Zywicki: Interchange fees are logical and came from market. Merchants bear the cost of interchange and consumers get debit cards essentially for free. If we change, consumers are going to have to be more for bank accounts, debit cards, etc. Some consumers will be driven out of the market and won't use debit cards. The unintended consequences could be huge: limits would only be on debit cards not credit cards when credit cards interchange fees are much higher. Thus, consumers would then lobby again to solve unintended consequences. This is the path of interventionism that leads to more and more intervention and regulation.
Questions 2: Does economic freedom lead to more political freedom?
Mahoney: It depends on how you define political freedom. Many places have competitive political elections, but we doubt their actual freedom (Russia for example). At least for economic freedom we can look at certain indicators like low inflation, low regulatory environment, ... For political freedom, the best indicator is how frequently a government leaves voluntarily when people/voters no longer want in power. It is difficult to say if one leads to the other.
Question 3: Why did TARP and the bailouts pass without more resistance?
Zywicki: Congress was extremely weak during financial crisis. Bush-Paulson were able to push theories of imperial executive and many Republicans and Democrats in Congress, and the Federalist Society, did not resist. The GM/Chrysler Bailout is an example of deferring to the President when Congress didn't want to be on record supporting or opposing it. Finally, Congress pushed back a little bit when Secretary Paulson demanded trillions for more bailouts. Furthermore, TARP money might have been blatantly illegal, but the Court never heard it.
Question 4: How will people react if implicit guarantee of banking system was explicit?
Zywicki: The independence of the banking system form the government is one good example of economic freedom. Cronyism in big banks and big government is a sign of regime corruption. An example of the problem was Fannie & Freddie: an example of an implicit guarantee from failing since government owned.
Mahoney: It is hard to guarantee the opposite of bailouts. A system where everyone knows that a bank will not bailed out is hard because Congress would need to resist threats of wrecking the economy from big banks. It is akin to a hostage situation and hard for lawmakers to resist and deal with effect on economy and voter backlash.