Jon Huntsman Has A Radical Financial Reform Plan That Even Occupy Wall Street Will Love

jon huntsman

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. 


Financial Reform Backpages

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.