Why Big Banks Should Fear a Candidate with No Chance of Winning
For the largest U.S. banks, the best possible result from today’s New Hampshire primary would be an end to Jon Huntsman’s candidacy.
Let me be clear. I don’t believe that Huntsman has a real chance to win the Republican nomination, even if he surges to a strong finish tonight.
But each day that he stays in the race promises another news cycle for coverage of his campaign. In particular, it means more attention to Huntsman’s promise to break up the megabanks.
And over the long term, that has the potential to alter the political dynamics of an issue that has widely been seen as a left-wing cause.
In politics, as in the rest of life, we rely heavily on heuristics – simple techniques for finding answers to complex questions.
So during the financial-reform debate of 2009 and 2010, here is how a sensible voter – or, indeed, anyone who is not a financial policy wonk — might have thought about the idea of breaking up the largest banks.
1) Congressional Republicans are against the idea.
2) President Obama — who many in the GOP consider a dangerous socialist, but who portrays himself as a sensible moderate — also opposes the idea.
3) Vermont Sen. Bernard Sanders, a self-described socialist, is one of the idea’s most prominent supporters.
Q.E.D.: Breaking up the big banks is a radical left-wing goal.
Now by contrast, consider what a similar voter might know about Jon Huntsman.
He is the most moderate Republican candidate for president, but he is also pitching himself as a fiscal conservative. He comes across as a member of the establishment — a former Utah governor and a former U.S. ambassador to China. He supports conservative stalwart Rep. Paul Ryan’s plan to reform Medicare.
So when Huntsman sells a break-up of big banks, the idea instantly has more credibility with moderates and conservatives than it ever had before. And he’s tailored his pitch directly to conservative voters.
“As president, I will break up the big banks, end future taxpayer bailouts, and restore capitalist principles – competition and creative destruction – to our financial sector,” Huntsman wrote in an op-ed Saturday.
The op-ed appeared on FoxNews.com.
Huntsman also argues that the funding advantage that results from being considered too big to fail amounts to a taxpayer subsidy, which undermines free competition.
“This funding subsidy amount to at least 25 basis points and perhaps as much as 50 basis points, or between one-quarter and one-half of a percentage point. In today’s markets, this is a huge advantage,” Huntsman’s website reads.
“Eliminating subsidies would encourage the affected institutions to downsize by selling off certain operations or face having to pay the real costs of bailouts. Removing the taxpayer subsidies that create too-big-to-fail will also strengthen local and community banks which are unable to compete with the subsidized megabanks.”
Huntsman has put forward six specific ideas for making big banks smaller — capping bank assets as a percentage of GDP; capping leverage relative to GDP; imposing a fee on banks whose size exceeds a certain percentage of GDP; revising the system of deposit-insurance premiums to better reflect the risk in bank portfolios; strengthening capital requirements far beyond what is envisioned in the current Basel accord; and exploring reforms under consideration in the United Kingdom.
At this point, I hesitate to call this an actual plan. Huntsman has promised only that as president he would work with Congress to implement one or more of those six ideas.
But the details don’t really matter right now. What matters is that a Republican presidential candidate — a man who routinely gets described as sensible and centrist — is calling for a break-up of the big banks.
I recently asked Democratic Sen. Sherrod Brown of Ohio about his goals for 2012, and he told me that he is interested in revisiting legislation he proposed in 2010, with only Democratic co-sponsors, that would put size and leverage caps on financial institutions.
Brown is a populist progressive with a sometimes unruly mop of curly hair. He would probably serve his agenda better by keeping quiet for now, and leaving the floor to the Republican presidential candidate who looks a bit uncomfortable when he’s not wearing a tie.