Since the financial crisis, a raft of politicians and pundits have been calling for the breakup of too-big-to-fail banks, and a return to a simpler, less systemically dangerous time in American finance. These calls began on the left, with writers like Matt Taibbi and economists like Joe Stiglitz making the case, and eventually got picked up by an assorted coterie of industry iconoclasts. (The most notable insider to call for smaller banks is former Citigroup CEO Sandy Weill, but former Morgan Stanley CEO Phil Purcell and a host of assorted others have also made the case. Ezra Klein has a partial list of the more prominent bank-breakers.)
For conservatives, many of whom lobbied hard against Dodd-Frank's resolution authority clause and other regulatory backstops designed to prevent a 2008-style crisis, calling for a big-bank breakup poses ideological problems. It reeks of government overreach. It impedes the march of capitalism. And, cynically, it endangers relationships with a major donor base.
But, as populist appeals go, breaking up the banks is certainly an attractive idea. And Republicans have a natural affinity for any policy solution that could prevent another financial crisis requiring massive government intervention. So, seizing the moment, conservative Washington Post columnist George Will has figured out how to bring the idea into alignment with the GOP's platform.
Will's column from last Friday outlines his strategy, which involves some clever footwork that paints too-big-to-fail as a government creation, not a product of the banks themselves. He trots out some talking points about the dangers of big banks — they're too big to manage effectively, breaking them up could unlock value (a view Will shares with bank analyst Mike Mayo), and they require opaque and overly complex regulation in order to guarantee their solvency (or something). Here is Will's conclusion:
Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail.
Will's conversion to bank-breaking seems to have begun last fall, when he floated Dallas Fed president Richard Fisher (who came out early against big banks) for a possible Treasury spot in a Mitt Romney administration. As Simon Johnson noted then, there is an actual case to be made that breaking up the banks is a conservative project, one that reduces the risk of having to pay out massive government subsidies in a future crisis. (In other words: It's a little socialism now, to prevent a lot later on.)
Will's narrative of how Wall Street banks became huge and unwieldy is a ways off. For example, when Citicorp and Travelers Group merged in 1998, creating the modern giant known as Citigroup, it wasn't because the government arranged a shotgun marriage. In fact, the merger was technically illegal at the time, under a lingering Glass-Steagall provision that prohibited banks from merging with insurance underwriters. Sandy Weill arranged the merger, then forced Congress to change the law to make what he'd done legal — hardly a case of government dictating terms.
Still, Will's about-face (which follows Weill's own) is notable. Breaking up the banks is still seen, among Wall Street executives, as a quirky and implausible idea. And in most GOP policy circles, it still carries the stigma of having originated on the left. But now that Will and other prominent conservatives like David Vitter are giving cover to GOP lawmakers who want to call for an end to big banking, it could move from populist-wonk land into something approaching the political mainstream. That would leave only an army of lobbyists, a viable bill, and a grueling legislative process standing in the way of real reform.