Three years after the near implosion of the economy, the nation’s largest banks continue to exist as financial skyscrapers on the landscape, their collapse threatening to rain destruction on all the lesser players. The memory of that frightening September, when then-President George W. Bush was told by advisers that immediate government intervention was necessary, may be fading already. Yet the threat of the bankruptcy or near-bankruptcy of a handful of banks and insurance companies continues as the nation’s economy slowly recovers.
Congress and the president have taken action to ensure more regulation of the banking industry, but threats remain. One fix that has been suggested is a restoration of the Glass-Steagall law which, until 2000, kept commercial banks and investment banks separate. Returning that firewall would protect consumers and also protect large banks from their worst, riskiest instincts.
Another more difficult but fundamental fix is to prevent banks from becoming too big to fail. Surprisingly — and appallingly — the nation’s six largest banks are still in the too-big-to-fail range, and their demise, or even their hiccups, could wreak havoc on the national economy. Those six largest banks — JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — hold assets that amount to nearly 65 percent of the U.S. gross domestic product.
The Republican presidential candidate whose voter support is so low it excluded him from a recent debate has a plan to address this risk while at the same time revive U.S. manufacturing. It has gotten little attention, as has the candidate.
Jon Huntsman, the former Utah governor, wants to impose higher fees on those top six banks: “We can no longer tolerate banks that are too big to fail,” Mr. Huntsman said, an assertion that should get universal agreement.
His plan, though, is not merely to punish banks for their success. The funds generated by the fees would be directed at reducing corporate taxes on companies outside the financial sector. Mr. Huntsman, who was U.S. ambassador to China from 2009 to 2011 and who speaks Mandarin, bases his economic strategy in large part on opportunities he sees in Asia.
Time magazine columnist Joe Klein wrote recently about Huntsman’s economic vision, saying it “seems more sophisticated than the plans put forward by any of his opponents — or the cautious pro-Wall Street policies pursued by Obama.”
Mr. Huntsman told the columnist that he believes the best and brightest college graduates are lured by Wall Street and other banking jobs rather than starting their own businesses or joining other entrepreneurs. “What we are losing is a generation of innovators,” Mr. Huntsman said, “a generation of new products and technological breakthroughs.”
Mr. Huntsman sees what may be a brief opportunity to stimulate U.S. manufacturing while at the same time forcing big banks to break up. Labor costs in China are rising, the candidate told Mr. Klein, citing a recent report by the Boston Consulting Group. “That window is open and we need new policies to take advantage of it,” he said.
There is precedent for government intervention in limiting the size and reach of some businesses; media, utilities and telecommunications top the list. So preventing banks from becoming so big that their troubles become everyone’s troubles is a reasonable step to take after this worst recession in 75 years. Doing so in a way that also boosts domestic manufacturing is a stroke of brilliance. It puts regulation on one sector of the economy while unfettering another sector.
Mr. Huntsman and his economic ideas deserve more attention from GOP voters.