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At Last! Simple New Test Shows if Your Politician's Telling the Truth About "Too Big to Fail"

06/30/2010 05:12 am ET | Updated May 25, 2011

We thought we'd write a little radio ad for the SAFE Banking proposal being put forward in the House and Senate. But this ad's not just promoting a policy - it's selling a litmus test. This amendment finally gives us a chance to find out whether those politicians who are giving great speeches about "too big to fail" and "no more bailouts" mean what they say or not. So imagine you're listening to the radio and you hear this ...

Financial reform: It's so confusing! CDO, MBS, CDS ... it's like alphabet soup out there! Sure, we hear politicians in the House and Senate say they want to stop "too big to fail." They say they don't want to bail out rich, greedy bankers again just so they can give themselves more fat bonuses. They all say that. Then they fight each other tooth and nail! How's a poor voter to know who's telling the truth?

After all, it's not like we have all the time in the world. The economy's still in rough shape for most of us, thanks to the greed and recklessness of the big banks and their political enablers. So we're either working two jobs to make ends meet, or doing the work of two other people who have been laid off at our company (*1) for no extra pay, or we're scrambling to find work ... something, anything ... before our unemployment runs out. (*2)

Fortunately, now there's a simple test for the rest of us. You can apply this test to any member of the Senate or House of Representatives - and you can do it without having to take a break from the frantic fight for survival the big banks and their enablers have made of your life. This quick, easy-to-use test can be applied from the comfort of your own home (if you still have one), from that third job you've got to work every evening (too bad you can't help the kids with homework anymore) ... why you can even use it while you're waiting on line to collect the last of your unemployment benefits!

As long as there's a television droning away in the waiting area while you wait for that job interview, or a newspaper somebody left behind on that park bench, as long as you can learn how your politician voted, you can learn whether he's really on your side or just another bank lackey.

Here's the test: Will they vote to break up the big banks or not? It's as simple as that ... really.

Alright, that's the radio spot. Here's the detail. Yesterday Sens. Ted Kaufman and Sherrod Brown officially introduced an amendment that limits the size of banks and the amount of risk they can take. Under this amendment, no bank could become either so big or so leveraged that its collapse could threaten the economy. That means no more "blackmail bailouts," where the government either has to rescue a reckless and greedy institution or see the economy collapse. An identical amendment was introduced in the House by Reps Brad Miller, Keith Ellison, Steve Cohen, and Ben Chandler.

Reading the amendment's accompanying explanation (below) is a breath of fresh air. What's striking about the proposal is how simple and effective it is. No bank could hold more than 10% of the nation's deposits, nor could it leverage (take risks with) sums that amount to more than 2% of the GDP. As Mike Konczal explains (with nice graphs), that covers pretty much every smokescreen argument out there about why making banks smaller really wouldn't solve the "too big" problem. Together with the leveraging requirement, it's simple common sense.

What's also striking is how few institutions it would affect. Only the three biggest banks would be affected by the size limit, and the cap on liabilities would only affect an estimate nine institutions or so. There's also a requirement that banks have more capital on hand to cover their leveraged assets, but that's a relatively modest 50% increase over current requirements.

This is not a revolutionary shakeup of the financial sector. It's a simple, common-sense solution that helps us manage the enormous risk posed by freakishly large banks. And, as Sen. Kaufman observes, we've broken up risky institutions before.

These amendments offer our representatives in the House and Senate a simple choice: Support a safer and more rational banking system, or be counted among those whose votes are being swayed by the influence of Wall Street money. And they give the rest of us an invaluable tool. We'll be able to see whether our leaders really means those words about "too big to fail" and "no more bailouts" by seeing whether or not they vote for these amendments.

If they do, they've passed the test. If they don't, they've failed. Simple as that.

Here's the greatest benefit this new test offers to frustrated voters everywhere. It lets us say to politicians, once and for all, on one of the most crucial issues of our day, those words every citizen longs to say to a long-winded public servant:

Put up or shut up.

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(*1) Alan Greenspan, perhaps the greatest architect of today's economic chaos, wrote this: "The ultimate goal of financial structure and regulation in a market economy is to direct a nation's savings ... towards investments in plant, equipment and human capital that offer the greatest increases in a nation's output per hour." Presumably that includes overworking employees ...

(*2) There's concern that Democrats are now prepared to abandon further extensions in unemployment payments, despite evidence of systemic long-term unemployment in certain sectors and regions. As Dave Johnson notes, Max Baucus said "I think 99 weeks is sufficient." He meant "sufficient" for helping the unemployed, not "sufficient" as in "we need to do everything we can to help these people." The same article added, "Some Republicans say cutting off aid will spur people to find work."

One unnamed Senator added, "Are there no workhouses? Are there no prisons?" (Alright, that was Dickens. Same difference.)

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.

He can be reached at "rjeskow@ourfuture.org."