The Republican Party has the lead in at least one category so far this Presidential election season: Very Unrealistic Policy Proposals.
Like most trends in the 2016 cycle, you can probably lay the blame for this at the feet of Donald Trump, who rocketed to the top of Republican polls after calling for the construction of a massive wall to span the southern border of the United States, while forcing the Mexican government to pay for it. This has been popular with Republican voters despite the fact that the number of unauthorized immigrants from Mexico in the United States has been on the decline for nearly a decade.
The Democratic field has been dominated by a different dynamic. The presumptive nominee, Hillary Clinton, has been a major figure in the U.S. government for twenty-five years, and therefore has less to gain from proposing radical reforms. But with the Iowa Caucuses just weeks away, it appears that Vermont Senator Bernie Sanders is taking a page out of the Trump play book and putting forward a series of radical and unrealistic policies in order to distinguish himself from his competition.
In a speech Tuesday on Wall Street and the Economy, Bernie Sanders argued the U.S. economy has been “rigged by Wall Street to benefit the wealthiest Americans in this country at the expense of everyone else.” In order to undue this, Sanders argued that the largest banks in the United States must be forcibly broken up by the federal government. And he said if he became president he would slice the big banks up within the first year:
Sanders’ facts are not wrong. The American people were sold on the bailout of the U.S. banking system with the argument that these institutions were “too-big-to-fail.” And, as Sanders points out, a number of the biggest banks are now bigger than they were before the financial crisis. The problem with Sander’s fix to the banking system, though, is that it wasn’t the size of these institutions that forced the feds to step in an bail them out, but the interconnected nature of the financial system itself. As a recent report by the Bipartisan Policy Center put it:
The 2008 financial crisis was the result of many forces: a corrupt financials system drunk on the short term profits realized from inflating a real estate bubble, global imbalances that created huge demand for seemingly riskless mortgage bonds, and poor financial regulation, to name a few. But there’s no reason to believe that the size of America’s banks relative to the U.S. economy, or the concentration of assets at any particular bank, led to the financial crisis or made the crisis more difficult to manage afterward.
On top of that, Sanders’ bluster regarding his ability to simply to use the power of the administration to force big banks to break up sounds a lot like Trump’s claim that he can force Mexico to pay for a wall mandated by an American president. Yes, Dodd Frank legislation does allow the Federal Reserve in conjunction with the Financial Stability Oversight Council to force banks of a certain size to split up. But the FSOC is made up of members that span the financial regulatory apparatus, many of whom must be confirmed by the Senate, which is likely to be held by the Republican Party at this point next year.
Same for the governors of the Fed, who have staggered terms and none of which come up for reappointment in the next president’s first year in office. (There are two open seats on the Fed board, which Sander’s could fill with similarly minded break-up hawks, but that would only give him two out of seven Fed votes.) And most public comments from regulators who already sit on the Council and current Fed governors give the impression that regulators are happy with the pace at which current regulation is encouraging a less concentrated banking system.
Until recently, Bernie Sanders was an outsider candidate who could at least claim to have realistic policy proposals. But his break-up-the-banks proposal is evidence that the Senator from Vermont thinks the American people crave bluster over sound policy proposals. And to his credit, there’s very little in recent polling data that would convince you otherwise.