The weirdness of the Scott Brown compromise
I'm not certain I've done a very good job expressing just how weird last night's Scott Brown compromise was, but Daniel Indiviglio hammers the point home in a post this morning:
Conference reconvened due to the protests from centrists Republicans in the Senate who didn't like the idea of taxing the big banks and hedge funds. Instead, taxpayers will pay for the regulation, since any TARP money unspent was supposed to go towards paying down the deficit. Those billions of dollars that would have been wiped out of the deficit will now have to come from the American people. Any money from higher bank assessments will ultimately cost consumers too, since banks will just pass on the expense to them through higher fees.
These Republicans have made a very strange choice. They decided to lighten the load on big banks, some of which will now just have to pay slightly higher assessments. Meanwhile, investment banks -- like Goldman Sachs -- will virtually escape the expense entirely, since they have few deposits. Hedge funds avoid the cost completely. Even though a tax on big banks might have been an economically questionable decision, it's hard to see how pushing the tax to average Americans and smaller banks helps matters.
If these Republicans were really concerned about a tax, then they should have demanded spending cuts to fill the gap or scaled back some of the expensive regulation that the bill calls for. The only ones who benefit from this change are big banks and hedge funds. Taxpayers and community banks are indisputably worse off.
To be fair to Brown, his original statement did specify spending cuts. But though it's not impossible to find $19 billion lying around, it's also harder than it looks: Congress wants to do lots of things that cost money and so tends to be pretty good at grabbing any easy money that's fallen between the federal government's couch cushions. There are programs that some people believe to be bad programs (liberals see plenty of these in the Defense Department, and conservatives tend to be down on the Department of Education), but these programs also have powerful backers, and so cutting their budgets tends to be difficult.
Instead, we've got this compromise, which as I wrote yesterday, raises taxes and takes capital out of the banking system, which is what Brown said he didn't want to have happen, but does so in a slightly different way, and to slightly more sympathetic targets, than was originally the case.
Photo credit: Linda Davidson/The Washington Post.
June 30, 2010; 10:10 AM ET
Categories: Financial Regulation
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