“Getting our money back” from the bailed-out banks, as President Obama promised today, misses the point.
The “money” is but a fraction of the price the nation has paid for Washington’s failure to ensure that nominally private financial companies could fail in an orderly fashion.
Financial institutions that would be subject to the proposed Obama/Frank “too big to fail” tax know that they don’t operate according to clear, pre-set rules that apply to everyone. The firms instead operate in an environment in which they and their lenders can expect opaque, arbitrary bailouts as needed.
So the industry responsible allocating the economy’s capital remains devoid of consistency and fairness.
Just like AIG, the government is mispricing the burden. For a cut-rate price — fifteen one-hundredth of a percent of financial firms’ borrowings — the president will further formalize the perversion of the foundational principles that have long attracted global investors to our shores.
To end too big to fail, the president should start with the unregulated derivatives that helped trigger the 2008 panic. The solutions are simple. They go a long way toward strengthening the financial system, as independent investment manager Kyle Bass told the Financial Crisis Inquiry Commission yesterday. Yet Congress still hasn’t acted.
— Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, is author of the forthcoming After the Fall: Saving Capitalism from Wall Street — and Washington.