JONATHAN CHAIT JANUARY 18, 2010
Daniel Gross recently wrote an excellent piece for Slate about why we should ignore the banking industry's warnings about the bank tax. Basically, Gross argues that they are probably wrong now because they've always been wrong (at least about the dangers of regulation):
This rule dates almost to the beginning of American history. Many commercial banks in the United States opposed the creation of the first and second national banks of the United States in the late 18th and early 19th century. They saw the proto-central bank as competition, since it was essentially a congressionally chartered private bank that would compete with them. As a result, the United States, in contrast to economic rivals England and France, lacked a central bank in the 19th century—despite periodic banking panics and failures, the severity of which could have been mitigated by a central bank. It was only after the Panic of 1907 that forces were set into motion for the creation of a central bank. Would it surprise you to learn that many bankers and their political allies opposed the creation of the Federal Reserve? Didn't think so.
So to what can we attribute their cluelessness?
The simple explanation is that these guys don't know the first thing about their business, regulation, or history. Then again, maybe there are important factors of organizational psychology at work here. Industries, as a rule, don't like regulations that they didn't come up with on their own. They like to control their own environment. (You can praise the deliciousness of steak until you're blue in the face, and your 6-year-old will pronounce it "blech." Then one day, on his own, he decides to eat it and pronounces it "yummy.") CEOs have been schooled to believe they know better—better than employees, better than subordinates, better than other CEOs, and certainly better than regulators and legislators—how to run their businesses. They also think they know better what would hurt and harm their businesses. That's why they get paid so much. In addition, while CEOs have excellent short-term self-preservation instincts, their long-term vision is lacking. Who can blame them? The typical tenure of a CEO of a big bank is five or six years, if he's lucky. And he is forced to keep an intense focus on the current month, quarter, year. Anything that would detract from activities that produce profits or that would require attention and resources to focus on compliance and adjustments, is therefore a negative.
Gross's argument reminds me of a project we did over at TNR recently about the long, embarrassing history of opposition to social reform. The right makes the same predictions of disaster before every major liberal reform, and those predictions almost always turn out dead wrong. Be sure to check it out here.