How would Mitt Romney prevent the next financial crisis? It’s not clear.
Last night, Kelly Evans managed to sneak in the GOP presidential debate’s only question about the euro zone crisis, asking Romney what would happen if the United States faced another financial catastrophe as a result. “This is not some imaginary event,” said Evans, a Wall Street Journal economics writer and one of the debate’s moderators. “How far would you be willing to go to keep the financial system functioning?”
Romney replied that “we’ve learned some lessons” in the aftermath of the last financial crisis: namely, to reject government bailouts, let troubled banks go bankrupt and make sure that government regulations don’t get in the way of the private market. “What we have to do is to recognize that — that bankruptcy can be a process, reorganization for banks, as well as other institutions, that allow them to get rid of their excess costs, to re-establish a sound foundation and to emerge stronger,” Romney responded. “The right course for us is not to think we have to go run over to Europe to try and save their banking system or to try and pump money into the banks here in this country.” Ultimately, Romney suggested, the biggest threat to the U.S. was not the euro zone but an overreaction to the euro zone by way of overregulation at home.
Despite his anti-regulatory, anti-government rhetoric in South Carolina, however, Romney has previously suggested that there is an important role for government regulation and intervention to protect the U.S. financial system from a total meltdown — and even admitted there’s some good in the new Dodd-Frank law. Though Romney is campaigning on repeal of Dodd-Frank, he also says he wants to replace the law with an alternative that preserves some of the original regulations.
“Some of the concepts in Dodd-Frank have a place,” Romney says in his campaign’s detailed economic platform. “Greater transparency for inter-bank relationships, enhanced capital requirements, and provisions to address new forms of complex financial transactions are all necessary elements of effective financial reform.” In earlier debates, he’s also defended the Troubled Asset Relief Program as critical to “keep the entire currency of the country worth something.”
But Romney wasn’t pushed to explain those positions and elaborate upon just how far he’d be willing to go to curb the risky behaviors that led to the 2008 financial crisis, or how he would protect the U.S. against the threat of euro-zone contagion. Does he oppose the Federal Reserve’s loans to the European Central Bank, which have helped pull Europe back from the brink in recent weeks? Romney says he opposes bailouts, but what about the U.S. loans to the International Monetary Fund, which could end up intervening to help — or even bailing out — troubled European nations. Congressional Republicans have recently come out against both of these U.S. lifelines to Europe in recent weeks, and it would be worth pushing Romney to see where he’d draw the line on government intervention.
Unfortunately, Evans didn’t follow up on Romney’s non-answer on euro-zone contagion last night. In fact, she warned ahead of time that the higher-ups at the WSJ-Fox debate didn’t want her to get too far into the weeds. “I won’t be getting that wonky,” she tweeted before the debate, adding the hashtag “#overruled.” But Romney will pushed be forced to drill down to the specifics soon enough, once the primaries are over.