I am very glad that President Obama continues to talk in terms of strong new regulatory system for the financial industry. It is good to have a president, unlike the last one, who actually thinks government playing an oversight role in an industry that could destroy the entire world economy is a useful thing.
The coming legislative battle over the future of banking regulations will be an intense one, with lots of different ideas in the mix. Personally, I am not in favor of one big idea that the White House is floating, which is giving the Federal Reserve -- one of our nation's most secretive and least democratic institutions -- more power in the regulatory structure, especially given their complete failures to use the regulatory power they already have in constructive ways over the past decade. But, hey, this is going to be a long and involved debate, with lots of ideas floating, and big pros and cons to each of them. It's good we are having the debate right now, with the memory of the abject failures of our past regulatory structure fresh in our memories. What will be urgently important is keeping progressive minded folks engaged in this battle.
There is one hugely important thing that is not being talked about nearly enough, though.
It's that breaking up these financial monstrosities that have the power to destroy our economy. The biggest applause line I have had in my book tour, by far and without exception, is this one: "If you are too big to fail, you are too big to exist." I think the American public, including a great many Republicans, is in overwhelming agreement of that basic notion, and yet breaking up these banking behemoths is not very high on the list of things politicians and pundits are talking about. It damn well should be. If one company can wreck the entire world economy by its stupid decisions, that company absolutely needs to be broken up into smaller regional or sector pieces.
At this point, though, not nearly enough people are talking about that essential need. President Obama apparently believes that a stronger regulatory approach can solve the problem alone. Here, for example, is Obama in an interview with the New York Times Magazine:
Q: There was this great debate among F.D.R.'s advisers about whether you had to split up companies -- not just banks -- you had to split up companies in order to regulate them effectively, or whether it was possible to have big, huge, sprawling, powerful companies -- even not just possible, but better -- and then have strong regulators. And it seems to me there's an analogy of that debate now. Which is, do you think it is O.K. to have these "supermarkets" regulated by strong regulators actually trying to regulate, or do we need some very different modern version of Glass-Steagall, in which we basically slim them down?
THE PRESIDENT: You know, I've looked at the evidence so far that indicates that other countries that have not seen some of the problems in their financial markets that we have nevertheless don't separate between investment banks and commercial banks, for example. They have a "supermarket" model that they've got strong regulation of.
That quick answer does not give us a full indication of his overall thinking on the need to break up these big banks, but it is not encouraging, and I hope he does give the idea serious consideration. In the meantime, I hope members of Congress and other players in this debate give full-throated cry to breaking up these monsters. Nothing would be better for the long-term health of our economy and our democracy.