Photo: World Economic Forum via Flikr
Today Jon Huntsman promised to do what many across the political spectrum want: end the existence of Too Big To Fail banks.
Huntsman offered up a detailed plan for tax reform earlier in this campaign that the Wall Street Journal praised as a benchmark for all other candidates. Now he has released a plan for reforming the financial sector. And both Tea Party members and Occupy Wall Street should be excited about it.
“These reforms are the best tradition of American capitalism – which is letting individuals rise and fall on their own merit,” said Huntsman’s domestic-policy advisor Steve Bogden, “This is an example of when you need to save capitalism from crony capitalists.”
Huntsman calls the current financial status-quo after the 2008 crisis and Dodd-Frank a “‘doom loop’ in which banks and their creditors are bailed out, and therefore feel empowered to again take excessive risk. He points to Europe’s increasingly state-managed financial sector as a fate America must avoid. “
“But this cannot mean that the government allocates credit,” Huntsman says, “We need the market to allocate credit, without the kinds of subsidies that encourage a build-up in dangerous amounts of borrowing and leverage anywhere in the economy.”
Here’s a thumbnail sketch of the plan:
- Set a hard cap on bank size based on assets as a percentage of GDP. (This cap would be on total bank size, not using any of the illusory “risk-weights” currently central to thinking about bank accounting… )
- We should have a similar cap on leverage—total borrowing—by any individual bank, relative to GDP.
- Impose a fee on banks whose size exceeds a certain percentage of GDP to cover the cost they would impose on taxpayers in a bailout, thus eliminating the implicit subsidy of their too-big-to- fail status.
- In addition, focus on establishing an FDIC insurance premium that better reflects the riskiness of banks’ portfolios.
- Strengthen capital requirements, moving far beyond what is envisioned in the current Basel Accord.
There are a few standard-issue elements to the plan. Huntsman wants to repeal Dodd-Frank and unwind Fannie and Freddie.
But there are some surprises too. Huntsman doesn’t endorse the gold-standard explicitly but he does call for “sound money” in his plan contending that we “cannot devalue our way to prosperity.” He wants to prosecute robo-signers, calling it a “basic question of the rule of law.” And he wants to gently guide Europe to the the kind of “fiscal consensus forged by Alexander Hamilton and Albert Gallatin “
UPDATE 2:07 PM “I don’t think anything in there should be controversial. It’s all free-market oriented,” said Bogden, “letting people be responsible for their actions. If you look at a firm like Brown Bothers Harriman they didn’t need a bailout because they had skin in the game. We’re just asking the financial sector to resemble the rest of American capitalism.”
Here’s the whole thing.
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