Democrats Have a Big Bank Problem: Street Whispers

NEW YORK (TheStreet) -- The Democratic Party has a serious banking problem, and it can be found in the party platform that was released Sunday head of the national convention.

For starters, the party blames everyone but themselves for the financial crisis that led the nation's largest banks being bailed out through the Troubled Assets Relief Program (TARP), saying that "banks on Wall Street played by different rules than businesses on Main Street and community banks."

The Democrats conveniently leave out the fact that 454 U.S. banks and thrifts have failed since the beginning of 2008 and most of these were community banks participating in the real estate bubble. Further, a great majority followed the lending guidelines of Fannie Mae (FNMA) and Freddie Mac (FMCC) , as the two mortgage giants continually lowered their credit standards at the behest of Democrats -- and, of course the Republicans -- in the name of making housing "more affordable."

Rather than making housing more affordable, they honorable members of Congress made it easier for mortgage borrowers to get in way over their heads, along with the nation's community banks.

The Democrats also say are "ending taxpayer-funded bank bailouts and the era of 'too big to fail.'" While this may be a laudable goal, it plays as if the Democrats didn't support the TARP, which was signed into law by President George W. Bush in October 2008, after the revised Emergency Stabilization Act of 2008 was passed, with the majority of Democrats in the Senate and the House of Representatives supporting the bailout.

As far as ending "too big to fail," there's no question that the Dodd-Frank banking reform legislation, together with the Basel III capital standards, will strengthen banks' abilities to absorb loan and investment losses, the type of crisis that destroyed Lehman Brothers is a liquidity crisis, which legislation can neither foresee nor prevent.