According to the Washington-Post, Virginia Senator Mark Warner, is at a loss to explain Mitch McConnell’s opposition to the “resolution” portion of the Financial Institution regulation legislation. Frankly I am at a loss to understand anything Mitch McConnell does, except he has decided that if it is sponsored by a Democrat he will oppose it.
Having met Mark Warner on several occasions, and having known people who worked for him, he is anything but a radical. The plan which he has laid out is a rational plan to deal with financial institutions too big to fail, it is not bankruptcy, rather it is the liquidation of all assets, and in the process investors (read shareholders) and corporate leadership would get nothing, nill, zero. The other part of the plan is the creation of a financial institution funded “Trust Fund” which would permit the institutions to run until the government can “unravel” the gordian knot of financial transactions and liabilities. Senator Shelby is opposed to this provision, but as Senator Warner noted, if he had not included it, he would be hammered for leaving the federal government exposed to unfunded mandates.
I am writing this, not because I have a position one way or another on this subject. I will state, as I have stated before, the repeal of the Depression era Glass-Stegall Act was a mistake. (By the way the two sponsor were Senator Carter Glass of Virginia and Representative Henry B. Stegall of Alabama.) The beauty of the Glass-Stegall Act was it maintained a wall of separation between Investment Banks, Commercial Banks, and Insurance Companies. The failure of AIG can be directly laid at the Investment arm of AIG brought the company down and endangered the Insurance Arm of the Company. Wachovia bank failure can be laid to the risky behavior in both the Commercial and Investment banking arms, but it was the losses on the investment banking side which brought down the house of cards called Wachovia.
I am writing this because in my humble estimation we need to return to proven methods of regulating financial institutions. History has numerous examples to offer of what happens to average citizens when financial institutions reckless behavior endangers the economy underpinnings of nations.
While there is plenty of blame to go around in the our most recent recession, fundamentally it was the reckless behavior of financial institutions that endangered our economy. We need financial institutions, but despite what some may say, the motive for profit will cloud their judgment. We need financial regulation. Mark Warner’s proposals are a step in the right direction and would avoid future federal bailouts.
Of course for Mitch McConnell any regulation is too much, I just wish the voters of Kentucky would regulate Mitch McConnell.