Dear Republican Party

Please give me a credible alternative to the Democrats! I used to be a full-fledged supporter of GOP, back in the days of Reagan and even GHW Bush. You remember, back when you stood for fiscal responsibility, limited government, and a competent national defense. Back before you became the Sarah Palin / Glenn Beck / Sean Hannity party (a.k.a. the stupid party). Well, needless to say, you lost your way. I am not sure which is worse – the meddling in our personal lives, the incompetent use of the world’s best military, or the unrestrained spending that would shame a drunken sailor on his first weekend leave in three years. Clearly we grew apart.

But sadly, the Democratic Party provides a pretty unsatisfactory alternative. For starters, I can’t even tell where I agree with them and where I disagree with them, because even though they control both Houses of Congress, they can’t even agree with each other long enough to pass anything. My main issue with their party leader in the White House isn’t his occasional verbal pandering to the liberal left, since that has amounted to absolutely nothing as far tangible results. No, my biggest problem with Mr. O is that he has continued all of the Bush era mistakes (e.g. the crazy deficit spending, the incompetent use of the world’s greatest military, the failure to implement any meaningful and effective financial market reforms, etc. – even Guantanamo is still open!).

So listen up, Republican Party! This is your big chance for redemption. There has been a lot of screaming during the past few days about Obama’s recent proposal to (gasp!) increase bank regulation. For the most part, your reaction has been something along the lines of “What is he thinking? The regulations that we’ve had in place for the past ten years have worked just fine.” This is a BIG mistake. The old regulatory system did NOT work fine in the years that culminated in 2009. When you defend the status quo then John Q. Public concludes that either (a) you are in the pocket of Wall Street, or (b) you are just not very smart (confirming our worst Palin/Hannity suspicions). Either way it is bad for the Republican Party and bad for the country.

I will admit that I am not a huge fan of Obama’s first shot at increasing bank regulation last week. It smacks of populist pandering, unfairly penalizes some and favors others, and only partially addresses the real issues. So again, Republican Party, this is your big chance. Stop being the party that says “NO.” Stop being the party that says “all new regulation is bad.” Don’t just tell us why the Democrats are wrong. Instead, propose something that is better! Propose some effective regulatory alternatives to the Obama plan. Give us some fixes that will prevent future problems and encourage productive capitalism. The Republican Party needs that. The whole country needs that.

Just to show you that my heart is in the right place, I am going to help you out. Here is a recap of my list of regulatory fixes that will prevent future problems and encourage productive capitalism. (For the rationale and details on these proposals, please see the Appendix to my October 19, 2009 post “Forget all the screaming about socialism. Have We Fixed Anything?”)

1. Reinstate the uptick rule
2. Prevent financial institutions from getting “too big to fail”
3. Regulate hedge funds
4. Regulate or prohibit dark pools, naked access and high-speed trading
5. Implement meaningful margin requirements for derivatives
6. Increase margin requirements on leveraged ETF’s or prohibit them completely
7. Put some teeth in the prohibition on naked shorting
8. Increase financial institution capital requirements
9. Increase deposit insurance levels
10. Stiffen regulation and disclosure requirements for consumer credit and residential mortgages

Democrats have proposed addressing about 10% of this and have actually implemented almost none of it. Republicans, this is your opportunity to win back John Q. Public and save the country in the process.