Great news: “Too big to fail” banks even bigger now

posted at 9:51 am on April 16, 2012 by Ed Morrissey

More than two years ago, Barack Obama railed against “too big to fail” banks and pledged to prevent the “further consolidation” of the banking system.  Did Obama succeed?  According to Bloomberg, the five banks that held assets equal to 43% of the US economy in 2007 before the financial crisis and the bank bailout now control assets that equal 56% of the US economy:

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.

Five banks – JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did during the 2008 crunch.

“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

That specter is eroding faith in Obama’s pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

Obama made these pledges in early 2010 in support of the Dodd-Frank bill.  That passed in the summer of 2010 with some bipartisan support.  After more than 18 months in effect, the only impact this has had on “too big to fail” (TBTF) is to raise capital requirements and an “unwinding” plan in case of financial failure.  Those plans have already been called “unrealistic” by former TARP Inspector General Neil Barofsky, who scoffed at the notion that an institution with more than $2 trillion in assets can be rationally “unwound,”  and insists that the Obama administration has made “almost no progress” on ending TBTF.

They’re not talking about it much anymore, either.  While JP Morgan’s assets increased 15% since the time Obama signed Dodd-Frank, a search on the White House website for “too big to fail” + “banks” nets only 200 hits, most from two years ago.  In contrast, a search for “contraception” gets 295 hits, which seems to indicate that the Obama administration considers contraception almost 50% more important than TBTF.

Okay, that may have been a little too snarky for your taste.  How about comparing it to another major part of the Obama economic message?  A search for “Buffett Rule” at the White House website results in 20,800 hits, 104 times the number for TBTF banks.  That only makes sense if one thinks that the danger of 400 families complying with current tax code and a potential revenue of no more than $5 billion a year in taxes (under static analysis) is 104 times more important than the consolidation of the banking industry and the continuance of the need for taxpayers to backstop huge banks to keep the American financial system from collapsing.

This is what passes for priorities in Obamanomics and in governance in the Hope and Change era.


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WTF?

Electrongod on April 16, 2012 at 9:55 AM

Evil banksters must have hoodwinked him or was it Bush?

GeorgieGirl9 on April 16, 2012 at 9:59 AM

Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the credit crisis.

Barry never does anything. if his lips are moving he is lying.

GhoulAid on April 16, 2012 at 10:00 AM

While Nero fiddled……

Dee2008 on April 16, 2012 at 10:00 AM

I don’t understand how this happened? I’m not being snarky. I really want an answer.

sammypants on April 16, 2012 at 10:02 AM

Well, if your going to have Bernake turn on the money spigot to the tune of a $2-3 Trillion and funnel it to the financial sector which in turn speculates in the stock markets and commodities instead of productive investments because the cost of capital is artifically low, this is what get.

Goverment fail. Again.

Bringing back Glass-Steagall would be a move in the right direction.

WisRich on April 16, 2012 at 10:02 AM

President not present.

dogsoldier on April 16, 2012 at 10:02 AM

4 straight “Obama’s a douche” posts in a row on HotGas?

Unprecedented!

Spliff Menendez on April 16, 2012 at 10:02 AM

Are you in favor of breaking up the banks, Ed?

changer1701 on April 16, 2012 at 10:02 AM

Well dang it! Its all Bush’s fault!

watertown on April 16, 2012 at 10:02 AM

I don’t understand how this happened? I’m not being snarky. I really want an answer.

sammypants on April 16, 2012 at 10:02 AM

The Federal Reserve has been shoveling money into their coffers for for a few years now without any assurance that money wouldn’t just be traded between themselves instead of being lent to people who need it.

Spliff Menendez on April 16, 2012 at 10:04 AM

Are you in favor of breaking up the banks, Ed?

changer1701 on April 16, 2012 at 10:02 AM

Well gee… with subprime taking off again and much more consolidated in less banks… when and if that pops again it will make the last one look like child’s play.

watertown on April 16, 2012 at 10:04 AM

Romney’s biggest problem may be trying the focus the criticism so that indie voters can follow the failures.

Obama is so bad across the board that I worry voters will start to feel sorry for the affirmative action Marxist who has no idea what free markets and America are all about.

BuckeyeSam on April 16, 2012 at 10:05 AM

Here’s something thats easily done, and would change banking behavior overnight.

Make a federal law that allows the “owner” of an asset (car, home, etc.) to purchase the debt from a bank that has filed for bankruptcy at the same discount a bank who is buying the assets gets.

Example: Suppose Lehman Bros. had a mortgage division. On the day they ceased to exist, their assets were sold to other banks at something like $.08 on the dollar, meaning that your mortgage of $200,000 was purchased for $16,000. You get to continue to pay the entire $200,000.

Let me have right of first refusal to purchase the debt on the asset I am already in possession of at the “market” price.

Wanna strike fear into the high finance crowd? Tell them in no uncertain terms that bankruptcy is just that…..bankrupt and not just another re-financing tool for themselves.

BobMbx on April 16, 2012 at 10:06 AM

Are you in favor of breaking up the banks, Ed?

changer1701 on April 16, 2012 at 10:02 AM

Nah, just keep closing down failing banks and then force existing banks to buy them. That way, eventually we only have one bank running the show in America.

Not being too big to fail is no way to go through life, son.

Spliff Menendez on April 16, 2012 at 10:06 AM

The Libertarians and Herr Doktor Paul called this one right.

Barry was hoodwinked and he didn’t give a hoot.

Haven’t looked closely at the others, but BoA’s underlying financial position is still incredibly precarious so that’s great news in the post bailout world.

CorporatePiggy on April 16, 2012 at 10:06 AM

BobMbx on April 16, 2012 at 10:06 AM

Hmm, interesting. I’ve got to think that one over a bit.

WisRich on April 16, 2012 at 10:07 AM

Time to dust off the Sherman Anti-Trust laws…

SWalker on April 16, 2012 at 10:15 AM

I don’t understand how this happened? I’m not being snarky. I really want an answer.

sammypants on April 16, 2012 at 10:02 AM

Banks were forced to actually have some money backing up what they said they have and then stopped being forced to make bad loans, they actually began to make even more money.

Or, in other words, they never needed the bailout in the first place, just better business practices.

LoganSix on April 16, 2012 at 10:16 AM

***

Wanna strike fear into the high finance crowd? Tell them in no uncertain terms that bankruptcy is just that…..bankrupt and not just another re-financing tool for themselves.

BobMbx on April 16, 2012 at 10:06 AM

Now, see. This is why I said the other day that you’re a very good commenter. I’m sure that I don’t see all the angles, but at a glance, that’s a heck of an idea.

BuckeyeSam on April 16, 2012 at 10:17 AM

Here’s something thats easily done, and would change banking behavior overnight.

Make a federal law that allows the “owner” of an asset (car, home, etc.) to purchase the debt from a bank that has filed for bankruptcy at the same discount a bank who is buying the assets gets.

Example: Suppose Lehman Bros. had a mortgage division. On the day they ceased to exist, their assets were sold to other banks at something like $.08 on the dollar, meaning that your mortgage of $200,000 was purchased for $16,000. You get to continue to pay the entire $200,000.

Let me have right of first refusal to purchase the debt on the asset I am already in possession of at the “market” price.

Wanna strike fear into the high finance crowd? Tell them in no uncertain terms that bankruptcy is just that…..bankrupt and not just another re-financing tool for themselves.

BobMbx on April 16, 2012 at 10:06 AM

Brilliant idea Bob, of course if the Bankers ever find out you proposed it, you’re in for a world of hurt…

SWalker on April 16, 2012 at 10:17 AM

According to Bloomberg, the five banks that held assets equal to 43% of the US economy in 2007 before the financial crisis and the bank bailout now control assets that equal 56% of the US economy:

This chart tells a more accurate story. I think it clearly shows a shrinking economy to be the number one culprit, not growing assets.

NotCoach on April 16, 2012 at 10:23 AM

Quick question on the Buffett rule. Is my math correct that if the Buffett rule affect only 400 families and manages to bring in $5B dollars per year, the average family affected by the Buffett rule will be hit with an additional $12,500,000 tax bill per year? That doesn’t sound right. $5,000,000,000 / 400 = $12,500,000

Surely this hits more than 400 families.

digitsiam on April 16, 2012 at 10:25 AM

Concentrated power is not rendered harmless by the good intentions of those who create it.
Milton Friedman

Speakup on April 16, 2012 at 10:28 AM

4 straight “Obama’s a douche” posts in a row on HotGas?

Unprecedented!

Spliff Menendez on April 16, 2012 at 10:02 AM

…and I’m starting to feel nauseous as if salmonella poisoning is setting in!

KOOLAID2 on April 16, 2012 at 10:28 AM

Surely this hits more than 400 families.

digitsiam on April 16, 2012 at 10:25 AM

400 may not be exact, but the order of magnitude is dead on. They’re not talking about thousands of nameless, faceless high income folks.

Now, also keep in mind the Buffet Rule only applies to income. There are many, many fabulously rich people in this country whose income is almost nothing, mostly because they don’t have a job and have no reason to mess with investing.

This is called wealthy. A-Rod makes a lot of money. The Rockefeller family doesn’t. They have already “made” their money.

BobMbx on April 16, 2012 at 10:32 AM

digitsiam on April 16, 2012 at 10:25 AM

According to this NYT article the top 400 earners earn over $270 million on average. I don’t trust the NYT to be entirely honest with us, but we are talking about the top 400 earners. They are earning a lot of money.

Using the NYT figures they are paying $19,620.4 million in taxes on earnings of $108,400 million. $5 billion is easily there.

Please note I do not advocate increased theft of people’s hard earned dollars. I am only pointing out that $12.5 million per household is within the realm of reality for these 400 families.

NotCoach on April 16, 2012 at 10:43 AM

So 5 banks holding 8 trillion in assets is a danger to the economy? The federal government has borrowed twice that amount.

gwelf on April 16, 2012 at 10:47 AM

digitsiam on April 16, 2012 at 10:25 AM
According to this NYT article the top 400 earners earn over $270 million on average. I don’t trust the NYT to be entirely honest with us, but we are talking about the top 400 earners. They are earning a lot of money.
Using the NYT figures they are paying $19,620.4 million in taxes on earnings of $108,400 million. $5 billion is easily there.
Please note I do not advocate increased theft of people’s hard earned dollars. I am only pointing out that $12.5 million per household is within the realm of reality for these 400 families.
NotCoach on April 16, 2012 at 10:43 AM

Most of their wealth is not in cash. It’s in investments/stocks/etc. Steve Jobs was worth 6+ billion because he owned Apple and a lot of Disney. For most of these people a greater amount of taxation is essentially a tax on investment.

gwelf on April 16, 2012 at 10:52 AM

Bush,and his Wall Street Friend’s are still at it!
(Key the OWS troops!)

KOOLAID2 on April 16, 2012 at 10:59 AM

This chart tells a more accurate story. I think it clearly shows a shrinking economy to be the number one culprit, not growing assets.

NotCoach on April 16, 2012 at 10:23 AM

Are we looking at the same chart? The chart clearly shows that the assets of the five largest bank holding companies have increased dramatically since 2006. Also, contrary to your assertion, GNP is higher now than in 2006.

topdog on April 16, 2012 at 11:00 AM

So 5 banks holding 8 trillion in assets is a danger to the economy? The federal government has borrowed twice that amount.

gwelf on April 16, 2012 at 10:47 AM

You are clearly a racist.

LoganSix on April 16, 2012 at 11:00 AM

While Nero fiddled……

Dee2008 on April 16, 2012 at 10:00 AM

I’m more partial to comparing him to the fire marshal in “Fahrenheit 451″. He is actively starting the fires to suppress freedom.

chemman on April 16, 2012 at 11:01 AM

Concentrated power is not rendered harmless by the good intentions of those who create it.
Milton Friedman

Speakup on April 16, 2012 at 10:28 AM

As my grandma use to say; “The road to hell is paved with good intentions”.

chemman on April 16, 2012 at 11:05 AM

Most of their wealth is not in cash. It’s in investments/stocks/etc. Steve Jobs was worth 6+ billion because he owned Apple and a lot of Disney. For most of these people a greater amount of taxation is essentially a tax on investment.

gwelf on April 16, 2012 at 10:52 AM

We aren’t talking about wealth, we are talking about earnings. A person can be worth $1 trillion and have no earnings at all. The accumulated wealth of the top 400 earners is probably well and above their annual earnings.

Are we looking at the same chart? The chart clearly shows that the assets of the five largest bank holding companies have increased dramatically since 2006. Also, contrary to your assertion, GNP is higher now than in 2006.

topdog on April 16, 2012 at 11:00 AM

The last 3 to 4 years for each of these institutions is pretty flat in terms of assets held.

NotCoach on April 16, 2012 at 11:05 AM

Bank of America used to pay 64 cents per share dividends.
Now it pays one penny, and regulators will not allow an increase.
Raising capital requirements only makes banks bigger.
With “too big to fail” only smaller banks fail, and a new wave of small bank failures is on the horizon, as small banks are having difficulty remaining TARP-compliant. When small banks fail, big banks pick up the pieces.
“Too big to fail” does not mean making the big banks smaller. It means making the big banks less risky, even if that means making them bigger.

topdog on April 16, 2012 at 11:19 AM

And these banks still need to be allowed to fail.

Any bank that is big enough to be a threat to the Nation by its failure actually is too big… period. When it is failing it must be allowed to fail so that the market it held can be broken up amongst competitors and allow niche players to expand.

The grandest thing about American Exceptionalism isn’t that it allows you to succeed, but that it allows you to fail on that road to success so that you will do better. That should go from the single owner-operated business to the largest and grandest megacorporation around: no one will be there to pick you up if you fail. That sort of thing really does make you think twice about business practices… cronyism supports failure, supports a failing system and promotes failure. Doesn’t matter if it is on the Left or Right, crony capitalism with State help and oversight that allows those companies input into how the system is run is fascism.

ajacksonian on April 16, 2012 at 11:24 AM

The last 3 to 4 years for each of these institutions is pretty flat in terms of assets held.

NotCoach on April 16, 2012 at 11:05 AM

And GNP has increased over that period.

topdog on April 16, 2012 at 11:26 AM

As my grandma use to say; “The road to hell is paved with good intentions”.

chemman on April 16, 2012 at 11:05 AM

Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their consciences. -CS Lewis-

SWalker on April 16, 2012 at 11:30 AM

Most of their wealth is not in cash. It’s in investments/stocks/etc. Steve Jobs was worth 6+ billion because he owned Apple and a lot of Disney. For most of these people a greater amount of taxation is essentially a tax on investment.
gwelf on April 16, 2012 at 10:52 AM
We aren’t talking about wealth, we are talking about earnings. A person can be worth $1 trillion and have no earnings at all. The accumulated wealth of the top 400 earners is probably well and above their annual earnings.
Are we looking at the same chart? The chart clearly shows that the assets of the five largest bank holding companies have increased dramatically since 2006. Also, contrary to your assertion, GNP is higher now than in 2006.
topdog on April 16, 2012 at 11:00 AM
The last 3 to 4 years for each of these institutions is pretty flat in terms of assets held.
NotCoach on April 16, 2012 at 11:05 AM

So earnings is synonymous with salary then?

gwelf on April 16, 2012 at 11:31 AM

So earnings is synonymous with salary then?

gwelf on April 16, 2012 at 11:31 AM

No. Earnings is synonymous with realized gains either through salary, contract or securities. But a gain (or loss) is not realized until it is actually collected. Holding a stock that increases in value is not an earning because no gain has been realized. The stock must be sold to realize the gain. People who pay capital gains taxes do so as a result of liquidating an asset, or in other words realizing a gain.

NotCoach on April 16, 2012 at 11:43 AM

In his annual letter to shareholders, Dimon said JPMorgan will spend almost $3 billion “over the next few years” and devote 3,000 full-time employees to complying with regulations that arose from the crisis.

This is the kind of window breaking the government loves to provide us. Think of the ways that money could have been spent in true innovation.

“We think the little tiny banks, the 90-odd percent of banks that are under $1.5 billion in deposits, are pretty much an obsolete phenomenon,” he told Bloomberg Television on March 14. “We think they’ll all have to merge with each other, be acquired by bigger banks or something.”

And that quote provides the reasoning crony capitalism exists. The government can help these larger corporations freeze smaller businesses due to the massive amount of regulation the government throws at them. Not just any corporation can spend $3 billion and hire 3,000 full-time employees to deal with complying.

ButterflyDragon on April 16, 2012 at 11:47 AM

October surprise anyone? We know the conditions that made us susceptible to the financial meltdown of 2008, but do we yet understand what triggered it?

Remember, with a single memo Chuckie Schumer caused his own personal little meltdown over Indymac Bank a few months earlier. The link is not allowed here, but search on:

How_Chuck_Schumer_Caused_the_Second_Largest_Bank_Failure_in_US_History

Of course there were no consequences for Chuckie.

slickwillie2001 on April 16, 2012 at 11:52 AM

Something people, particularly Democrats MUST learn to understand:

Regulations that are designed to “protect” people from large corporations ALWAYS have the opposite impact. It goes like this:

Regulations cost money to comply with. Whenever you add regulatory overhead, you have to spend time and effort complying with those regulations and that reduces your profit. It generally costs the same for a large company as it does for a small company to comply with the regulations. They need the same forms, etc.

This increase in overhead expense acts as a barrier of entry to new startup operations. Someone with a great idea and a little capital now faces an additional expense that possibly makes the difference between them starting a business and not starting one. Huge MegaCorp loves that. Marginal operators that were barely getting by are now driven into the red by having to comply with these regulations and are now driven out of business or are driven to merge with one of the bigger companies. Huge MegaCorp loves that, too.

So in the end, the big get bigger and the little fish either starve or are eaten by the bigger fish. The end result is the big get bigger and the people have fewer choices available to them.

Larger companies LOVE regulations because they keep out competition.

Additional regulatory burden just makes the situation they are protecting against even worse.

crosspatch on April 16, 2012 at 11:54 AM

crosspatch on April 16, 2012 at 11:54 AM

Nicely put. You should teach econ.

topdog on April 16, 2012 at 12:02 PM

October surprise anyone? We know the conditions that made us susceptible to the financial meltdown of 2008, but do we yet understand what triggered it?

Remember, with a single memo Chuckie Schumer caused his own personal little meltdown over Indymac Bank a few months earlier. The link is not allowed here, but search on:

How_Chuck_Schumer_Caused_the_Second_Largest_Bank_Failure_in_US_History

Of course there were no consequences for Chuckie.

slickwillie2001 on April 16, 2012 at 11:52 AM

Quite the contrary, Chuck Schumer sent the message to the rest of the banks that they had better hire lobbyists, have a PAC, and give a lot of money to the DSCC and DNC. IndyMac didn’t , and it was their downfall.

rockmom on April 16, 2012 at 12:19 PM

October surprise anyone? We know the conditions that made us susceptible to the financial meltdown of 2008, but do we yet understand what triggered it?
slickwillie2001 on April 16, 2012 at 11:52 AM

The October surprise will be canceled elections in November. Obama already floated that balloon with good ol’ Bev Purdue, Gov. of NC. She decided that she wouldn’t be running for re-election shortly after that statement.

LoganSix on April 16, 2012 at 12:34 PM

And Etch-a-sketch will continue the march over the cliff.

Jayrae on April 17, 2012 at 8:35 AM