The Ongoing War against the Banks and the Insurance Industry

Treasury Secretary Timothy Geithner said Thursday that financial institutions in the U.S. risk holding back the economy because they are unwilling to lend. "If you look at the U.S. economy today, I'd say the biggest risk we face is institutions not taking enough risk," Mr. Geithner said at a Senate Banking Committee hearing.

Now, why might the banks be reluctant to take on risk these days?

Consider, for example, what President Obama said in an interview with George Stephanopoulos yesterday:

Stephanopoulos: Can you put a stop to this [Bank of America’s new $5 per month debit card fee]?

President: ... [T]his is exactly why we need this Consumer Finance Protection Bureau that we set up that is ready to go ... [Th]is is exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening.

Stephanopoulos: Can you stop this service charge?

President: Well, you can stop it because, if you say to the banks, you don’t have some inherent right, just to get a certain amount of profit, if your customers are being mistreated, that you have to treat them fairly and transparently. And my hope is you’re going to see a bunch of the banks say, you know what, this is actually not good business practice. Banks can make money, they can succeed, the old-fashioned way, by earning it, by lending to small businesses, by lending to consumers, making sure that we are building the economy together. But without the kinds of protections we’re starting to see the Republicans roll back, we’re going to continue to have these kinds of problems, and this is exactly the sort of stuff that folks are frustrated by. This, by the way, is an example, of the contrasting visions we have. If the Republican Party believes that we should do nothing to curb abuses on Wall Street, and roll back regulations put in place to prevent the next big financial crisis, well, I’ve got a big difference with them.

Let’s break this down.

• The President is claiming to know the business of the banks better than the bankers themselves. All the banks have to do, according to the President, is “earn money the old-fashioned way.” How quaint. The amount the President does not know about the banking industry could fill an encyclopedia.
• The President is claiming that the new debit card fee is an “abuse” under the terms of the Dodd–Frank Wall Street Reform and Consumer Protection Act and that this abuse is actionable and preventable by the Bureau of Consumer Financial Protection under the terms of this Act. What BofA did may not be good business practice (that is for BofA's customers to decide), but there is not a speck of evidence that what BofA did is an "abuse" or that the CFPB can do anything about it.
• The President opposes BofA's new fee in the name of preventing the "next big financial crisis." If BofA were to refrain from imposing this new fee, how would that prevent the next major financial crisis? On the contrary, if BofA's fee has the desired effect, it will strengthen BofA's balance sheet, thereby reducing the risk of a financial crisis. It is rather the ongoing war being waged by the Democratic Party against the financial services industry that is destabilizing markets and increasing the risk of a new crisis. If the Democratic Party really wanted to pass legislation that would reduce the likelihood of a future financial crisis, they would have passed a bill to close down Fannie Mae and Freddie Mac. They did not do this. Instead, Messrs Frank and Dodd have been staunch defenders of Fannie and Freddie for years, with Mr. Frank making his famous statement about Fannie: "The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios."
• The President is setting himself up as the arbiter of what the appropriate profit margin is for a major industry. Does the President seriously believe that American businesses don't have an "inherent right" to maximize their profits so long as they operate entirely within the bounds of the law (supplemented by massive new regulation) and so long as their customers show themselves willing to bear the costs?

What we are seeing here is a repetition of what happened with Obamacare: Obamacare was passed; insurance companies raised premiums and non-insurance companies took charges to cover the additional costs imposed by Obamacare; the President and his Administration immediately attacked and threatened those companies for taking these actions.

Now, the Dodd-Frank bill has passed; the banks have imposed new debit card fees to cover the additional costs imposed by the Durbin Amendment to that bill; and the President and his Administration immediately start to attack and threaten the banking industry for taking these actions.

And so we are led to the spectacle where, at the same time the Obama Administration undermines the banking industry with threats of action from the new Bureau of Consumer Financial Protection, the Treasury Secretary attacks the banking industry for not taking on new risk.

The Democratic Party. We raise your taxes, your gas prices, your insurance premiums, and now, your debit card fees. And yet, it is we Democrats, not those evil Republicans, who have your best interests at heart.