If you, like me, had the misfortune to watch last night’s Republican debate, one thing you should come away wondering is whether Republicans have any plan to shore up the financial markets other than simply repealing everything in sight. I think we can grant that even sophisticated players expect Dodd-Frank to have some impact on community- and small-scale banks.* But even those effects are conditional on the facts of the eventual implementation, and confined to isolated parts of the bill. Unless “First Mom & Pop Bank & Trust Co. of Main Street U.S.A.” regularly deals in high-value securities, speculates in exotic instruments, or day-trades on the Chicago Mercantile Exchange, the most important and controversial parts of the bill will have no effect whatsoever on them.
It should be telling that precisely zero of those candidates have even discussed a “repeal and replace” solution for Dodd-Frank. They’re campaigning on the peripheral effects of the bill, but really targeting the measures that affect their primary constituency: large investment banks that benefit from the type of regulatory vacuum that put us in this mess in the first place. Theirs is a plan that would throw the baby out with the bathwater. And we’re the baby.
Republicans actually concede that big banks bear some blame for the start of the credit crisis — even if they hand-wave away the continuing effects of that role, because come on! That was two years ago! Nothing that happened two years ago could still matter today! Nor could they avoid the admission: it’s a matter of public record that most foreclosures were effective redistributions from small town families to the corporate portfolio managers who speculated on risky mortgages or other debt instruments, thereby causing and perpetuating the credit bubble. But based on yesterday’s debate, we’re now willing to ignore that harm, and risk repeating it, just to theoretically stimulate growth among smaller-scale banks by their lowering compliance costs.
It should go without saying that trading small-scale growth for existential risk is a bad bargain. Whatever it theoretically does to smaller institutions, Dodd-Frank is a necessary piece of legislation because it forces big banks — what we call and protest as “Wall Street” — to act with some semblance of responsibility for themselves and their fellow man. Take it from someone with experience litigating complex finance cases: an unregulated investment bank is one that structures transactions it doesn’t understand, and forgets about them until their unintended consequences threaten the corporate bottom line. That’s reckless, irresponsible, and because their bottom line is our bottom line, an issue of national concern. That’s what the Occupy Wall Street people are protesting — even if they don’t know it, yet.
If, as we so often hear, Republicans actually cared about personal responsibility, they would involve themselves in the process of lawmaking rather than campaigning on a total repeal theory and assuming, in spite of 200 years of evidence to the contrary, that the “market will take care of itself.” And if they actually cared about small town banks, they would tweak Dodd-Frank instead of convincing those banks to expose themselves to the kind of existential risk that destroyed so many of their peers.
But then again, if Republicans had constructive ideas, they wouldn’t be Republicans.