The Obama Bank Plan
What to make of Obama's latest populist feint.
12:44 PM, Jan 22, 2010 • By MATTHEW CONTINETTI
Well, calling the administration's financial reform proposal a "plan" is something of an exaggeration. According to the White House's own release, the administration simply wants to "strengthen the comprehensive financial reform package that is already moving through Congress," though there are real differences between Barney Frank's House bill and Chris Dodd's Senate bill.
How will the Obama plan "strengthen" the "comprehensive financial reform package"? By barring a "bank or financial institution that contains a bank" to "own, invest in or sponsor a hedge fund or a private equity fund, or [engage in] proprietary trading operations unrelated to serving customers for its own profit." And by placing "broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits." That's it. Seems reasonable.
Jim Manzi, for one, likes the president's suggestions:
But The Economist's Buttonwood columnist thinks otherwise:
For Buttonwood, the president's sudden focus on bank-bashing smacks of politics: "This is not a serious proposal but a way of regrabbing the political initiative by forcing the Republicans to defend the unpopular banks." Sounds right to me!
On the other hand, it would be politically treacherous for Republicans to oppose outright serious reforms that tackle the problem of over-leveraged financial institutions with Too-Big-To-Fail guarantees. The independent voters who are flocking to the GOP may not like the Democrats all that much, but they do not like the big banks, either. I know I don't. That's why the administration's bank tax could turn into a political trap for GOP candidates this fall--especially when a free-market economist like Greg Mankiw says there may be a case for such a tax.
Now would be a good moment for Republicans to announce a serious proposal to remove implicit and explicit subsidies to financial institutions and kill Too Big To Fail for good, wouldn't it?