Editorial: How to Fix the Wall Street Reform Bill
Huffington Post – Despite strong rhetoric against aggressive Wall Street lobbying and deceptive Republican attacks, President Barack Obama appears ready to declare victory on a tepid and ineffective financial reform bill. The aims Obama outlined in his April 22 Cooper Union speech are laudable, but the legislation that cleared the Senate Banking Committee under the stewardship of Chris Dodd (D-CT) simply will not protect our economy from bank abuses. Fortunately, it only takes a handful of legislative amendments to fix the Dodd bill. Here they are:
1. Break Up the Banks: The Brown-Kaufman Amendment
Washington has tied itself in knots trying to find a way to thwart "too big to fail" without cutting megabanks down to size. It can't be done. When something is too big, the solution is to make it smaller. Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) introduced a bill this week to cap big bank liabilities at 2% of gross domestic product (about $300 billion). Right now, Bank of America's liabilities total 7% of GDP (about $1 trillion). Nothing–nothing–that has been proposed other than Brown-Kaufman will for force our banking behemoths to shrink.
Obama and Treasury Secretary Timothy Geithner have been saying for some time that size alone isn't the most serious problem in today's financial system. That is simply not true. The bigger the bank, the more power that bank has over Washington, and the greater its ability to block other important reforms. But even if Obama and Geithner were right about size, it's worth asking why anybody in Congress would vote against breaking up the big banks. There is literally no evidence that banks of today's scale create any economic benefits whatsoever. Even if you don't think size is the central problem, voting in favor of this amendment would create zero economic problems.
If your goal is to protect the bonuses of Wall Street executives, this amendment looks terrible. The bigger the bank, the more money its executives can pay themselves. If a $1 billion bank and a $1 trillion bank have the same profitability ratios, and pay out the same percentage of profits in bonuses, then the $1 trillion bank is going to have 1000 times as much money available for its executives.
So make no mistake: a vote against Brown-Kaufman is a vote for big bank bonuses.
