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Can Republicans Break Up the Banks?

Simon Johnson who spent some time at the IMF and is now at MIT suggests that Romney-Ryan (especially Ryan) should galvanize the Republican party in favor of free market bank reform–ending Too Big To Fail guarantees–an idea that has been bubbling up and that could give the ticket populist appeal.

The big opportunity for presumptive Republican presidential nominee Mitt Romney and for conservatives more broadly is to choose this moment to pivot against big banks. Ryan is plugged into the Tea Party wing of the Republican Party, which has been consistently opposed to megabanks and the subsidies they attract through being too-big-to-fail (talk to Representative Ron Paul).

Ryan can draw on the intellectual support of senior figures in the Republican Party — including former Utah Governor Jon Huntsman, the presidential candidate who had the strong support of the Wall Street Journal editorial page for his approach to breaking up the megabanks. Senator Richard Shelby — ranking Republican on the Senate Banking Committee — is cagier, but seems inclined to be skeptical of the value of the largest banks as currently constituted. Two weeks ago, Senator David Vitter co-wrote a brilliant letter to Federal Reserve Chairman Ben S. Bernanke on the problems the banks pose.

It is well worth reading the whole piece, as Johnson does an admirable job of making the case that big banks have become government-sponsored enterprises, and that breaking them up through the law is the truly free-market move.

To me this is a no-brainer for Republicans. Combining an attack on privilege and cronyism in a defense of a free and fair market could be extremely effective.

Of course they’ll miss this opportunity.

But I’ll give Johnson’s idea a little credit. Almost no one on the Democratic side is talking about this. Right now the only spokespeople for this kind of bank reform are Republicans.

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