2012 GOP presidential contender Mitt Romney has joined the chorus of Republicans saying that Dodd-Frank, the financial reform law signed by President Obama last year, needs to be repealed. “The extent of regulation in the banking industry has become extraordinarily burdensome following Dodd-Frank,” Romney has said.
One of the key parts of Dodd-Frank is known as resolution authority, which gives the government the ability to dismantle failed financial firms without resorting to the ad hoc bailouts of 2008. Obviously, repealing the law would take away this power, and in an interview with the conservative Washington Examiner, Romney admitted that he doesn’t really have a plan for resolving failed banks that he would replace it with, other than something that looks a lot like the reviled 2008 bailout, TARP:
Q: Do you have provisions, plans to prevent there from being a push for a bailout? Jon Huntsman, for instance, wants to cap the size of banks because he thinks that if they’re big enough, the only advantage they get is an implicit bailout. What do you have as far as bailout prevention measures?
ROMNEY: I can only tell you that I think it’s an enormous mistake for us to bail out individual institutions. And even large institutions can go through a reorganization. It’s been the history of this country that that is the case. What we have assumed as a nation is the risk of a run on the banks, collectively…So our effort has been, and appropriately so, has been to protect the system from a run on the banks. But it is not to protect individual institutions from failure.
Q: And you think that was true of TARP?
ROMNEY: I think the purpose of TARP was to prevent a run on all of the banks. And I mean all of them.
Romney has tried to walk a fine line between his support for TARP in 2008 and the GOP’s current anti-bailout yet anti-financial reform mania. He hasn’t backed down from saying that something like TARP was necessary in 2008, but has since derided TARP as a “slush fund.”
The resolution authority in Dodd-Frank is the opposite of the shotgun approach to which the government was limited in 2008, laying out a process for unwinding a bank and forcing banks to lay out their own “living wills,” detailing their entanglement with the rest of the financial system. Romney wants to take that all away, and he freely admits that he doesn’t want anything to replace it, thus leaving the government in the same exact position in which it found itself in 2008: needing to throw billions at the banks to prevent a complete financial meltdown.