The New Republic

There was so much brazenness in the new face Mitt Romney presented to voters at last week’s debate in Denver that one particularly remarkable gambit has not gotten the attention it deserves: Romney’s attempt to attack President Obama from the left on financial regulation. The problem with Dodd-Frank, Romney declared, was that it favored the big banks:

Dodd-Frank was passed. And it includes within it a number of provisions that I think has some unintended consequences that are harmful to the economy. One is it designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to—to New York banks I’ve ever seen. This is an enormous boon for them. There’ve been 122 community and small banks have closed since Dodd- Frank.

Let’s start with a basic fact check, courtesy of Bloomberg:

The Background: The Dodd-Frank financial overhaul was enacted in July of 2010 to impose regulation on some of the riskiest practices that contributed to the financial meltdown. One provision created a protocol under which the largest, most complex financial institutions would be wound down safely, without lasting taxpayer burden, should they fail. Nine banks—including five of the largest U.S. banks—have submitted so- called “living wills” to U.S. banking regulators to map out how they would be dismantled under bankruptcy. If their bankruptcies threatened the financial system, Dodd-Frank gave the Federal Deposit Insurance Corp. authority to liquidate them itself.

The Facts: Romney was off base. There is no connection between the failure of community banks and the provision in Dodd-Frank designed to contain the harm from the failure of a big bank. FDIC statistics show that 37 banks, not five, have enough assets to come under that provision.

The notion of a blank check is debatable because the law says the ultimate cost of the failure of a bank considered systemically important under Dodd-Frank will be absorbed by all the other institutions in that category—those with more than $50 billion in assets. It is correct that a failure would be initially backstopped by the government.

Since enactment of Dodd-Frank, yet before its provisions are fully implemented, 188 small banks—those with less than $1 billion in assets—have closed, not 122. The trend is down since Dodd-Frank. After peaking in 2010 at 136, the small-bank failures declined last year to 86 and are down to 42 through the first nine months of this year. In the same period, no systemically important bank has gone under, meaning the provision Romney criticized has never been used and wasn’t a factor in the small-bank failures.

But that doesn’t even get at the full chutzpah of Romney’s move here. He is attempting to paint Obama as a crony of the biggest banks even as the evidence mounts that those same banks are in the middle of one of recent history’s most dramatic swings in political support—to the Republican side. In a front-page story today, the Wall Street Journal reports that the employees of the big banks have gone from giving nearly $3.5 million to Obama in 2008 to giving him less than a fifth that this year, $658,000, while giving Romney $3.3 million. Goldman Sachs has swung most sharply of all: its employees gave 75 percent of their contributions to Democrats in 2008, and this year have flipped 180 degrees, giving Republicans three-quarters of their total. “In the four decades since Congress created the campaign-finance system, no company’s employees have switched sides so abruptly, moving from top supporters of one camp to the top of its rival,” the paper reports.

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What was behind this flip? Well, Dodd-Frank had a lot to do with it—especially the law’s “Volcker rule,” which will clamp down on the proprietary trading that has been so lucrative for the banks, Goldman in particular. And then there was the SEC’s charges in April 2010 alleging that Goldman had misled clients in a big mortgage-backed securities deal. Of course, as I described in a cover story this past spring about the split between Obama and the hedge fund kings who backed him in 2008, the disaffection goes beyond mere policy. The Journal reports:

The last straw for many came two weeks later. At the [2010] White House Correspondents Dinner, the president drew laughs at [Goldman’s] expense. “All of the jokes here tonight are brought to you by our friends at Goldman Sachs,” Mr. Obama said, referring to the SEC allegations. “So you don’t have to worry—they make money whether you laugh or not.” A year later, Goldman senior executives held their Romney fundraiser at the Ritz-Carlton, drawing 80 people.

Wall Street’s thin skin is absurd and infuriating, but for Democrats there has been a silver lining to it for most of this campaign: the lines of support have been clarified. What made the 2010 midterm debacle so especially demoralizing for Democrats was that they not only lost, they lost under a muddled perception that they were the party of Wall Street, because of Tim Geithner’s role in the White House and the public’s conflation of the TARP bailouts begun under George W. Bush and the stimulus passed under Obama. In reality, of course, Wall Street had already swung hard against Obama by then, but this did not keep Republicans from running on a populist line.

This year, by contrast, the lines have been far clearer—thanks both to Obama’s more forthrightly little-guy, middle-class message and, above all, the fact that the Republican ticket is being led by a stereotype-affirming private-equity titan.  It would be sorry indeed for Obama and the Democrats to now allow Romney to recreate even a little of the 2010 blurring, when the fact of who is getting the “big kiss” is clearer than ever.

Follow me on Twitter: @AlecMacGillis

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