How many initiatives can President Obama justify by pointing to the public's outrage over excessive bank bonuses? Last week the administration called on Congress to tax big banks, insurance companies and brokers to recoup what taxpayers spent bailing out the financial markets. This week the administration added two more items to its legislative to-do list: a cap on the size of banks, and a ban on certain types of investing. Although an argument can be made for the proposals, they go further than necessary to protect taxpayers against the risk of future bailouts. And that's the real goal, even if it's less politically satisfying than hammering banks.
The steps that Obama outlined this week are responses to Wall Street's near-death experience in 2008, which prompted Congress and the Federal Reserve to commit staggering sums to rescuing the credit markets. The administration already has proposed overhauling the financial regulatory system to guard against a future meltdown, and many of its ideas are contained in bills that are moving through Congress. On Thursday, though, Obama upped the ante by calling for the two new restraints. One would limit how much of the industry's total liabilities any one company could take on, in effect capping how big a bank could become. The other would prohibit a commercial bank from owning or investing in a hedge fund or buyout firm, or from trading securities purely for its own profit.