The banking industry is objecting to two government initiatives, which leads me to the conclusion that both programs should go forward quickly.
The first, and funniest in its way, is the Obama administration’s decision to enact a "government takeover" of the student loan business. That’s right. A big "government takeover." Very socialistic. Currently, students get their loans through the banks, which get the money from the government. Additionally, the government guarantees the loans, enabling the bank to charge a very low interest rate. So, the government puts up the money and assumes all the risk, but guess who pockets the profit? The banks.
Over ten years, the government will save $87 billion by cutting the banks out of the loan business. To put that in context, $87 billion is more than half the difference between the cost of the revenue neutral Baucus bill and the "budget-busting" House bills on health care. It is a lot of money. Conservatives need to ask themselves just how comfortable they are with that kind of windfall going to the nation’s bankers.
The other proposal comes from Senate Finance Committee Chairman Chris Dodd who wants to consolidate four different regulatory agencies into one. The problem with the current system is that banks can go "regulator shopping," bringing an issue to whichever agency seems most pliant, getting a favorable ruling, and then pitting one agency against another. There are some technical concerns with Dodd’s proposal, which have been raised by the White House, by Congressman Barney Frank, chairman of the House equivalent of Dodd’s committee, and by the Federal Reserve. But, whatever the problems, the potential for better oversight of the banks by the regulators – and better oversight of the regulators by the Congress – suggests that a single regulatory agency is in the best interest of reform.
Industry lobbyists are manning the ramparts, denouncing the bill and citing the present confusing, and overlapping, regulatory jurisdictions as a type of "check and balance" system. A Dodd spokesperson, Kristin Brost, countered that industry officials were engaged in a PR effort. "But the fact of the matter is, this is how you get a bill," she told the Washington Post. "You debate, you compromise, you get a final product. We haven’t drawn a lot of lines in the sand."
I am not sure why we continue to let the captains of high finance and of industry give advice on anything besides the weather. They brought on an economic downturn that was the most avoidable in the nation’s history. Few have shown any remorse, still less any signs of conversion from their greedy ways. Detroit got the message – they are coming out with different products, a re-structured industry, and realistic growth targets. Wall Street seems to have gone right back to its old ways and the only way those of us who bear the brunt of Wall Street’s failures can exercise any influence over their behavior is through the government.
A little more than fifty years ago, Arthur Schlesinger Jr., in his book "The Age of Jackson," wrote these words which I believe encapsulate the ideological charter of American liberalism: "American democracy has come to accept the struggle among competing groups for the control of the state as a positive virtue – indeed, as the only foundation for liberty. The business community has been ordinarily the most powerful of these groups, and liberalism in America has been ordinarily the movement on the part of the other sections of society to restrain the power of the business community." The more things change, the more they stay the same.
The four regulatory agencies (the Fed, the Comptroller of Currency, the FDIC and the Office of Thrift Supervision) are indeed played against one another. What is important to note, though (and I do legal work in this field so I feel pretty confident in saying this), is that doing so often drums up business opportunities that wouldn't have otherwise existed. That is, on the one hand, the situation can be, and sometimes is, exploited to unjustly enrich the financiers in the situation, it's often the case that riskier funds (like, say, a big pool of money for affordable assisted living facilities in economically depressed areas) are made possible by playing one regulator against another. It's also important to note that there are pretty strict limits on this. You tend to deal with the same people from each agency, so you can't pull these sorts of stunts all the time. My point is is that there are big banks and their are little banks and then their are things like non-profit investors. Consolidation will probably hurt the last two most.
You are right about the student loan business, though. The idea of passing on the servicing and associated fees to other banks was, as I understand, intended to boost the economy and create jobs, and it has. But it has also become the provenance, largely, of small banks created and entirely underwritten by the biggest banks out there. If this bill fails, at the very least I think we would all benefit by some legislation that keeps Bank of America and Citi from bidding on these things. (It's also important to note that most of the servicing doesn't start off in the hands of big banks, but winds up there because of attractive consolidation offers. Not sure how that can be fixed properly).