Hovde bashes bailouts, suggests return to old banking rules
GOP U.S. Senate candidate Eric Hovde is adamant that the country needs to enact sweeping financial reforms in order to avoid a much more substantial economic collapse in coming years.
But though most of his positions toe the line with fellow fiscal conservatives -- including changes in the tax code -- the Madison banker told a WisPolitics luncheon he's also open to a solution that's also near to the hearts of some liberals.
"I think we need to have a serious discussion about going back to Glass-Steagall," Hovde said.
The 1933 law, which established a separation between commercial banks and investment banks, was repealed in 1999 with overwhelming bipartisan support and a signature from then-President Bill Clinton.
Hovde said "we're right back into the same problems," adding he doesn't worry if some liberals also advocate for a return to the old law.
"Just because I'm a conservative Republican doesn't mean I'm not going to share views with people on the other side," Hovde said.
Hovde said that proposal, however, must be just one aspect of restoring the country's fiscal health.
He labeled the 2010 overhaul of financial regulations, or "Dodd-Frank," a "complete disaster," arguing the law put banks determined to be "systematically important" at a competitive advantage over small- and medium-sized banks.
"Saying they're systematically important means that the government will bail them out again," said Hovde, an investor in community banks. "We're killing off the small banks that didn't even create the problem, and bailing out Wall Street."
Hovde said the round of federal bailouts that accompanied the economic downturn of 2008 amounted to taking the risk of failure off the table -- something he said is very dangerous in a capitalist system.
And while he focused on the bailout of insurance giant AIG to illustrate his point, Hovde also said he wouldn't have aided the nation's automakers.
"Everybody thinks bankruptcy means a company goes away for good. That is the farthest thing from the truth," Hovde said. "Companies go through bankruptcy all the time and very, very rarely do they go through a liquidation process."
He said the country has effectively created an oligarchy in the auto industry over the last 30 years, with the "Big Three" ending up slower and lacking creativity compared to foreign automakers.
"I would have let them go through the normal bankruptcy process, and my guess is we would have come out with probably five or six or seven auto companies," Hovde said.
Hovde emphasized the need to tackle the federal debt as "the paramount issue of our time," but he said lawmakers must also focus on enacting policies that generate economic growth.
He said the country's tax system is fundamentally broken, noting the country's corporate tax rate is the highest in the world while some of its largest companies pay little to nothing in taxes. In March, news reports said the United States had the world's highest corporate tax rate -- 39.2 percent when both federal and state rates are included.
"Our whole political system has been polluted by special interests, and you can see that in our tax code better than any place else," Hovde said.
Hovde said he believes the nation's corporate tax rate could be brought down to 20 percent by eliminating loopholes for corporations in the tax code.
"It's distorting our free market system," Hovde said.
Listen to the full luncheon, sponsored by Wal-Mart, American Family Insurance, University Research Park, Xcel Energy, Whyte Hirschboeck Dudek and Aurora Health Care:
See more on the luncheon in the Thursday PM Update.