By all means, give regulators resolution authority and also impose the tightest regulations possible. But Congress and the White House shouldn’t stop there. Limits should be placed on how big big banks can become.
How big? No one has been able to show significiant efficiencies over $100 billion in assets. Make that the outside limit.
To be sure, smaller banks might still be subject to runs. That’s why the Federal Deposit Insurance Corporation was created in the 1930s – to ensure depositors in the event a bank gets into trouble, so they won’t have to run to protect their savings. And why the Glass-Steagall Act was passed – to separate commercial banking (where depositors put their money) from investment banking (where betting is done). We could expand insurance to certain categories of bank creditor, and we should resurrect Glass-Stagall.
But the only way to make sure no bank it too big to fail is to make sure no bank is too big. If Congress and the White House fail to do this, you have every reason to believe it’s because Wall Street has paid them not to.
Teddy Roosevelt created not only a legacy but a near legend by using the power of Sherman Anti Trust.
One of his first notable acts as president was to deliver a 20,000-word address to Congress asking it to curb the power of large corporations (called "trusts"). For his aggressive attacks on trusts over his two terms he has been called a "trust-buster."
Roosevelt's legend was cemented when he broke up Standard Oil. Yet, post Roosevelt trust busting has been near non existent. The only high profile trust busted was AT&T in the 1980's and that was largely with the cooperation of AT&T itself.
On no level does this make sense. Roosevelt is on Mount Rushmore. His legend was cemented by his high profile confrontations with the likes of Rockefeller. All Presidents worry about their legacies.
Beyond that, there's almost no power grab as large as trust busting. Is there anything more seductive in a presidency than power? Is there a greater power than trust busting? Even the power to wage war isn't as absolute as trust busting. Pop psychology would state that once a president got a taste of that power it would be like crack.
Not so, it worked for Roosevelt and then it went away. There is no logic to it. Almost everything President Obama has done has been one giant power grab yet. Yet, if Obama really wanted a power grab he'd break up the banks. The health care bill is small time compared to the power grab that trust busting the banks would be. It would also be a populist move. Nothing says your a man of the people like dismantling the biggest banks.
Furthermore, trust busting isn't something you can fit into an ideological box. This wouldn't be a clear liberal/conservative move. If the president were serious about post partisan, this is his move. Finally, isn't too big to fail the very epitome of a monopoly or trust? If Obama is trying to fix that problem, isn't this where he starts?