The nation's biggest banks are waging an outrageous fight against a bipartisan Senate bill seeking to protect taxpayers from bailing them out.
Renewed interest in curtailing reckless financial practices was sparked by Attorney General Eric Holder's admission earlier this year that he is afraid to prosecute the banks that brought about the worst downturn since the Great Depression. Holder said going after the banks risks harming the economy again.
In 2008, taxpayers bailed out the banks via the Troubled Asset Relief Program because they were thought to be "too big to fail." Back then, the government promised taxpayers that they wouldn't end up on the hook again. But they could.
If the country's giant banks were to face failure today, funds from investors and depositors might not be enough to keep them afloat. No doubt there would be cries for another bailout. Why? Because the banks are still too big to fail - that is, their failure could seriously undermine the economy.
Although most of the TARP funds have been repaid, Americans still rightly bristle at the idea of bailing out the institutions that gambled with abandon on mortgage-backed securities and other risky investments. The banks were protected while individuals and communities were ravaged by the crash, the foreclosure crisis, and governments that were forced to cut spending and lay off cops and teachers.
So it makes sense that Sens. Sherrod Brown (D., Ohio) and David Vitter (R., La.) want to require the biggest banks to maintain much higher capital reserves than they do now. Think of it as telling a gambler to leave some money at home when he goes off to the casino. The legislation would ensure that banks are able to pay off any losses with their money, saving the taxpayers another bailout and the country another excruciating financial collapse. The senators also hope higher capital requirements will encourage big banks to break up.
But they're in for a struggle with an industry that already exerts undue political influence. Last year, financial interests were responsible for 52 percent of all donor-disclosed campaign funds, according to the Center for Responsive Politics. They are also top spenders on lobbying. And they have succeeded in slowing down reforms aimed at preventing a new recession, even as they are pushing a House bill that would give Wall Street virtual veto power over new regulations.
In the coming weeks, the banks are likely to argue that if the government pokes its nose into their business, the economy will suffer. That sounds like a hostage situation, doesn't it? The big banks have pulled fistfuls of cash from the American taxpayer's wallet, and they are not welcome to do it again.