Now that Jon Huntsman has dropped out, Mitt Romney would do well to study Huntsman’s campaign platform for the financial industry and “too big to fail.” Huntsman was the only presidential candidate to address “too big to fail” head-on. Last October, he wrote in the Wall Street Journal:
More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. …
The major banks’ too-big-to-fail status gives them a comparative advantage in borrowing over their competitors thanks to the federal bailout backstop. This funding subsidy amounts to roughly 50 basis points, or one-half of a percentage point in today’s market.
To end “too big to fail,” Huntsman counseled derivatives reform — which would help allow big, complex financial firms to fail in an orderly fashion — as well as ending banks’ reliance on short-term debt.
No, his solutions weren’t perfect. But Huntsman acknowledged that much of the financial industry operates on a plane outside of free-market discipline.
Perhaps most important, Huntsman said that the next president should “restore the rule of law” when it comes to “widespread” bank abuses like robo-signing. Many of Huntsman’s peers aren’t concerned that banks have filed so many false or incorrect documents with courts.
People are still mad about this stuff. It’s not wise to ignore it.
Romney, though, as Huntsman noted in the same op-ed, has “offered no solutions” on too-big-to-fail “other than implying” in a debate comment “that he would participate in a bailout of Greece” — really a bailout of Greece’s financial-industry lenders.
Romney still needs a better position on this topic — not least because he comes from the financial industry. He could still turn that experience into an advantage (or at least less of a disadvantage) by saying that he knows the financial industry well enough to regulate it so that all its companies compete in a free market.
Romney should brush up on the topic by talking to Huntsman, who has thought about it.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
Huntsman was the only presidential candidate to address “too big to fail” head-on.
That's why he is now looking for work. The financial class happens to like "too big to fail." Since they own both political parties, no one is getting very far with a platform of Wall Street reform.
Reply to this commentLinkReport AbuseIf Glass-Steagall was re-enacted would it prevent "too big to fail"? I believe there was a larger reason it was implemented in 1932 instead of simply the separation of the banking sectors.
Reply to this commentLinkReport AbuseThis is the most important part: "It could impose a fee on banks whose size exceeds a certain percentage of the GDP to cover the cost they would impose on taxpayers in a bailout, thus eliminating the implicit subsidy of their too-big-to-fail status."
Yes! It should be like a luxury tax in baseball...
Reply to this commentLinkReport AbuseYes "people" are "still mad about this", but their anger is ignorant class war nonsense.
Take the claim that "major banks’ too-big-to-fail status gives them a comparative advantage in borrowing over their competitors". Tell it to Bank of America, which right now, today, pays wider spreads to borrow on its bonds that any other company in the Dow Jones Industrials. It pays 5.5% for a mix of 5 and 10 year notes, for example. This is 4% a year above the rate on US treasuries. Um, if this is a comparative advantage in borrowing, what does a risk premium for being hated and sued by half the world look like? Starting, you know, with the agencies, who are currently in receivorship and thus run by the US treasury, and are suing them for oh about 10 figures and roughly the full market cap of the entire bank.
I can borrow from Bank of America (on a mortgage) cheaper than it can borrow from me, on its bonds. Some subsidy.
The reality is the war against American finance has been carried so far, to such excess, by all parties (all of them pandering to populist hatred of the rich) that it has stymied any economic recovery and continues to do so. The American financial sector has contracted by $3.25 trillion since the end of 2008. The result is a huge headwind in total credit outstanding, a punk economy, lingering high unemployment, etc, etc.
And the next president, if he wants the economy to ever grow again, will need to reverse this class war witch hunt against American finance, stat.
Reply to this commentLinkReport AbuseRight you are, Nicole. The giant investment banks that risk not only their own money but that of the taxpayer have an untenable business model, in that they keep the profits in the good times and they stick others with the losses in the bad times. And these losses include the foregone interest that virtuous retirees have been deprived of to bail out the gamblers and crony capitalists at the top.
Bring back Glass-Steagall, make the investment banks revert to partnerships so they are risking their own money and have a real incentive to manage risk (rather than just give lip service to it), outlaw off-balance-sheet accounting, and regulate derivatives so that the demise of one institution doesn't bring down the entire system because of cascading counterparty risk. This would be a sensible set of conservative reforms that would bring back capitalism rather than the current worst of all worlds combination of capitalism and socialism.
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