When George Will and Sherrod Brown Agree

The Dean of America's grouchy conservative pundits, George Will, has a column today endorsing a plan from one of America's leading economic populists, Senator Sherrod Brown of Ohio. Brown wants to break up the big banks, and Will agrees. Populist liberals like Brown hate the big banks because they suspect that their size hides systematic theft from regular people, and their power makes it impossible to punish them for wrongdoing. Conservatives like Will want to break up the big banks because by being "too big to fail" they require heavy-handed government regulation.

I am all for breaking up the biggest banks, but I suspect that this, by itself, would not fix the problems Brown and Will worry about. After all, populists started hating Wall Street 150 years ago, when our banks were tiny by today's standards, and the collapse of all those small banks in 1837 plunged the country into a recession every bit as severe as the one we just experienced. It is the nature of financial markets that institutions owe money to each other, so that the failure of one can trigger the failure of many others. Small banks might turn out to be even more vulnerable to these cascades. Perhaps a return of the Glass-Steagal rules separating the different sorts of financial entities might help, but I am not sure about that, either. If you recall the dreadful days of 2008, the big fear was that the money markets would freeze, because so much of the paper being traded was backed by mortgages, and because big companies keep their cash in those markets, not checking accounts, they would not be able to pay their workers. The mortgage bond business was huge, with thousands of players, but it still looked like the whole thing was going to tank at once, and take us all down with it. How would breaking up the banks have helped that?

Still, we have to start somewhere, and I reducing the power of that tiny group of far-too-well-connected banks might be a good place.