Reply #8: Trouble Ahead: Can the Right Seize the Banking Reform Issue in 2010? [View All]

Few things are as potent in politics as calling for change at a moment of fundamental dissatisfaction with the status quo. Nobody should know this better than the current White House. Gauzy words describing the possibilities for change are always more comforting than defending the current dire straits. That is why — in addition to all the substantive arguments — the current White House plan for banking reform is so troubling.

Let us fast forward a couple of months. Momentary GDP pops notwithstanding, the economy next year is likely to be in pretty sad shape. Consumer spending is sagging; foreclosures are still climbing (and may surge as ARMs re-set); unemployment is likely to be hovering in the 9.5-10.0 range; federal deficits and state deficits will be soaring; and Goldman profits will still be setting new records.

Added to this toxic political brew will be a new, and perhaps counter-intuitive, but highly successful political attack from the RIGHT: break up the banks. Imagine this: by next spring, an intellectual consensus will have emerged that the concentration in the banking sector that developed from the 1980s until the crash of ‘08 was misguided. Voices as disparate as Former Fed Chair Paul Volcker, Bank of England Governor Mervyn King, meta- investor George Soros, and the Wall Street Journal editorial page will be in agreement on this point.
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So the simple question remains: why aren’t we focusing on the problem that got us here in the first instance — the scope, range, and size of the mega-institutions whose risk taking has so far inflicted only enormous harm on our economy? If the Republicans pick up this issue before we do, the elections of 2010 could be even worse than we are now fearing.