WASHINGTON -- Republican presidential candidate Jon Huntsman called Monday for a major financial overhaul that would break up too-big-to-fail banks and deliver justice to homeowners and investors harmed by rogue foreclosures.
The proposal from the former Utah governor is the first Wall Street overhaul outlined by any candidate in the 2012 presidential field, and features some of the most aggressive reforms advocated in the aftermath of the Wall Street meltdown. Many of Huntsman's ideas were even left out of Dodd-Frank, the financial legislation President Barack Obama signed into law in the summer of 2010.
Huntsman described his proposals Monday by emphasizing conservative principles, including respect for the rule of law and fair play in a transparent free market. And his plan includes calls to repeal Dodd-Frank and to shut down government-backed mortgage giants Fannie Mae and Freddie Mac, standard demands among the Republican presidential pack. The main tenets of the proposal, however, ally Huntsman with some of the most avowedly progressive Democrats in American policymaking.
Huntsman called to set a limit on bank size relative to the size of the economy, and to apply a variety of taxes against the banks to make it more costly to exceed that limit. Banks could still choose to exceed the limit and pay hefty taxes, according to a source close to the campaign, but would be strongly encouraged to stay below the line for the sake of their own profitability. Any tax revenue that the government reaped from the plan would be devoted toward lowering tax rates for non-financial corporations.
"Anything that is too big to fail is simply too big -- with the real danger that large banks have the incentive and ability to become even bigger," the proposal says. "There are a number of tools we can use to break the 'doom loop,' in which banks and their creditors are bailed out, and therefore feel empowered to again take excessive risk."
Congress briefly considered breaking up big banks during the debate over Dodd-Frank. That plan was authored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufmann (D-Del.). It garnered just 33 votes in the Senate, nowhere near the 60 needed to clear a filibuster, amid heavy lobbying opposition from the nation's largest banks. Unlike Huntsman's plan, Brown and Kaufmann's would have simply required banks to break up, rather than encourage them to do so via new taxes. Although Huntsman's plan is somewhat lighter on the too-big-to-fail crowd, it would also be able to enlist a set of lobbying allies that Brown and Kaufmann did not, as a result of its pledge to lower taxes on other companies.
In addition to big-picture structural overhauls, Huntsman is the only Republican to demand that the government take strong action against fraudulent foreclosures.
State attorneys general launched a coordinated effort to settle broad foreclosure fraud allegations last year after banks were caught using forged signatures and phony documents in the foreclosure process, a practice dubbed "robo-signing." The claims of bank wrongdoing briefly jostled the housing market, as bank employees acknowledged signing hundreds of forged signatures a day in order to push through foreclosures.
But progress on a settlement has been slow. New York Attorney General Eric Schniederman and Delaware AG Beau Biden have broken away from the talks alleging that Iowa AG Tom Miller, who is leading the negotiations, is not doing enough to secure justice for homeowners and investors.
Miller, in coordination with the Obama administration, is trying to strike a $25 billion settlement that would reform the way banks deal with homeowners and also provide relief in the form of loan modifications and small restitution payments for foreclosed borrowers. The Obama administration rarely comments on foreclosure fraud publicly, but it has not sanctioned banks that engaged in dubious foreclosure practices under the administration's own foreclosure relief plan. While the administration is quietly pushing for a quick settlement from Miller, according to sources involved in the negotiation, Schneiderman and Biden say the Miller deal would let banks off the hook for fraud in the way banks originated mortgages and sold them to investors.
Huntsman delves right into the controversy, siding with Schneiderman and Biden, and making foreclosure fraud a central tenet of his financial reform plan.
"President Huntsman's administration will direct the Department of Justice to take the lead in investigating and brokering an agreement to resolve the widespread legal abuses such as the robo-signing scandal that unfolded in the aftermath of the housing bubble. This is a basic question of rule of law; in this country no one is above the law," says a statement on the candidate's website.
"There are also serious issues involving potential violations of the securities laws, particularly with regard to fair and accurate disclosure of the underlying loan contracts and property titles in mortgage-backed securities that were sold. If investors' rights were abused, this needs to be addressed fully. We need a comprehensive settlement that puts all these issues behind us, but any such settlement must include full redress of all legal violations."
Spokesmen for Miller and Schneiderman declined to comment. The Department of Justice did not respond to a request for comment.
Huntsman has repeatedly gone into much further detail in discussing financial reform than his fellow Republican presidential contenders, and previously suggested breaking up the nation's biggest banks during a debate in November.
In the proposal released Monday, Huntsman also pledged to "maximize" transparency in the market for derivatives -- complex financial instruments that brought down AIG and played a starring role in the financial crisis. He further offered a set of proposals to rein in bank leverage -- the amount of borrowed money that banks can bet on securities and lending operations. When banks borrow big, they make a lot more money when their bets pay off, but they create a great deal of risk in the process. If the assets they buy lose even a tiny amount of value, for instance, highly leveraged banks can find themselves in ruin.