Break up the banks!

James Pethokoukis is right. It’s time to break up the big banks. Now, I’m not an Occupier. While I do live with my parents (rent is cheaper), I contend that my hygiene is much better than your average occupier and I’m not prone to raping people. However, there are still good reasons to break up the big banks.

Many libertarians and market purists would contend that there is no such thing as “too big too fail” and that it is no business of Washington to tell a business how big a bank should get if it reaches that size through legal means. Normally, I would agree with them. However, the financial sector is a tricky beast. Psychology plays much more of a role than normal in the market. That’s why there are such things as panics. Things can spiral out of control very quickly and even good actors can be taken down by irrational fears. For something so subject to the fears of its least rational members, the fact that the financial sector is the beating heart of the economy makes this situation all the more troubling. This fact is not lost on our elected officials, hence the bailouts (I’m sure the motives for bailouts are less than pure, but even if one didn’t take a cent from the banks, when confronted with a financial collapse, a lot of people would be hard pressed to say no).

The Pethokoukis piece describes how this “break-up” process should occur and I encourage you to give it a look. However, I’d also like to look at this from a more political angle. What would happen if Romney called for just this remedy? Would he take a hit with Wall Street donors? Probably. Would it be a smart move? I think so. What the Obama Campaign tried (and failed miserably) to do with their Bain attacks is to portray Governor Romney as some kind of vulture capitalist that liked to make money screwing over the working man. Romney did a good job of deflecting those attacks, but I believe that a good offense beats a great defense.

If he announces (at the Convention wouldn’t be bad, I’m only afraid Obama would beat him to the punch) that he intends to break up the big banks, he would do a lot to dispel the notion that he is a tool of Wall Street. It’s an issue that would put him to the “left” so to speak of Obama. A lot of liberals, who would never vote for Romney, would further be disgusted with Obama if he fought against this and maybe sit out for November. A lot of tea-party types would be for it because they’re sick of bailouts and too-big to fail. If Obama agreed with Romney, it wouldn’t change the fact that the economy is in rough shape and that Obama had a full term to push for this, but he’s failed to deliver. Either way, Romney comes out on top.

It also allows Romney, if he were to be elected, to push through a lot of deregulation with the chance at bipartisan support. Sun-Tzu said, “Build your opponent a golden bridge to retreat across”. I agree. A flat out repeal of Dodd-Frank and Sarbanes-Oxley would be very difficult, even with full control of Congress. However, if you give your opponent a way to declare victory, then you can accomplish your objectives. Tack on a repeal of Dodd-Frank and/or Sarbanes-Oxley to a bank break-up bill and you can get some moderate (for Democrats at least) to jump on board because you let them go home and say, “See what I did, I stuck it to those evil Wall Street fat cats!”.

Pushing for breaking up the big banks, in my humble opinion, is both good policy and good politics. I believe that Governor Romney would be wise to push for this and make this a central plank of his economic plan for the campaign.

This post was promoted from GreenRoom to HotAir.com.
To see the comments on the original post, look here.

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