Roosevelt Institute Senior Fellow Jeff Madrick joined host of Bloomberg Law Lee Pacchia and Chris Whalen of Tangent Capital Partner to discuss JP Morgan's massive trading loss and how to prevent too big to fail banks from making mistakes that threaten the whole economy. Something's got to give, because as it stands, taxpayers are "underwriting these profits so that these individual bankers can make a fortune," Jeff says.

It may not even be an issue of too big to fail, however. As Jeff puts it, "Too interconnected to allow to fail is really the issue here." So what to do about this kind of speculative activity with FDIC-insured deposit money? Despite the enormity of the system, Jeff has some solid solutions. "Higher capital requirements would make a difference, separating this kind of activity from more plain vanilla banking would make a difference," he says. "If we made these derivatives transparent, if they were in a clearinghouse and somebody knew the prices…that would help enormously." We need a "different kind of Glass Steagall," he says, one that is modernized to fit our times.

This week, Roosevelt Institute Fellow Dorian Warren joined a panel on America's growing inequality crisis hosted by The Century Foundation and featuring TCF's Greg Anrig, Daniel Alpert, and Robert Hockett along with Timothy Noah, author of The Great Divergence. In the video below, Dorian lays out three points that need to be included in any discussion of what's causing inequality and how we can address it: lawless employers, race-based political polarization, and the rise of an American oligarchy.

On the first point, Dorian notes the recent Wal Mart bribery scandal and says that when you think of "the lawlessness of Wal Mart when it comes to unionization, I think that's a great example to think about the other ways in which employers have pretty flagrantly violated the law in the last 20 years or so. So when you think about minimum wage, when you think about health and safety, we're in a new environment, and activists who work on this call this 'wage theft.'" He highlights some shocking statistics from a 2009 study that shows how badly low-income workers have been ripped off by their employers and points out that there is a "basic principle of the social contract that when you work at a job you have an agreement with the employer for how much you're going to make... There is a pretty systematic violation of that contract, and that explains at least part of the wage stagnation that we've seen in the low-wage service sector specifically." While updating and modernizing labor laws is important, "monitoring and enforcement of existing wage and hour laws are really important."

Where race is concerned, Dorian argues that while it doesn't explain the rise of inequality by itself, "there is a story where race does play a role, and it's a political story." He points out that "for 80 percent of our country's history, the majority of Americans weren't classified as citizens," and that Lyndon Johnson's signing of the Civli Rights Act caused an exodus of white southerners from the Democratic Party to the GOP. He says that "there is a difference between Republican administrations and Democratic administrations, but how you get to a Republic administration has to be part of that story, and that's very much about race and the response of southern whites to greater inclusion into American democracy." This racial backlash in turn helps to shape the policies that further inequality.

Finally, Dorian says that it's difficult to find solutions to the problem of inequality, as even the best policy solutions may not be politically viable. Citing political scientist Jeffrey Winters, he asks, "How do we make sense of the fact that we live in both a democracy and an oligarchy at the same time?" Wealth has become highlighy concentrated in the U.S. while also granting the wealthy a disproportionate level of political influence and a number of methods to safeguard their wealth and prevent redistribution. He notes that "the expectation of democracies is that non-rich people would outnumber rich people and therefore demand through their vote the one thing that makes everybody equal, greater redistribution." He concludes with the toughest question of all: "From the 1960s to the present, when we've expanded our democracy, how is it the case that we've also seen more redistribution but actually less and greater inequality?"

Image courtesy of Shutterstock.com.

In an episode of our weekly Bloggingheads "Fireside Chats" series, Roosevelt Institute Fellow Mike Konczal talked to Aaron Brady from The New Inquiry about how James Q. Wilson's famous "Broken Windows" essay has changed the way the police force acts. The two discuss the purpose of the police and ask why policing has become so aggressive, as seen in the Occupy movement when the police escalated situations before any of the protesters were a threat or legally doing anything wrong. While many attribute police behavior to racist attitudes and economic incentives, Mike reveals another story. He points out that "the police are not there to solve crimes, the police are there to maintain order, and that involves determining who is an insider, who is an outsider, and strictly policing those boundaries."

How did it get this way? Mike argues that while the classical liberal idea used to be "that things that should be crimed are things that cause direct harm," broken windows theory has emerged as a combined effort of neo-liberalism and neo-conservatism. He notes that the main point of the theory "is to create a kind of logic for going after squeegee men in New York, to go after the homeless, to go after people carrying minor amounts of drugs and... these kind of nuisances or obnoxious public behavior create the conditions for disorder."

While most middle class americans have a perception of cops developed from shows like Law and Order, where police come to the scene after a crime and carefully assess what went wrong, Mike says that the force now does the opposite. He says they are "freaked out about this imagery of lurid people" and that "when you see this imagery of lurid Occupy Oakland people showing up even if they’re not directly breaking the law, they’re creating the conditions for disorder." Police see protesters at UC Davis as starting a slippery slope toward violence, aggression, and more people showing up in the future -- so they pre-emptively act violently to prevent a worse situation. Mike also argues that James Q. Wilson "takes it for granted that the police will always be pushing the boundaries of the law and that the law will always be improvisational at the edge," as though the police only ever engage in crisis situations where the law can get swept under the rug.

Check out the full video below for Mike and Aaron's discussion of the campus protest origins of the Occupy movement, the newly released report on the pepper spraying of UC Davis students, and for their take on capitalism, The Wire, and Teddy Roosevelt: