The U.S. Congress could tackle the controversial “Too Big To Fail” bank issue before the elections, directly challenging the most powerful political lobby in Washington D.C., according to a client memo from the Federal Financial Analytics reviewed by ValueWalk.
Too Big To Fail issue is very real
The core reasons Congress might take up the issue are political and because the “Too Big To Fail” issue is very real, the memo says. “Big banks will get a real shellacking on whether they remain too big to fail,” the memo noted. “One reason for the potency of Too Big To Fail politics is that there’s policy truth to Too Big To Fail fears.”
The memo cited a Thursday opinion piece in the Wall Street Journal as support for their position. The memo said that said “going after big banks on Too Big To Fail is one of the few populist, bipartisan themes Republicans can mobilize to get their candidates across the finish line.”
Using the big banks as a political theme can have legs. During the last presidential campaign, a top testing Republican television ad was highly critical of the banks and the handling of former big bank executive Jon Corzine. Strangely, the ad never ran in front of large audiences and speculation at the time was the large banks, significant campaign donors to both political parties known to have extraordinary influence in Washington DC, squashed the campaign. As previously reported in ValueWalk, a study claimed Eric Cantor’s primary loss in Virginia was due in part to his Wall Street ties.
Republicans to gain unusual advantage from Too Big To Fail issue
As odd as it may seem, tackling the big bank issue may provide Republicans unusual political advantage. Hillary Clinton is said to be vulnerable on the issue. She and her husband, former President Bill Clinton, have taken significant money from the large banks. During his tenure as president, the large banks were credited with gutting derivatives regulation and forcing the ouster of Brooksley Born as CFTC chairwoman for questioning big bank derivatives that imploded in 2008. Hillary is said to have cozy ties to the banks, taking monstrous speaking fees and at one point saying to a banking audience she didn’t see the issue with Wall Street. A Hillary Clinton fundraiser was also held recently, hosted by Corzine’s wife, that went without media coverage.
The issue of Wall Street controlling not just the regulatory branch of government but even the levers of justice, as evidenced in the MF Global saga that is still yet to play out, is perhaps most chilling to certain financial reformers.
When outlining what Republications needed to do to win in the long term, the Journal wrote:
Promise to repeal “too big to fail.” Even Mr. Obama’s regulators recently admitted this policy remains in place when they rejected the “living wills” that banks must propose under Dodd-Frank. This is a populist way to reopen the issue of financial regulation.
If there is another big bank bailout – considered a high probability among financial insiders – when this happens again there will likely be hell to pay at the polls. Solving the problem before it happens is much better than making decisions in the middle of a crisis.