Banking on the next US financial crisis

This is the first of a three-part series

Doomsaying, as Jonah complained to God, is a game that a doomsayer cannot win. This applies in spades to predicting a financial crisis. If proven wrong, the doomsayer is discredited. If proven right, he may be blamed for helping to precipitate the crisis by undermining public confidence.

Far be it from me, therefore, to predict a US financial crisis in the coming months. However, indicators that a US financial crisis might occur during this session of Congress, described by this first part of a three-part essay, warrant prompt attention, especially by the Republican Caucus of the House of Representatives, to two questions:

First, if a financial crisis does occur this year, will the still little-tested financial-sector-funded bail-ins authorized by Title II of the Dodd-Frank Act, enacted in 2010, prove adequate to obviate the Biden administration’s asking Congress again, as in October 2008, to appropriate funds to bail out the financial system? The second part of this three-part essay discusses why financial-sector-funded bail-ins might fail to obviate a bailout.

Second, if the Biden administration does ask Congress this year for funds to bail out the financial sector, then how might the House Republican Caucus best respond? For House Republicans to support another bailout of Wall Street, or even to fail to prevent one, would outrage tens of millions of populists who dominate Republican primary elections.

However, for House Republicans to nix a bailout needed to mitigate an incipient economic contraction could enable Democrats to shift onto the Republican Party the preponderance of public blame for that contraction.

The third part of this three-part series suggests that the House