing the trick. At the same time, we measure our impact in reduced incidence of diarrhea and dysentery, as well as by the number of girls who are able to attend school because they aren't spending hours fetching water. The incidence of diarrhea has dropped 70 percent, and we are hearing stories of more and more girls attending school, which we'll quantify in our next independent assessment.
Measures can motivate. By last year, we had grown the rate of access to clean water, with training in hygiene and sanitation, five times, reaching 1 million people per year. As important, we are sharing results and methods across our network, so that measurement converts to broad-based learning.
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Tuesday, March 12, 2013
MOOC-sourcing for Social Good
SSIR Opinion & Analysis
Everyone's talking about massively open online courses (MOOCs) these days. Just before the New York Times named 2012 the year of the MOOC, Time magazine dedicated its October Issue, titled "Reinventing College," to an analysis of the role that MOOCs could play in repairing our higher education system—a system that is becoming more expensive while failing to prepare a growing pool of students to succeed in the workforce.
To me, the most compelling part of the issue's feature article was the story of an 11-year-old girl from Pakistan named Khadijah Niazi. She started a challenging college-level physics course on Udacity in late 2012 when the Pakistani government decided to block access to YouTube. However, her peers—other students from around the world—were determined to help her succeed. They banded together to ensure that Khadijah could access course lectures and assignments by sending her links to materials posted on private servers. She eventually finished the course with the highest distinction.
An article in early November in the Guardian told another story, this one about a Mongolian boy, Batthushig, who received a perfect score in edX's offering of Circuits and Electronics through MIT. For some, this was no surprise. Looking back to the Fall 2011 Stanford artificial intelligence course that launched the MOOC revolution, the instructors found that the top 400 performers in the course weren't Stanford students.
These stories reveal the most powerful attribute of MOOCs: their ability to open up channels to some of the most intelligent, motivated people around the world in the name of knowledge dissemination. But while using these channels simply to help spread knowledge is exciting, using them to facilitate new content creation could be revolutionary. How can we engage the talented, passionate, and often educationally disenfranchised students in MOOCs to help solve real-world problems?
The notion of connecting with large bodies of people to address outstanding challenges is not without precedent. Crowdsourcing has gained popularity over the past decade as a means of leveraging access to millions of people with diverse backgrounds to solve real-world problems. Platforms such as Innocentive, ChallengePost, and Kaggle, to name a few, have used crowdsourcing models to address problems across disciplines, in both industry and academia.
But MOOCs are particularly well positioned to encourage and benefit from crowdsourced problem-solving. In fact, educational theories highlight numerous benefits to real-world collaborations. Social constructivism emphasizes the importance of student interaction with peers to maximize learning outcomes. Activity theory supports the notion that students from different cultures may look at the same problem and come up with different solutions, each valid in its own right. Situated cognition argues that for educational content to truly sink in, it cannot be separated from its domain of application. Using MOOCs to facilitate real-world problem solving offers benefits to organizations that have problems; it can also help learners gain the skills and confidence they need to be productive members of society.
Stanford's Venture Lab is already bringing together teams of students from different countries to envision new products. But there's something to be said about integrating students into a web of existing challenges and asking them to innovate. We could enable students in a data science MOOC to share insights into how a resource-strapped nonprofit could improve its services, or empower those taking an artistic programming course to create infographics that help NGOs communicate their social impact to donors. The possibilities are endless. There's no telling what motivated, passionate students with unique cultural perspectives can accomplish if they believe that what they create can change the world.
I'm excited to explore real-world problem solving in MOOCs through my master's dissertation this year. Professor Michael Lenox at the University of Virginia and I are piloting this idea to see how students in his business strategy MOOC may provide recommendations to small-enterprises and nonprofits on their strategic direction. Over the next few months, I'll be working on a team to scale this approach through the development of Coursolve, a platform that connects organizations with courses to empower students to solve real-world problems.
In a world where resources are scarce and education systems often struggle to prepare students for the future, it makes sense to empower students to address real challenges. Let's use MOOCs to promote learning from the world, for the world.
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Sunday, March 10, 2013
Four Arguments against the Elimination of Child Labor
David Roodman's Microfinance Open Book Blog
By David Roodman - Don't get me wrong: sarcastic headline aside, I'm not in favor of the exploitation of children. However, I feel moved to speak against a recent push, I guess led by Hugh Sinclair, to insert a ban on child labor into the lending policies of microfinance institutions (MFIs), microfinance investors, and such accrediting programs as the Smart Campaign and the Seal of Excellence. The concern behind this movement is serious: that microcredit is financing, thus increasing, the exploitation of children. So the cause it leads to is understandable: a push for policies to break any such link.
My challenges to this proposal are four:
- Legality. Hugh argues that child labor is wrong because it is illegal in many countries with microfinance. Excellent point! In fact, most microfinance clients are engaged in illegality one way or another: squatting on city land to build houses the width of a queen-sized bed, failing to pay taxes on their meager earnings, failing to register their tiny businesses with the authorities… So to expunge microfinance of scofflawery, we need to shut it all down. Seriously, Hernando de Soto showed how, at least in Latin America, elites have purposely complicated the law in order to make formality—legality—a privilege rather than a right. Being poor means you are almost automatically illegal. Thus legality is a wobbly compass microfinance.
- Ethics. We are all descendants of children who survived to adulthood only by laboring, whether as farmers or herders or gatherers. Only with their labor could the family subsist. I look forward to the day when there is no child on earth for whom this is the best choice. But we are not there yet. And we are not as close as you might think. Going by the numbers, the world has made great progress getting kids into school. However, a huge number of these children aren't learning very much. So how quick should we be to tell parents struggling under circumstances far different from our own what the right choice is? Many of them agree with you on the value of education. Whether it is best to put their children in the schools they can afford today is another matter.
- Evidence. The effect of microfinance on child labor is an empirical question, whose answer will probably vary by context. On the hand, microfinance sometimes stimulates at-home businesses, leading parents to pull kids out of school and employ them at home. On the other, it gives parents a new way to finance school fees, providing them the discipline to set aside money each week for this purpose.
The evidence, like the ethics and the legal argument, is ambiguous. A good non-randomized study in Thailand found credit to increase child labor. One in Guatemala found the opposite. (Hat tip to Hugh for both.) The randomized studies, which I trust more, have mostly found little impact. In Hyderabad microcredit availability did not lift or lower the number of kids in school. In Manila, loans made no difference for the average response to "Any Household Member Helping in Family Business?" Ditto, essentially, in Mongolia. In Morocco, children worked 5.05 hours/week in areas with more microcredit versus 4.88 in areas without, a difference that is not statistically significant; meanwhile the number of children per family in school was slightly but statistically higher in the microcredit treatment areas, at 0.76 instead of 0.73.
An exception appeared in Bosnia & Herzegovina. Among less-educated, and presumably poorer families, microcredit caused more 16–19-year-olds to work at home, where "home" often meant "farm." As I blogged before, it is not easy to second-guess poor families in the midst of a major economic crisis if they use credit to invest in their farms, perhaps in more livestock, and put these near-adults to work.
- Principals and agents. Now, one could retort that even if microfinance does not press children into labor on average, it still must do so sometimes. After all, how comforted would you be if I told you that microcredit does not increase slavery on average? And microfinance increases child labor in some cases, then one can argue that MFIs should vow never to finance such exploitation, and that microfinance investors must demand such vows in return for funds.
I do hope that microfinance officers don't leave their ethics at the home, that if they find a child laboring in great duress, and they know that a loan would make things worse, then they will not lend. But in general, microfinance, especially group microfinance for the lower-income clientele, has succeeded by not taking much interest in clients' business. Monitoring clients takes time, time costs money, and higher costs lead to higher interest rates. Anyway, trying to determine what people do with their loans or savings withdrawals is often a fool's errand because of fungibility. Moreover, as Hugh's book dramatizes, reality tends to diverge from rhetoric as one moves along the microfinance investment chain—from individual investor, to investment fund, to MFI headquarters, to field practice. MFIs may say they have banned loans for child labor, and MFI investors may buy that reassurance rather easily—but should we believe them? It will be a great achievement if a program like the Smart Campaign can reliably monitor and certify microfinance field practice as being transparent and non-coercive. I think it is a goal too far to certify what is being done with microfinance in each household. Microfinance investment funds promising to rid their portfolios of child labor will be setting the stage for hypocrisy.
This issue exemplifies a larger problem in international aid and philanthropy. A donor that enters a country with plans to make loans or drill wells or build roads cannot understand, much less control, many of the consequences of those interventions. Often local political structures undermine intentions: bed nets meant to be donated to the poor are pilfered and sold to the highest bidder. Pouring microloans into an Indian slum will perturb the paths of thousands of families. In some, more children will walk out the door each day, headed for the local schoolhouse. In others, more will be enslaved at looms (though I do wonder how much of the most vile child labor occurs in household-level enterprises). In the face of diversity and uncertainty of the outcomes, donors can either proceed or not. I think they'll do best to base their choices on the evidence—which looks pretty good in this case—and a general theory about how the intervention contributes to development. Roads, for example, do harm as well as good, but in many cases clearly more good. Similarly microfinance (if the credit is administered in moderation) is a generally useful service that can give people more control over their lives. Some will use that control for ill, but that doesn't make giving the poor more options a bad idea.
Apologies to Jerry Mander, author of Four Arguments for the Elimination of Television.
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Aid received per person updated
Gapminder
We updated the aid received per person. The data source is the World Bank and values are displayed in current US$. See the bubbles in the Gapminder World.
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Has Venture Philanthropy Passed Its Peak?
SSIR Opinion & Analysis
As someone with roots in product marketing, I can't but help to see the similarities between the fashion curve of popular products and the adoption curve of venture philanthropy. And we have, in my opinion, passed the summit of that curve for venture philanthropy.
When we founded Strategic Grant Partners in 2002, partnering with outstanding leaders who have powerful ideas to improve the lives of struggling individuals and families in Massachusetts, the term venture philanthropy was new. You had to explain to people that it referred to taking techniques from venture capital and applying them to achieving philanthropic goals
Today, terms like social investing, social entrepreneurs, and social impact are common. Grants that require measurement and outcomes are ubiquitous. Finding the "new" new thing is the primary occupation of several well-intentioned philanthropies. There has been a dramatic shift in philanthropic dollars to high-risk startups, diverting money away from traditional nonprofit organizations. Even our government thinks of itself as a social investor, using taxpayer dollars to fund higher-risk social ventures through its Social Innovation Fund.
How do you know when you have crossed the top of the fashion curve? Quality wanes dramatically. In fashion, a good example was the downturn of Tommy Hilfiger, an ultra "flash in the pan" brand that was clearly at its end when it showed up at discounters such as Marshalls and Kohl's and on middle-aged guys who frequented WrestleMania.
In philanthropy, we are seeing a lot of early-stage nonprofits with ideas and leadership that aren't ready for prime time. Unfortunately, many are getting funded. Some talented and not-so-talented social entrepreneurs are getting hold of sizeable amounts of money to give their idea a go. This trend is reminiscent of the 1999-2000 Internet funding bubble.
Another indication that the end is near is when there are multiple variations of the same idea, or when the ideas themselves are on the periphery or so amorphous that it's hard to know what the idea is, exactly. The number of tangential education-related nonprofits that claim that they will substantively change educational outcomes for kids is staggering. Many are doing good things for kids, but they don't have meaningful, measurable impact and are diverting philanthropic dollars from organizations and interventions that have true impact.
Since venture philanthropy firms subsist on finding the next new thing, we continue to feed the beast—a beast that is already well sated. What's worse, funders have become weary of making grants to existing grantees, feeling they should have become financially sustainable without them.
The good news is that never before have the stronger nonprofits attracted such impressive talent. In the early days, renegade social entrepreneurs like Pat Lawler of Youth Villages or Gerald Chertavian of Year Up were few and far between, and it took them years to attract the kind of talent they needed to scale. Today, the landscape of early and mid-stage nonprofits looks quite different, with experienced mid-career leaders making the shift to nonprofit management and a wave of young business-school types choosing to make their careers in nonprofit ventures. Strong, well-led organizations like Youth Villages, Year Up, and Big Brothers Big Sisters of Massachusetts Bay are proving every day that some nonprofits have what it takes to deliver real impact.
What this means is that when we find something that works, we should stick with it, not move on to the next hot thing. More than stick with it—we should double down on the best of the best, the organizations with great leaders than have actually figured out how to change the world. Making our most successful grantees more successful is one of the best ways we can deploy capital.
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“Some Of These Institutions Have Become Too Large”
The Baseline Scenario
By Simon Johnson
In a recent interview with PBS's Frontline, Lanny Breuer – head of the criminal division at the Department of Justice – appeared to admit that some financial institutions were too big to prosecute. In the "too big to fail is too big to jail" controversy that ensued, lobbyists and other supporters of big Wall Street firms tried all kinds of complicated ways to spin Mr. Breuer's words.
Their job got a lot harder yesterday when Eric Holder, the attorney general, stated clearly to the Senate Judiciary Committee,
"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy," (Watch the video for yourself.)
According to Mr. Holder, speaking as the top enforcer of the country's laws, "some of these institutions have become too large."
Senator Sherrod Brown (D, OH), a leading voice for making the biggest banks smaller, reacted in this way,
"You expect trouble bringing a criminal to justice when he flees to a hostile foreign country; but it's shocking that the Justice Department cannot pursue criminal activity when somebody simply walks through the doors of a Wall Street megabank. The laws of the United States must apply equally to both a $2-trillion Wall Street bank and a $200-million bank in Ohio."
American Banker, a trade publication, called Mr. Holder's statement a "stunning admission" and suggested this could mark a turning point in the debate about the size of very large financial institutions.
Senator David Vitter (R, LA), who is working with Senator Brown on legislation to reduce the size of our largest banks, said, "It's another glaring example that 'too big to fail' is alive and well" (this is in the American Banker piece). (Any Brown-Vitter legislation would presumably be similar in content to the Brown-Kaufman amendment, which was defeated during the Dodd-Frank Senate debate in spring 2010; you can review Senator Brown's latest legislative proposal here.)
Senator Elizabeth Warren (D, MA) has been outspoken in her opposition to banks that are "too big for trial." Despite being new to the Senate, she has already hammered the regulators on this point. Following Eric Holder's statement she said, "Attorney General Holder's testimony that the biggest banks are too-big-to-jail shows once again that it is past time to end too-big-to-fail."
Some defenders of the global megabanks claim the issues are very complicated and much more study is needed before we take any action. The Board of Governors of the Federal Reserve, for example, seems inclined to do nothing.
This would be a mistake. Eric Holder's remarks yesterday were not accidental or an aside – he is emphasizing that the world's biggest banks are now above the law. The Dodd-Frank financial reform legislation did not end the problems of "too big to fail".
Will President Obama and his team now do anything about it – such as supporting the Brown-Vitter legislation or helping Elizabeth Warren put more effective pressure on the Federal Reserve to take immediate action?
Will the Department of Justice itself answer the tough questions posed by Senator Brown and Senator Chuck Grassley after the Lanny Breuer disclosures? Who exactly at the Department of Justice decides that a bank is too big to prosecute – and on what basis? Is there a rule book or a list of criteria? Or, more likely, is this something totally made up on the spur of the moment and on an ad hoc basis?
The Justice Department's budget documents prominently quote Thomas Jefferson: "The most sacred of the duties of government [is] to do equal and impartial justice to all its citizens."
The attorney general just told Congress and the country that this principle no longer applies to very large financial institution.
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