Editorial: Next president should confront bank behemoths

To understand how Wall Street views the race between President Barack Obama and former Gov. Mitt Romney, visit the Center for Responsive Politics website, www.opensecrets.org/pres12/.

There you'll find that Obama's five largest sources of donations to his campaign are, in order, employees of the University of California, Microsoft, Google, the federal government and Harvard University.

Next, look at Romney's five biggest sources of donations. They are, in order, employees of Goldman Sachs, Bank of America, Morgan Stanley, JP Morgan and Credit Suisse Group – five of the world's largest banking corporations.

There is little mystery why. Romney has flip-flopped on many issues.

But he has been remarkably consistent on the subject of Wall Street regulation. The businessman-candidate doesn't see much need for regulation.

He is especially contemptuous of the Dodd-Frank Wall Street Reform and Consumer Protection Act, calling it "the biggest kiss" to large banks and says he would repeal it. If it was a kiss, it was an unwanted advance.

As Sheila Bair, a Republican and former chairwoman of the Federal Deposit Insurance Corp., told American Banker last month, "It was more like a poke in the eye with a sharp stick."

The 2010 law gives regulators authority to designate large banks as systemically important. Romney maintains the designation implies they are too big to fail, and harms small banks. Bair says Dodd-Frank has had little or nothing to with small bank failures, and that the designation on big banks imposes stiffer regulations on them.

Importantly, Dodd-Frank adds transparency and regulation to previously opaque derivatives market, valued by Bloomberg news service at almost $650 trillion worldwide. Bad bets by AIG and others on the derivatives market worsened the crisis. The nation cannot afford an unfettered derivatives market.

In a debate during the Republican primary, Romney placed much of the blame for the housing crash on bad loans guaranteed by federally backed mortgage securitizers, Fannie Mae and Freddie Mac, and called the Community Reinvestment Act, a 1977 law designed to encourage banks to lend to lower-income people, a disaster.

"When you have government play its heavy hand, markets blow up and people get hurt," Romney said during an early debate. "And the reason we have the housing crises we have is that the federal government played too heavy a role in our markets."

In its 545-page report, the Financial Crisis Inquiry Commission chaired by former California Treasurer Phil Angelides found that the Community Reinvestment Act "was not a significant factor in subprime lending."

Nor did the congressionally charged commission find that over-regulation led to the near-depression: "Lax mortgage regulation and collapsing mortgage-lending standards and practices created conditions that were ripe for mortgage fraud."

For his part, Obama began his administration by being far too timid toward Wall Street. His Justice Department failed to open serious investigations into wrongdoing on Wall Street. Four years later, he has aimed sharp words at the banks, and the feds have sued some of them. It is rather late.

On Obama's watch, big banks have grown bigger and their profits fatter. They have become too powerful. It's as if the crash of 2008 is a dim memory. The next president should confront the big banks, but it is not likely that either Obama or Romney would do so. Too big to fail has become too big for democracy.

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