Senate Republicans say they're against both the bailouts and the Democrats' proposed legislation to end them. They say that Sen. Dodd's bill would "actually guarantees future bailouts." It's time for the Republicans to put up or shut up. Will they make Dodd's bill better by breaking up the too big to fail banks and putting new rules in place that never let them get so big and systemically risky, or will they shill for Wall Street?
Democrats Sherrod Brown, Kaufman, Casey and Whitehouse yesterday introduced the SAFE Banking Act that would put firm deposit caps on banks, limit leverage, and severely restrict the extent to which a bank can deal in non-deposit liabilities. The biggest banks would be broken up because their enormous size is a risk that we currently fund and is unecessary." In all of economic literature, there is no evidence that banks become more efficient or beneficial to consumers as they become enormous. There are no economies of scale above $100 billion in assets (BofA holds $2.2 trillion). In fact, there is evidence that they become less efficient and more predatory the larger they are.
When this amendment to Dodd's bill comes up for a vote, it poses the all-important question to every single senator -- go down on record for the big banks, or for the rest of us who pay the price for their reckless existence.
The top 6 banks now hold assets equal to 63% of the total GDP. Think about that for a second. Six companies, one industry, 63% of US total GDP. That's the kind of size that gives an industry power and influence to corrupt the political process and capture regulators. When corporations get that large, the problem is systemic and can only be solved with a systemic solution. And there are too many hidden handouts and bailouts for largeness, making us sound like a massively broken government. Large corporations are too efficient a vehicle for intellectual capital and political corruption.
Does Dodd's bill go far enough in ending bailouts? No, it poses improvements. But, so far the Republicans' invisible reform proposals are just as pro-bailout. Dodd's bill can work in the abstract while we're in the mood for regulators to oversee Wall Street. But once the country has pretty much forgotten about 2008, the attitudes will change, and regulators will take it easy on the banks. This is a part of the 2008 crisis.
If the Republicans are against the Democrats' incremental steps and want to go structural, then I'll support them and ask others to. "The Senate should put up fences. And then the regulators can come in and do their work," Sen. Kaufman said yesterday. "But they need good rules." That's exactly right. The rules should be so they don't need interpretation by regulators.
Republicans agree that breaking up the banks would promote free markets and restore real competition. We'll also begin to slay political corruption (it makes too big to fail possible) in a way that all of America can love. "Our big banks are the product, not of economics, but of politics," that's what Arnold Kling said to conservatives. Maintaining big banks at the top of the status quo can only mean more big government, the kind that makes a liberal balk too.
This scale-based approach of the SAFE Banking Act has several advantages. First, it promotes competition cutting out monopolistic powers. Second, it would make the financial-services industry more stable by encouraging more small and medium sized banks instead of concentrating power in a few big ones. Third, it precludes unnecessary government meddling in the free market. A fourth advantage, which is actually a feature of the third, is that a set of hard-and-fast too-big-to-fail rules would keep closed a new avenue for collusion that would be created by giving regulators power over systemic risk, like the Dodd bill does. Giving regulators new power to pick winners and losers among the nation's biggest banks would amplify the pay-to-play system and make government even more responsive to corporate money. SAFE would keep things objective.
Republicans can step up and lead on this bill. The Democrats have gotten far more Wall Street money in the past few years, and much of their political success lies in their ability to keep the dow rising and the illusion of recovery alive.
If you're truly against the bank bailouts, break up the banks.
If you're for competition and free markets, break up the banks.
If you're for a smaller, more accountable government, break up the banks.
One last time: By not going one important step more than the Democrats means you're for the bailouts too. Yesterday, from a mailing list: "longest line of shiny limos (awaiting banking lobbyists) outside union station this AM i have ever seen". Republicans, if you're not into the incrementalism, let's go structural together, let's break up the banks in policy.
You can support the SAFE Banking Act with our petition here. Other signers include Dean Baker, Chris Hayes, Lawrence Lessig, Heather Booth, Adam Quinn of Credo, David Arkush of Public Citizen, Jan Frel of Alternet.