Kudlow’s Money Politics

Bank Bashing Isn’t the Answer

Taxing and bashing banks is no way to run an economic recovery plan. Sure, banks made mistakes. And I still believe that no bank bonuses should be paid while the banks were under TARP. But they have paid TARP down. Right now we need the banks to service customers and expand loans when economic recovery moves into the credit-demand, loan-demand phase.

President Obama wants to restrict the size and activities of our biggest banks. He wants them to get out of the hedge-fund business and private equity, with no trading for their own account. Plus, he wants a tougher cap on bank-deposit market share. The only problem here is that hedge funds and proprietary trading were not the big problems in the financial meltdown. Bad loans were. This, of course, includes mortgage loans, commercial real-estate loans, credit-card loans, etc. That was the biggest problem.

The real bad apples? Lehman, Bear Stearns, AIG, Fannie Mae, Freddie Mac, and Merrill. But the big banks like JPMorgan bought the bad apples, and in the process helped save the system. And if the big banks are forced to sell off their trading securities, it may very well create another financial bloodbath.

Regarding taxpayer-insured deposits, there is a firewall that prevents them from being used for risky trading purposes. So strengthen the firewall, but don’t destroy the banks. Don’t threaten to dismantle them or break them up. Don’t tax them to death either. We need them for recovery.

This whole story smells to me like mistaken left-wing populism, a flawed attempt to respond to the rising tea-party revolt and voter outrage against big-government spending, taxing, and overreach. Bashing banks is not the answer. Smaller government and lower taxes across-the-board is. Let’s not disrupt the economy; let’s try and heal it.

Let’s put in better capital requirements. Let’s put limits on leveraged borrowing. And, most of all, let’s get rid of the too-big-to-fail doctrine. That is probably the root cause of all of these problems.

Left-wing populist bank bashing is not an economic recovery plan. It isn’t even a political recovery plan. Truth be told, with Obama policy currently in complete disarray, nobody can possibly tell what the administration’s next move is going to be. And frankly, that is a big-time contributor to this week’s stock market plunge. 

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