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Article in Wilmington News Journal February 11, 2015

Published in the Wilmington News Journal – February 11, 2016 by William Aukamp

In his stump speeches, the Senator Bernie Sanders often claims that the bank bailout by the government came at the expense of the taxpayers.

In point of fact, it did not come out of the hide of taxpayers. The money advanced by the government to help shore up the banks during the financial crisis has not only been repaid, but the government has also received billions of dollars in interest payments on the money advanced. Unfortunately, his mantra provides a fertile soil for those who call for more regulation of banks.

The problem today is not that we do not have enough regulation, but we have too much, which has caused many community banks to throw in the towel and sell out to larger institutions, because they cannot afford the resources necessary to fulfill the myriad compliance requirements. Anyone who has attended a residential mortgage closing recently can attest to the fact that consumers are presented with a mountain of documents to sign or acknowledge that they do not have either the time or inclination to read. So called consumer protection regulations are needlessly complex and one is hard pressed to understand the rationale for many of them. For example, the regulations define high cost mortgages and higher priced mortgages, each with their own definition and lengthy list of compliance requirements. One might reasonably ask why we need two categories of more expensive mortgages.

The senator’s “break up the big banks” mantra sounds good but could leave us with banks unable to compete with much larger foreign banks. A better solution would be to reinstate the repealed sections of Glass-Steagall that were intended to separate commercial banking from investment banking. It should be recalled that prior to the repeal of these sections, commercial banks had some opportunities to engage in otherwise prohibited securities activities. They could be affiliated with companies engaged in such activities so long as they were not “principally engaged” in them. Prior to the repeal, the feds ruled that they could derive up to 20 percent of their revenues from securities activities without being deemed “principally engaged in them.”

A problem common to all major industries, not just banking, is increasing consolidation, which is a reflection of less than vigorous enforcement of our antitrust laws. Republican President Teddy Roosevelt long ago recognized the danger monopoly power presented to our capitalistic system.

Senator Sanders’ rightfully draws attention to the problem of income inequality and stagnation in the wages of American workers. Raising taxes on the wealthy, as he advocates, might help to reduce the disparity, but this alone will not eliminate the problem. Moreover, raising them too much could be counter productive. At the same time, the Republicans should end their knee jerk obsession with cutting taxes, as if this would solve all problems.

The bottom line is that simplistic campaign slogans mask the need for thoughtful bi-partisan discussions about how to address some very serious problems.