(Bloomberg View) — It came through loud and clear in Tuesday’s presidential debate: Republicans don’t like Wall Street. They don’t like its behavior before the 2008 financial meltdown. They don’t like the bailouts that followed. And they don’t like the financial power the biggest banks still wield.
Here’s the snag: Their contempt for Wall Street is exceeded only by their contempt for regulating Wall Street. That means, with one notable exception, they offer no realistic solutions to the problems they identify, especially the risks of too-big-to- fail institutions. In some cases, the solutions they offer would reverse five years of progress toward the very thing they claim to want, a sturdier financial system.
The reasons lie in ideology and practical politics. On the ideological side, Republicans are opposed to big government and skeptical of regulation. That makes them hostile to the 2010 Dodd-Frank law, which gave federal agencies more authority to monitor risk within financial companies and reduce the likelihood of future bailouts by, for example, requiring banks to borrow less and hold more equity capital.
Politically, the candidates are caught between Wall Street donors who finance their campaigns and the many voters who are still angry that their tax dollars bailed out the banks but not distressed homeowners.
So maybe it shouldn’t be surprising that the candidates say strange things about what caused the crisis, the measures adopted to prevent another one, and what more needs to be done.
Jeb Bush, for example, has raised tons of money from Wall Street and once served as an adviser to Lehman Brothers. On Tuesday night he dodged a question about whether he would bail out a failing bank.
Instead, he decreed that the U.S. “shouldn’t have another financial crisis.” Alone among the candidates, he even had a good way to prevent one: raising capital requirements on the biggest banks and easing them for community banks.
The other candidates weren’t so clear-headed. Marco Rubio said big banks got bigger because the government added thousands of pages of regulations that they, unlike smaller institutions, could manipulate to their advantage with armies of lawyers and compliance officers.
Wrong. The banks are big, and take big risks, because they have trillions of dollars in assets and can finance 90 percent of their activities by borrowing at slightly below-market rates because of the presumption that the government will bail them out if they get into trouble. It’s not because they have lots of employees to make sure they don’t violate the law.
Ben Carson said he favors policies “that wouldn’t allow” banks to become too big to fail. Sound like an endorsement of stronger antitrust enforcement?
No. He said he would stop banks from buying back their stock. His theory turned out to be that the Federal Reserve– after Wall Street banks, the Republicans’ favorite target Tuesday — makes it too easy for companies to buy back their stock and drive the price up artificially. “Those are the kinds of things that led to the problem in the first place,” he declared. Hmmm, the suggestion that share buybacks caused the financial crisis is a new one to me.
Senator Ted Cruz went so far as to say that he would let Bank of America fail if it were on the brink. Would he bail out any of the big banks again? “Absolutely not.”
So what would he do to prevent another 2008-like meltdown? Return to the gold standard, an idea most economists have rejected since the gold standard was dumped after the Great Depression.