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Rick Perry has a plan to change the way the federal government regulates Wall Street, and it is … kind of left-wing. Almost shockingly so for the very conservative former governor of Texas.
He laid out his plan in a Wednesday speech. He hit on many familiar conservative themes, but also some not-so-familiar ones. For example, he credited Texas's relatively strong weathering of the Great Recession in part to strict financial regulation. "But there’s another thing we have in Texas that the rest of the country could learn from," he said. "We regulate, in an intelligent way, the use of a type of mortgage called 'cash-out refinancing.'"
The Perry campaign does not have a ton of specific details to offer about his ideas, and financial regulation is certainly an area in which the devil is frequently in the details. But in broad strokes, Perry has some pretty good ideas combined with a standard Republican aversion to any kind of consumer financial protection. His proposals are aimed, overwhelmingly, at reducing the amount of debt in the financial system both by regulating big banks and by reducing the tendency of federal programs to encourage middle-class households to borrow heavily to buy houses. The total impact would be a financial system that is considerably less fragile, albeit one in which it is also easier for financial firms to make a quick buck by pulling the wool over consumers' eyes.
Rick Perry calls for something like Glass-Steagall
The headline here is that Perry comes close to calling for a breakup of big multi-line financial conglomerates, with his fact sheet saying that "requiring banks to separate their commercial lending and investment banking practices should be considered." This is something liberals have made a lot of noise about since the financial crisis, and that Hillary Clinton has declined to endorse even as Martin O'Malley and Bernie Sanders have. But Perry's backup idea — "alternatively, require these banks to hold a significant additional capital cushion for their trading activities" — is probably a better idea.
What this means is that Perry would make a more complicated bank be more cautious about borrowing money than a similarly sized but less-complicated entity would have to be.
This would make complexity less profitable and create a financial incentive to shrink and simplify unless you're really reaping massive efficiency gains. At the same time, it would ensure that a complicated bank is especially unlikely to go bust — and thus that difficult questions about how to deal with the failure of such a bank are unlikely to arise.
Perry's other ideas are a mix of left and right
- Perry says the Fed and Congress should move to further restrict the amount of borrowing that the largest and most systemically significant banks are allowed to engage in.
- Perry wants to weaken the Consumer Financial Protection Bureau by subjecting its budget to the annual congressional appropriations process rather than continuing to allow it to be automatically funded by the Federal Reserve.
- Perry wants to replace the Dodd-Frank bill's approach to resolving the failure of a large bank (which involves administrative action by regulators) with a new chapter of the bankruptcy code (he specifically cites this proposal from the Hoover Institution) that would allow it to be handled through the judicial branch.
- Perry wants to exempt all community banks, all banks run as partnerships, and all asset management firms from Dodd-Frank regulations.
- Perry wants Fannie Mae and Freddie Mac to stop pushing for a revival of subprime mortgages and to implement curbs on cash-out refinancing.
Rick Perry is going nowhere
Unfortunately for fans of ideologically unexpected financial regulation proposals, Perry's presidential campaign seems to be going nowhere fast. He's currently polling in ninth place in Iowa and 11th place nationally, so these ideas have relatively little chance of impacting the course of national politics.
Still, on paper Perry has considerable strength. With 14 years as governor of the nation's second-largest state on his résumé, he's about the most experienced candidate in the field. And he has the best story of economic achievement to tell of anyone in the race. His ideas on finance, meanwhile, seem to indicate that he's a more nuanced and creative thinker than his national reputation might suggest. But thus far, none of that is doing him any good.
