DEBATE REACTION: FINANCE REFORM

Nicole Gelinas:

Romney made a good point about the Dodd-Frank financial-reform law, e.g. that it enshrined five big banks as “too big to fail.”

This point is correct in that the law allows the Financial Stability Oversight Council (FSOC) to designate Systemically Important Financial Institutions (SIFIs), including the nation’s five largest banks.

The implication is that the government will be responsible for ensuring that they don’t fail, so if they do fail, it is the government’s fault, and the government would have to make up for that. This issue not just domestic, but one of foreign policy.

To wit: right now, we see Europe devoting tremendous sovereign resources to help Spain bail out its banks. If Europe is taking this tack, it expects America to do so if and when it is necessary in the future, and the Dodd-Frank law does not discourage this thinking.

It is surprising and gratifying that Romney, who doesn’t often mention Wall Street, brought up the financial system largely on his own and got into a little bit of detail.

Romney should make his point into a big speech about what it means for capitalism in general to have a financial system that is immune from market discipline.

His point about people not starting banks in their garages, though, is less promising. We need more small start-up banks, and there is no reason good regulations could not encourage people to start one-branch banks to grow and compete with larger banks. Otherwise, we have an oligopoly in finance.

13 Questions for the Debate

Wednesday night’s debate marks the first time President Obama and Mitt Romney will spar head to head on the economic issues that underpin the 2012 presidential election. While both candidates have spoken on the trail about tax and labor issues, neither has announced the steps they would take to safeguard the economy from another financial crisis.

The Manhattan Institute just released the latest in its Issues 2012 series of policy briefs, “WALL STREET AND DODD-FRANK: The Right Questions to Ask the Candidates.” Debate moderator, PBS’s Jim Lehrer, should consider deploying a few questions to encourage the contenders to break the silence. Authored by MI Senior Fellow, Nicole Gelinas, the report suggests thirteen questions on financial regulation for Wednesday’s presidential debate. A few of those questions include:

For President Obama:
If the Dodd-Frank law fixed Wall Street, how would you explain that just this May, 52 percent of potential voters told pollsters that they had little or no confidence in the financial industry – not much different from the 55 percent who had such little faith in the industry in the weeks after Lehman Brothers collapsed?

For Governor Romney:
You favored the idea of a government-funded “managed bankruptcy” for General Motors and Chrysler even before Obama took office and pursued such a course.[i] Do you think that large financial firms, too, should have to go through such a “managed bankruptcy” process, with creditors as well as employees taking substantial losses? In other words, is it fair to treat one industry different than the other?

For both candidates:
A lot of people like the Facebook social-media website. But they are upset that Facebook’s stock-market listing earlier this year seemed to fall prey to insider manipulation, causing big losses for small investors. Do you think the stock market gives all investors a fair shake? If not, how would you fix i