Chait's crucial warning to Democrats

Jonathan Chait offers up true wisdom as the Democrats stare at disaster in Massachusetts, pointing out that any party that's been in power for a year when there's 10% unemployment is going to get hammered; that in the face of major recession Obama's popularity has in fact proved remarkably durable; that commentators always underestimate structural factors moving popular opinion and find faux cause and effect in the parties' and politicians' strategic choices; that Republicans' political strength is their dogged willingness to "ignore establishment nostrums in the face of defeat" whereas Democrats tend to panic and stampede; and that Obama's supreme challenge now will be to play "George Bailey in the bank run" and calm his party's panic (a role, I would add, to which he's supremely suited and has played before).

The nub of Chait's insight is his critique of

"Move your Money" -- if convenient and profitable

There is some merit in Arianna Huffington's Move Your Money campaign to induce individuals to transfer their funds from the megabanks so many of us use to local community banks. The plan is greatly strengthened by providing an online tool by which we can all check the financial strength of local community banks.

Like most Arianna productions, though, this one is an oversimplified morality play: big bank bad/small bank good. It's telling that one of her co-sponsors is a filmmaker and that she's openly inviting all of us to enact a real-life rerun of "It's a Wonderful Life." A few caveats:

• I thought we'd all got over "It's a Wonderful Life" rapture in the wake of the savings and loan crisis of the late eighties/early nineties, when over 700 S&Ls failed, costing U.S. taxpayers something like $150 billion. Thanks in part to deregulation in the early 80s that expanded S&Ls' lending authority and weakened accounting standards, many were subsequently run more by Potter principles than by George Bailey principles.  For that matter, consider the movie itself. But for the extreme virtue and fortitude of the hero, the angelic Building and Loan would have been absorbed by Potter's bank (which might have remained a community bank to this day, unless Potter proved more able than a handful of SuperPotters).
  
  
• Community banks are not exactly politically unconnected Davids going up against the industry Goliaths. The industry's trade association, the Independent Community Bankers of America (ICBA) was very effective in weakening the  Consumer Financial Protection Agency created by legislation passed in the House.  The ICBA succeeded in exempting community banks from CFPA examination and in preventing the CFPA from mandating that community banks offer "plain vanilla" loan products.