GOP presidential hopeful and former Utah Gov. Jon Huntsman's editorial in the Wall Street Journal on Wednesday on the lingering problems of "too big to fail" financial firms let him toe the Republican line against Dodd-Frank financial reform while taking a swipe at big banks and former Massachusetts Gov. Mitt Romney, the presumptive front-runner who has cleaned up in contributions from Wall Street.
After skipping the GOP debate Tuesday night in Nevada, Huntsman’s anti-big manifesto was clearly designed to keep him in the conversation and separate him from other candidates who have not come out so directly against large financial institutions. Although the move obviously will not ingratiate Huntsman with big banks from a fundraising perspective, the risk is relatively benign. Romney has already proven to be the favorite with Wall Street, scooping up more than $7.5 million from the sector—and Utah is home to far more community banks than large institutions.
Where Huntsman makes a splash, or at least attempts to, is with his analysis that big banks—thanks to their lower costs for funds—have not lost incentives to grow and that they can still become too big and too unwieldy to regulate or dismantle. He argues that as the 2008 bailouts led many to believe, large institutions present risks that outweigh their economic benefit to society and should be more directly constrained.
“There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose,” he wrote.
That is where his political message comes in: We are inevitably headed for more bailouts that he believes Romney would promote.
“Today we can already see the outlines of the next financial crisis and bailouts. Mitt Romney admitted as much at last week's debate in New Hampshire. While he gave lip service to opposing bailouts, when asked how we would avoid bailouts he offered no solutions other than implying he would participate in a bailout of Greece. The Obama and Romney plan appears to be to cross our fingers and hope no ‘too big to fail’ banks fail on their watch,” he wrote.
Huntsman calls for essentially taxing larger institutions, possibly by imposing a fee on banks whose size exceeds a certain percentage of GDP. But the notion of taxing big banks is reminiscent of previous attempts that have failed.
During the debate on financial reform, Sheila Bair, head of the Federal Deposit Insurance Corp. at the time, tried and failed to force large institutions to pay fees up-front to cover the cost of unwinding them in a crisis. That model was roundly rejected by Senate Republicans who labeled the tax a bailout fund. The administration for a while also floated the notion of taxing large institutions in reaction to the backlash from the $700 billion Troubled Asset Relief Program. But that plan was never seriously pursued and was used primarily as a tool to score points by sounding tough on big banks.
Although Huntsman’s message defines him as the GOP candidate who appears to be the most notably anti-big bank, it is unclear that such distinction will get him anywhere.
The topic is a bit wonky in a debate over how to improve the economy and increase jobs.
And Huntsman’s distinction stands to get lost by the fact he repeated much of the Republican establishment’s well-trodden ground on the causes of the financial crisis and the problems with its fix. He blames Fannie Mae and Freddie Mac and the Federal Reserve Board for creating a housing bubble with an unsustainable push for home ownership in an era of free-flowing credit. And he concludes what every other Republican in the field has already claimed: that last year’s Dodd-Frank financial reform and particularly its Consumer Financial Protection Bureau created misguided regulations that missed the mark.
“He’s not going to win so maybe he is thinking he has nothing to lose and hopes some attention gets paid to his ideas,” said William Longbrake, an executive in residence with the University of Maryland and a former vice chairman of Washington Mutual. “Maybe he is thinking that a Republican needs to fill the center, because one thing everyone would agree is the big banks are extremely unpopular.”