Democrats have followed the President’s lead in casting the Wall Street debate as a question of “whose side are you on?” That makes it fair to call out the administration when they are clearly on the side of the big banks.
Through the valuable liberal financial blogger Mike Konczal comes this Wall Street Journal report:
The amendment, written by Sen. Susan Collins (R,. Maine) with backing from Federal Deposit Insurance Corp. Chairman Sheila Bair, would force banks with more than $250 billion in assets to meet higher capital requirements….
First let me say, it’s unclear whether this is a good policy, or one that free-market types should support — there are arguments on both sides, which I’ll hit below.
But for now, it’s worth pointing out that the administration and the Fed are siding with the bank lobbyists here:
Ed Yingling has visited the White House at least eight times under Obama, and tends to be a Democratic donor, giving to Chuck Schumer, Chris Dodd, and other powerful Democratic senators and Dem candidates in competitive races.
I don’t think Obama is stripping out these leverage requirements in order to please his donors, but his “whose side are you on?” rhetoric is an example of the pot calling the kettle black.
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On the merits: Standard free-market, laissez-faire arguments don’t stand when it comes to regulating banks, because banks are guaranteed by the FDIC and subsidized by the Fed. That means the taxpayer, as the insurer, has the right to tell banks how risky they can be. The questions here are (1) should the leverage rules be stricter than they are now? and (2) should regulators have more leeway or less in setting the leverage rules?
