Huntsman bets on ‘too big to fail’

Jon Huntsman’s latest effort to reinvigorate his campaign is a radical overhaul of the nation’s financial system that would limit the size and borrowing of banks to prevent any entity from being “too big to fail.”

The proposal goes further than President Obama or any of his Republican rivals have gone, and comes amid signs of life for Huntsman in New Hampshire, where a poll this week showed him with 11 percent of likely voters in the state.

“I think he’s the only guy who’s talking any sense on this on either side,” said Simon Johnson, an expert at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund.

{mosads}Former Sen. Ted Kaufman (D-Del.), the author of a measure rejected in the Dodd-Frank talks that would have limited the size of banks, is also a fan of Huntsman’s proposal, which he said could be a winning issue in blue and red states.

“I think if you put this to a referendum, 95 percent of red states would vote for it,” said Kaufman, whose proposal won only 33 votes in the Senate last year, including only three Republicans.

Huntsman argues the outlines of a new financial crisis and bailouts can already be seen just three years after Congress approved the bailout of banks known as the Troubled Asset Relief Program (TARP).

His proposal notes that the six largest U.S. banks have assets worth at least $9.4 trillion, or more than 66 percent of U.S. gross domestic product.

“There is no evidence that institutions of this size add sufficient value to offset the systemic risks they pose,” Huntsman writes.

To get at the problem, Huntsman would set a hard cap on bank size based on assets as a percentage of GDP, and would impose a similar cap on borrowing based on GDP.

He would also impose a fee on banks whose size exceeds a certain percentage of GDP to cover the cost they would impose on taxpayers in a bailout. The fee would be increased if banks don’t slim themselves down.

Huntsman’s proposal was released a day after Bloomberg reported that the Federal Reserve gave out $1.2 trillion in previously unreported loans to banks to keep them afloat during the crisis. It’s a sum nearly double the $700 billion TARP and suggests the banks were in more trouble than was initially indicated.

Yet aside from calls to repeal the Dodd-Frank financial reform bill, no other candidate in the GOP field has released as detailed a proposal on grappling with “too big to fail,” even amid a European debt crisis that threatens to set off a global recession.

Huntsman would also repeal Dodd-Frank.

Kaufman said his measure died in the Senate because it did not have support from then-Banking Committee Chairman Chris Dodd (D-Conn.). It also didn’t have support from the banks or the White House, and the lack of support from Obama is what really did it in, Johnson said.

Whether the proposal gives Huntsman any more life is questionable.

Huntsman has challenged his party’s conservative wing with statements on global warming and evolution, and likely suffers from the time he spent as U.S. Ambassador to China in President Obama’s administration.

The former Utah governor did not rule out a run as an Independent this week. Johnson suggested that Huntsman’s ideas, even if they do not catch fire in the GOP primary, could find an audience in an extended campaign.

This may be especially true if the other candidates for president are Obama and Romney, who both have ties to Wall Street.

“People on the right don’t like [the big banks] because they’ve received a large government subsidy, and people on the left don’t like them because they’re an abuse of power,” Johnson said. “This plays very well in the primaries and the general election.”