Break up the banks!

posted at 10:00 pm on June 4, 2012 by Mike Rathbone

James Pethokoukis is right. It’s time to break up the big banks. Now, I’m not an Occupier. While I do live with my parents (rent is cheaper), I contend that my hygiene is much better than your average occupier and I’m not prone to raping people. However, there are still good reasons to break up the big banks.

Many libertarians and market purists would contend that there is no such thing as “too big too fail” and that it is no business of Washington to tell a business how big a bank should get if it reaches that size through legal means. Normally, I would agree with them. However, the financial sector is a tricky beast. Psychology plays much more of a role than normal in the market. That’s why there are such things as panics. Things can spiral out of control very quickly and even good actors can be taken down by irrational fears. For something so subject to the fears of its least rational members, the fact that the financial sector is the beating heart of the economy makes this situation all the more troubling. This fact is not lost on our elected officials, hence the bailouts (I’m sure the motives for bailouts are less than pure, but even if one didn’t take a cent from the banks, when confronted with a financial collapse, a lot of people would be hard pressed to say no).

The Pethokoukis piece describes how this “break-up” process should occur and I encourage you to give it a look. However, I’d also like to look at this from a more political angle. What would happen if Romney called for just this remedy? Would he take a hit with Wall Street donors? Probably. Would it be a smart move? I think so. What the Obama Campaign tried (and failed miserably) to do with their Bain attacks is to portray Governor Romney as some kind of vulture capitalist that liked to make money screwing over the working man. Romney did a good job of deflecting those attacks, but I believe that a good offense beats a great defense.

If he announces (at the Convention wouldn’t be bad, I’m only afraid Obama would beat him to the punch) that he intends to break up the big banks, he would do a lot to dispel the notion that he is a tool of Wall Street. It’s an issue that would put him to the “left” so to speak of Obama. A lot of liberals, who would never vote for Romney, would further be disgusted with Obama if he fought against this and maybe sit out for November. A lot of tea-party types would be for it because they’re sick of bailouts and too-big to fail. If Obama agreed with Romney, it wouldn’t change the fact that the economy is in rough shape and that Obama had a full term to push for this, but he’s failed to deliver. Either way, Romney comes out on top.

It also allows Romney, if he were to be elected, to push through a lot of deregulation with the chance at bipartisan support. Sun-Tzu said, “Build your opponent a golden bridge to retreat across”. I agree. A flat out repeal of Dodd-Frank and Sarbanes-Oxley would be very difficult, even with full control of Congress. However, if you give your opponent a way to declare victory, then you can accomplish your objectives. Tack on a repeal of Dodd-Frank and/or Sarbanes-Oxley to a bank break-up bill and you can get some moderate (for Democrats at least) to jump on board because you let them go home and say, “See what I did, I stuck it to those evil Wall Street fat cats!”.

Pushing for breaking up the big banks, in my humble opinion, is both good policy and good politics. I believe that Governor Romney would be wise to push for this and make this a central plank of his economic plan for the campaign.

 

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Comment pages: 1 2

The big banks can not be broken up until the regulations that caused them to merge in the first place are rolled back. The reason why we see a few large banks is for two reasons:

1. Current capital requirements make it impossible for small independent banks to stay in business.

2. “Too big to fail” banks were given smaller banks as they went under during the mortgage crisis. One of the reasons many went under were due to the capital requirements noted in 1 above.

crosspatch on June 4, 2012 at 10:06 PM

What, exactly, makes this site conservative again?

Dante on June 4, 2012 at 10:06 PM

Mike, when you say break up the big banks are you talking about the commercial or the retail or both? Commercial I would probably agree. Retail, meh.

jaime on June 4, 2012 at 10:07 PM

No, but how about letting them assume all their own risk?

AshleyTKing on June 4, 2012 at 10:07 PM

The only way the big banks got the way they are is through government invention.

It’s time for the Feds to back their way out.

CTSherman on June 4, 2012 at 10:09 PM

Tack on a repeal of Dodd-Frank and/or Sarbanes-Oxley to a bank break-up bill

There’s actually a lot to be said for this – over-regulation is killing small banks that used to make loans to small businesses. Only huge mega-banks can deal with the regulation, and they’re in bed with the politicians who design the regulations and the bailouts.

peski on June 4, 2012 at 10:11 PM

Tack on a repeal of Dodd-Frank and/or Sarbanes-Oxley to a bank break-up bill and you can get some moderate (for Democrats at least) to jump on board because you let them go home and say, “See what I did, I stuck it to those evil Wall Street fat cats!”.

That is the only way you can do it. Actually, if you repealed Dodd-Frank and Sarbanes-Oxley the banks would basically break themselves up. Smaller independent banks would begin to appear on their own. Repealing Sarbanes-Oxley would result in a large flood of IPOs from companies going public who have either remained private or have gone out on other exchanges such as London.

crosspatch on June 4, 2012 at 10:12 PM

What, exactly, makes this site conservative again?

Dante on June 4, 2012 at 10:06 PM

The banks are big because of liberal intervention. To support banks that are artificially big because of government intervention is not being conservative, it’s bending over and letting the left pound your ass into a hamburger.

Darth Executor on June 4, 2012 at 10:13 PM

Normally, I would agree with them. However, the financial sector is a tricky beast. Psychology plays much more of a role than normal in the market. That’s why there are such things as panics.

People tend to panic when they realize that the banks don’t have enough money to cover their debts to their depositors.

iwasbornwithit on June 4, 2012 at 10:13 PM

…banks are bigger now…than before the reforms to avoid the “to big to fail” BS…just as crosspatch said in his Bishop!

KOOLAID2 on June 4, 2012 at 10:16 PM

The banks are big because of liberal government intervention. To support banks that are artificially big because of government intervention is not being conservative, it’s bending over and letting the left pound your ass into a hamburger.

Darth Executor on June 4, 2012 at 10:13 PM

The push shouldn’t be for the banks to be broken up, but for the government to completely remove itself from the marketplace.

Regardless, the author seems frightened by natural market forces, which he labels irrational, and has bought into the myth that the economy was about to collapse. It wasn’t.

Dante on June 4, 2012 at 10:17 PM

They can break up B of A. I hate them.

Meanwhile..I agree with Crosspatch out the gate.

bazil9 on June 4, 2012 at 10:18 PM

For something so subject to the fears of its least rational members,

David Frum, is that you loving on some soda ban?

Midas on June 4, 2012 at 10:19 PM

It’s an issue that would put him to the “left” so to speak of Obama.

Do not see how it would put him to the left. Sarbane-Oxley and Dodd-Frank are both to the left. Thus would repeal them as they should be repealed but this is a Fiscal Conservative position. Fiscal Conservatives believe in competition. These Banks are becoming far too close to Monopolies(not the best word).

Perhaps he could sell it that way but the MSM would quickly end that.

Unfortunately I doubt Mitt would go for it. I doubt Mitt would repeal either of these if his tenure in Mass means anything. He governed a very liberal State very liberally appointing very liberal people to every position. Now he would be governing a very liberal Congress so would use the same method that worked in Mass. Romney would govern mostly just like Obama though supercharged as he would get some RINOS to go along with the Democrats and he is a much better Administrator perhaps the best to ever run for President.

Steveangell on June 4, 2012 at 10:21 PM

The push shouldn’t be for the banks to be broken up, but for the government to completely remove itself from the marketplace.

Dante on June 4, 2012 at 10:17 PM

Private entities that willingly collaborated with socialist governments to warp the market in their favour should be crushed without mercy. Simply removing the government from the marketplace after it already picked winners and losers is unacceptable.

Regardless, the author seems frightened by natural market forces, which he labels irrational, and has bought into the myth that the economy was about to collapse. It wasn’t.

Actually it was, because artificial interference in the market creates bubbles that bring the market down when they burst. And it’s difficult for a conservative to argue there wasn’t any artificial interference when that’s pretty much what most government interference is.

Darth Executor on June 4, 2012 at 10:22 PM

David Frum, is that you loving on some soda ban?

Midas on June 4, 2012 at 10:19 PM

In Mayor Bloomberg’s defence, most liberals do need babysitting because they are incapable of surviving on their own.

Darth Executor on June 4, 2012 at 10:22 PM

Seven Percent Solution on June 4, 2012 at 10:21 PM

Why would a Progressive do that? Progressives are all for forcing banks to lend money to the poor.

Steveangell on June 4, 2012 at 10:23 PM

What, exactly, makes this site conservative again?

Dante

Please. Go ahead and tell us how the Fed does not interfere with multiple markets on an ongoing basis. Tell us how we live in a laisse faire economy. Tell us how the Federal government has not screwed up our country by picking winners and losers, playing games on the stock markets, consistently over-shooting and undershooting interest rates to the benefit of primary dealers all the while protecting them from competition.

Do it. Please.

chimney sweep on June 4, 2012 at 10:23 PM

Seven Percent Solution on June 4, 2012 at 10:21 PM

Yep, my friend that worked at Country Wide had some interesting stories for me..including “diversity training”.
Thx for that Gem.

bazil9 on June 4, 2012 at 10:24 PM

There’s actually a lot to be said for this – over-regulation is killing small banks that used to make loans to small businesses. Only huge mega-banks can deal with the regulation, and they’re in bed with the politicians who design the regulations and the bailouts.

peski on June 4, 2012 at 10:11 PM

There are lots of viable small banks and BofA has a 78% approval rate for small business loans ranging between $100k and $5M.

lexhamfox on June 4, 2012 at 10:24 PM

What, exactly, makes this site conservative again?

Dante on June 4, 2012 at 10:06 PM

What, exactly, makes you the arbiter of what is or is not conservative again?

MadisonConservative on June 4, 2012 at 10:27 PM

Many libertarians and market purists would contend that there is no such thing as “too big too fail” and that it is no business of Washington to tell a business how big a bank should get if it reaches that size through legal means.

Mike Rathbone

Why are you dancing around the subject of getting tough on the financial sector? Just say it man. Prosecute the fraud! Let the banks that fail actually, you know, fail! Reinstate Glass Steagall! Bringing religion to a sector of business that has went stark raving mad isn’t being anti business.

DFCtomm on June 4, 2012 at 10:27 PM

Darth Executor on June 4, 2012 at 10:22 PM

This post is dead on.

These Banks should be forced into Bankruptcy. The execs should really go to prison for life but of course that never happens. Corzine stole over a Billion but no jail for him. Maddoff must have been a Republican.

Steveangell on June 4, 2012 at 10:29 PM

lexhamfox on June 4, 2012 at 10:24 PM

Our accounts(and now Spawn’s as well) are @ a bank that is ONLY located in west Texas. It’s got great service, no fees on debit cards etc.
Our bank in IL was TCF.
Night and Day.

annoyinglittletwerp on June 4, 2012 at 10:29 PM

MadisonConservative on June 4, 2012 at 10:27 PM
You RINO!
Ron Paul or none at All!

annoyinglittletwerp on June 4, 2012 at 10:30 PM

Give a man a gun and he might rob a bank…..Give a man a bank and he WILL rob the nation!!!

Marco on June 4, 2012 at 10:30 PM

Repeal this first…

“At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.”

Seven Percent Solution on June 4, 2012 at 10:21 PM

There is something fishy about the CRA and the rampant use of CDOs. It’s like the chicken and the egg. Which came first? I almost think it’s a briar rabbit moment. The banks saw the CRA coming and cut a deal under the table with congress. Congress got the CRA and the banks got CDOs, and with the CDOs they extracted trillions from the country. Don’t throw me in that thar briar patch mr. fox.

DFCtomm on June 4, 2012 at 10:33 PM

In Mayor Bloomberg’s defence, most liberals do need babysitting because they are incapable of surviving on their own.

Darth Executor on June 4, 2012 at 10:22 PM

Even more reason to *not* babysit them.

Midas on June 4, 2012 at 10:35 PM

Yep, my friend that worked at Country Wide had some interesting stories for me..including “diversity training”.
Thx for that Gem.

bazil9 on June 4, 2012 at 10:24 PM

If we simply eliminated all Diversity Training, national productivity would tick up a fraction of a percent.

slickwillie2001 on June 4, 2012 at 10:40 PM

Please. Go ahead and tell us how the Fed does not interfere with multiple markets on an ongoing basis. Tell us how we live in a laisse faire economy. Tell us how the Federal government has not screwed up our country by picking winners and losers, playing games on the stock markets, consistently over-shooting and undershooting interest rates to the benefit of primary dealers all the while protecting them from competition.

Do it. Please.

chimney sweep on June 4, 2012 at 10:23 PM

You have no idea just how far off the mark you are.

Dante on June 4, 2012 at 10:41 PM

There is something fishy about the CRA and the rampant use of CDOs. It’s like the chicken and the egg. Which came first? I almost think it’s a briar rabbit moment. The banks saw the CRA coming and cut a deal under the table with congress. Congress got the CRA and the banks got CDOs, and with the CDOs they extracted trillions from the country. Don’t throw me in that thar briar patch mr. fox.

DFCtomm on June 4, 2012 at 10:33 PM

And with this inside information many congresscritters got richer.

Rio Linda Refugee on June 4, 2012 at 10:42 PM

we have to get back to the time where banking was boring. Investment banking on the other hand, i don’t care. But it needs to be their money and their losses.

whatever gets us there, imho.

but we’re talking about far future stuff. we’re screwed for a decade. the idea of a right to a house needs to be dumped in the dustbin of history. Home ownership can work against labor mobility

so tell the leftists that throwing money at home ownership is Not in the Common Good

r keller on June 4, 2012 at 10:42 PM

Actually it was, because artificial interference in the market creates bubbles that bring the market down when they burst. And it’s difficult for a conservative to argue there wasn’t any artificial interference when that’s pretty much what most government interference is.

Darth Executor on June 4, 2012 at 10:22 PM

Yes, I know. A burst bubble does not equal a collapsed economy.

Dante on June 4, 2012 at 10:43 PM

No, but how about letting them assume all their own risk?

AshleyTKing on June 4, 2012 at 10:07 PM

If unregulated, they would be free to amass and amass and amass debt until there’s another collapse.

At that point it doesn’t matter much who assumes the risk. The executives who made the decisions have already made their money and have no liability. The shareholders and customers and everyone else who was either fooled because of ignorance or because the risks were “hidden” would be screwed. Everyone not involved will also be screwed as a result of the chain reaction.

Breaking up big banks is a means of preventing that chain reaction.

lester on June 4, 2012 at 10:45 PM

Yes, I know. A burst bubble does not equal a collapsed economy.

Dante on June 4, 2012 at 10:43 PM

On that occasion size does matter.

lester on June 4, 2012 at 10:46 PM

You have no idea just how far off the mark you are.

Dante on June 4, 2012 at 10:41 PM

Quit beating around the bush and out with it. If you have some nuggets to share then you better get going. Financial posts have a life of about 2 hours here.

DFCtomm on June 4, 2012 at 10:48 PM

Yes, I know. A burst bubble does not equal a collapsed economy.

Dante on June 4, 2012 at 10:43 PM

It kind of depends on how big the bubble is doesn’t it? The size of the derivatives market is roughly 700 trillion, so a bubble in that market could very well equal many collapsed economies even ours.

DFCtomm on June 4, 2012 at 10:50 PM

As a free market conservative, I find a few flaws in this piece. 1) “break up the banks” is different than ” roll back the government meddling that led to their formation in the first place” . And it’s an important distinction. By breaking them up you are going to have to pick more winners, which is not the role the government should be playing. Remove the mechanisms that helped artificially build them will allow the market to determine if, when, and how they unravel.

2) Your argument about the psychology of the banking market making it necessary for a different kind of government interaction is a false choice. A sound, healthy, free market based system would have as many players ats the market prefers at sizes the market prefers with safe-guards the market prefers. Your suggestions buy intot the faulty premise that when things get dicey, centralized knowledge and expertise is better than private decentralized knowledge. If government intervention is what you trust when things get crazy, then you really, at your core do not trust the market.

I was deeply disappointed that Paul Ryan essentially made the same excuse for his TARP vote. Things were so bad, blah blah blah. BS. If the market knows best, it knows best when things are at all extremes and/or rolling smoothly along. It reveals to me an arrogance of “Washington knows best”.

Put another way, Mike is looking for government to eliminate risk and protect him. His motives are pure, no doubt . But what he is advocating is not free market conservatism at all.

The Hammer on June 4, 2012 at 10:55 PM

lester on June 4, 2012 at 10:46 PM

lester, here’s the secret. Progs have been selling the story that they can thru central planning and control (or at least as much as they can get by with) smooth out all those pesky little business cycles.

so how’s that working for you guys?

i’m not a huge supporter of ron paul…but i loved when he asked bernanke about price stability and unemployement (dual mandate)…and then showed graphs of inflation and unemployment.

a light government is best. we don’t want fraud, theft and corruption. Regulation of financial markets for those things is fine. but that’s never enough for the progs…they always want to tinker…and experiment with social policy….and they never understand what regulatory capture means…mainly because they are in on the scheme.

like i say…a light government is best

r keller on June 4, 2012 at 10:57 PM

The big banks can not be broken up until the regulations that caused them to merge in the first place are rolled back. The reason why we see a few large banks is for two reasons:

1. Current capital requirements make it impossible for small independent banks to stay in business.

2. “Too big to fail” banks were given smaller banks as they went under during the mortgage crisis. One of the reasons many went under were due to the capital requirements noted in 1 above.

crosspatch on June 4, 2012 at 10:06 PM


In order:

1) False – not even close to the truth. Why not do a Google on some stats before posting something blatantly false?

2)The “smaller banks” allowed by the Fed, Trasury & FDIC to be taken by the TBTF were, in a number cases, bigger than the particular TBTF. The overwhelming majority of banks taken over by the FDIC since September 2008 were taken over by someone oher than a TBTF.

PolAgnostic on June 4, 2012 at 11:00 PM

Quit beating around the bush and out with it. If you have some nuggets to share then you better get going. Financial posts have a life of about 2 hours here.

DFCtomm on June 4, 2012 at 10:48 PM

Ok, I’ll rephrase it for you: his post was a straw man argument, and not a single bit reflects any view I hold. Therefore, it was way off the mark.

Dante on June 4, 2012 at 11:02 PM

It kind of depends on how big the bubble is doesn’t it? The size of the derivatives market is roughly 700 trillion, so a bubble in that market could very well equal many collapsed economies even ours.

DFCtomm on June 4, 2012 at 10:50 PM

Do you think TARP rescued the economy?

Dante on June 4, 2012 at 11:03 PM

The Hammer on June 4, 2012 at 10:55 PM

Nailed it.

Dante on June 4, 2012 at 11:04 PM

No, but how about letting them assume all their own risk?

AshleyTKing on June 4, 2012 at 10:07 PM

If unregulated, they would be free to amass and amass and amass debt until there’s another collapse.

At that point it doesn’t matter much who assumes the risk. The executives who made the decisions have already made their money and have no liability. The shareholders and customers and everyone else who was either fooled because of ignorance or because the risks were “hidden” would be screwed. Everyone not involved will also be screwed as a result of the chain reaction.

Breaking up big banks is a means of preventing that chain reaction.

lester on June 4, 2012 at 10:45 PM

Actually, Lester, the market would quickly position banks properly as an investment. Your comment assumes every head of business, or at least a number large enought to be systemic, is willing to lie cheat and steal to get profits. That’s false. Some would, no doubt and some people would lose money. But, a diverse banking market would spread risk out as much as possible and money would not pour into banks as investments until they, as a whole, proved their worth. And the law has remedy for those injured by real fraud. Again, you want government to eliminate risk and loss and that isn’t possible.

And, the risk/loss you seek to avoid of is always more pronounced the greater involvement government plays. See Fannie/Freddie as shining examples. They would have been flushed long ago if the market was deciding and losses stemmed. Instead, we continue this slow bleed of billions of dollars while those smarter than us continue to shovel more money at them. Our money. And we have no choice.

The Hammer on June 4, 2012 at 11:05 PM

like i say…a light government is best

r keller on June 4, 2012 at 10:57 PM

There shouldn’t be government intervention unless it’s actually needed. When a dozen executives can sit in a room and take multi-trillion dollar risks with no, as in ZERO personal liability if things go wrong then government must step in.

lester on June 4, 2012 at 11:06 PM

The Hammer on June 4, 2012 at 10:55 PM

If the free market had been allowed to proceed as it would have free of government interference … 18 out of the 20 TBTF would have gone bankrupt, which is what should have been allowed to happen.

The Fear, Uncertainty and Doubt campaign mounted by the TBTF and politicians they OWN in Washington during 2008 spread a blanket of BS (they were already doing for Obama) saying the world would end if the TBTF went into bankruptcy is a lie your children’s grandchildren will be paying for in 100 years.

PolAgnostic on June 4, 2012 at 11:06 PM

Reinstate Glass-Steagall and re-separate banking from investment…

dominigan on June 4, 2012 at 8:49 PM

+1000

“Ask not what your TEA Party can do for you…” ~ DeepWheat

DeepWheat on June 4, 2012 at 11:10 PM

When a dozen executives can sit in a room and take multi-trillion dollar risks with no, as in ZERO personal liability if things go wrong then government must step in.

lester on June 4, 2012 at 11:06 PM

wow. what a strange post.

here’s the deal. the best is when CEOs take risks. if they fail they go out of business. SKIN IN THE GAME.

governments have little skin in the game…and therefore make bad, corrupt decisions (can we say Solyndra?)

r keller on June 4, 2012 at 11:11 PM

As a former investment banker in my early years I am surprisingly strongly in favor of restoring Glass-Steagall. Banks have demonstrated the industry cannot be allowed to socialize risk. I don’t know that breaking up the banks is necessary, but any deposit-taking institution needs to invest money far more conservatively than banks have done in the years since Glass-Steagall was repealed.

MTF on June 4, 2012 at 11:11 PM

Do you think TARP rescued the economy?

Dante on June 4, 2012 at 11:03 PM

Yes and no. Every single thing that has been done since 2008 has been a delaying action. Delay and pray if you like. So it did save the economy for a time, but that time is over now.

DFCtomm on June 4, 2012 at 11:13 PM

I firmly believe that these mega-money center banks need to be not only broken up, but simplified as well.
In the first place, they were made this big by the federal regulators who cobbled together the weak with the strong in a panic stricken effort to save the system from the feared collapse that looked so real in September of 2008. Bank of America and Wells Fargo in particular are products of the mad scramble to save Countrywide and Wachovia and WAMU and Merrill and all of the dozens of interconnected and interdependent banks and brokerages from the consequences of their own over extension in the government run mortgage scam.
None of the surviving firms got to the scale they currently have now by natural growth and success at their business models. They got that way because the federal government made them that way, because the fact is that although we can always afford to lose any one firm we can never afford to lose them all at once. And now that the crisis has passed, we need to unwind these monstrous black box megabanks that were created in the heat of the moment.
They just don’t make sense any more, assuming they did in the first place.

Lew on June 4, 2012 at 11:14 PM

lexhamfox on June 4, 2012 at 10:24 PM

Our accounts(and now Spawn’s as well) are @ a bank that is ONLY located in west Texas. It’s got great service, no fees on debit cards etc.
Our bank in IL was TCF.
Night and Day.

annoyinglittletwerp on June 4, 2012 at 10:29 PM

Yes I know there are loads of successful small to medium banks in the US.

The notion that the TBTF Banks took over all the little banks is FALSE.

If you doubt this go to the FDIC Failed bank list and look at the names of the the banks who are acquiring failed institutions and most of them are local banks.

lexhamfox on June 4, 2012 at 11:18 PM

The Hammer on June 4, 2012 at 10:55 PM

If the free market had been allowed to proceed as it would have free of government interference … 18 out of the 20 TBTF would have gone bankrupt, which is what should have been allowed to happen.

The Fear, Uncertainty and Doubt campaign mounted by the TBTF and politicians they OWN in Washington during 2008 spread a blanket of BS (they were already doing for Obama) saying the world would end if the TBTF went into bankruptcy is a lie your children’s grandchildren will be paying for in 100 years.

PolAgnostic on June 4, 2012 at 11:06 PM

I agree. The statist don’t want any profits or losses. Businesses should only exist to provide jobs to us in the great unwashed and power to the politicians.

I’m always amazed that folks like Lester assume every business is corrupt and yet place so much trust in the most corrupt business of all…governments.

The Hammer on June 4, 2012 at 11:19 PM

MTF on June 4, 2012 at 11:11 PM

Completely agree. Retail and commercial banking are two very different businesses, with two different risk profiles, and should not have been allowed to merge, placing the deposits of individual investors (with their FDIC guarantees) at the risk of the clearly insane commercial bankers who treat the financial industry as some sort of Las Vegas casino writ large.

If you want to destroy a commercial bank through risky leveraged investments, fine. Once it is apparent to those institutions that they will be allowed to fail, they will reign in their own speculators. Problem solved. Using the assets of retail investors to backstop those bets, with the additional security of “too big to fail” and “FDIC insurance” to cover massive losses, is just counterproductive in that it spreads wild speculative risk to the whole of society. While allowing the speculators to earn outsized compensation packages while gambling with OPM. Not a reasonable balance between risk and responsibility, IMHO.

HTL on June 4, 2012 at 11:21 PM

The only way the big banks got the way they are is through government invention.

It’s time for the Feds to back their way out.

CTSherman on June 4, 2012 at 10:09 PM


No, it was much worse than incompetence.

The way the TBTF got the way they are is through campaign contributions and providing insider information to Wahington politicians who used it to enrich themselves and their families.

It is simple to break them up … in the next 90 days if you want to …

Have the FDIC announce a new policy taking effect September 4, 2012

“As of start of business on September 4, 2012, all of the twenty banks provided federal assistance under TARP, the AIG bailout and other programs will no longer be covered by the FDIC account insurance program.

All individuals having accounts with these firms will NOT be compensated for any and all losses they might incur. Therefore, the FDIC urges anyone who might be affected by this policy to transfer their accounts to banks which will still qualify.”

It is legal.

It will cause a massive shift of liquidity into banks that are actually likely to loan the money back out to individuals and small businesses.

It would do more for campaign finance reform than any measure implemented in the last 35 years.

PolAgnostic on June 4, 2012 at 11:24 PM

Actually, Lester, the market would quickly position banks properly as an investment. Your comment assumes every head of business, or at least a number large enought to be systemic, is willing to lie cheat and steal to get profits. That’s false. Some would, no doubt and some people would lose money. But, a diverse banking market would spread risk out as much as possible and money would not pour into banks as investments until they, as a whole, proved their worth. And the law has remedy for those injured by real fraud. Again, you want government to eliminate risk and loss and that isn’t possible.

And, the risk/loss you seek to avoid of is always more pronounced the greater involvement government plays. See Fannie/Freddie as shining examples. They would have been flushed long ago if the market was deciding and losses stemmed. Instead, we continue this slow bleed of billions of dollars while those smarter than us continue to shovel more money at them. Our money. And we have no choice.

The Hammer on June 4, 2012 at 11:05 PM

They didn’t all cheat and steal, that’s why nobody’s gone to jail. They just took very big risks but pretty much within the law, partly due to lack of any regulations around derivatives.

One A and a C and another C and another C and yet another C can very legally end up as an A even though it’s not sound finance. If I’m allowed to do this and profit off of it, then there’s no reason I shouldn’t (unless I’m just a really nice person or own the bank).

We had a diverse market. That’s why derivatives travelled all over the world and everybody lost. Fannie/Freddie takeover was a supposed fix but regardless of that the risk was there. As long as few people can control trillions of dollars in derivatives market with no bounds on risk taking things can go wrong and hurt everyone involved or not.

lester on June 4, 2012 at 11:26 PM

Have the FDIC announce a new policy taking effect September 4, 2012

“As of start of business on September 4, 2012, all of the twenty banks provided federal assistance under TARP, the AIG bailout and other programs will no longer be covered by the FDIC account insurance program.

Ok, what about the banks that took the TARP money under protest? Remember, when those CEO’s were brought to D.C. they were all told they were all going to take the money whether they needed it or not, or they wouldn’t be leaving the room!
What about them?

Lew on June 4, 2012 at 11:29 PM

wow. what a strange post.

here’s the deal. the best is when CEOs take risks. if they fail they go out of business. SKIN IN THE GAME.

governments have little skin in the game…and therefore make bad, corrupt decisions (can we say Solyndra?)

r keller on June 4, 2012 at 11:11 PM

How are you going to make sure CEOs have skin in the game? The ones who lost everything, still left with multi-million dollar bonuses. Unless the CEOs own a large portion of the business, they have no skin in the game.

With a small business, that happens a lot, and even if they fail, it has limited impact. With trillion dollar businesses that’s not the case.

I wasn’t talking about government investing, I was talking about government regulating financial institutions so the derivatives mess can’t happen again. It’s actually not unlike preventing private businesses from printing money.

lester on June 4, 2012 at 11:33 PM

The Hammer on June 4, 2012 at 10:55 PM

Nice!

iwasbornwithit on June 4, 2012 at 11:35 PM

They didn’t all cheat and steal, that’s why nobody’s gone to jail. They just took very big risks but pretty much within the law, partly due to lack of any regulations around derivatives.

lester on June 4, 2012 at 11:26 PM

That is only partially true. Many derivative products are regulated but the side bets on CDS’s were not.

lexhamfox on June 4, 2012 at 11:36 PM

Ok, what about the banks that took the TARP money under protest? Remember, when those CEO’s were brought to D.C. they were all told they were all going to take the money whether they needed it or not, or they wouldn’t be leaving the room!
What about them?

Lew on June 4, 2012 at 11:29 PM


All means ALL

Are you so naive you believe the bank CEO’s who say they would have been fine without it?

If so, Google how those same CEO’s and their banks used the Fed discount window to access, in some case, hundreds of billions of dollars in order to maintain their liquidity in the same time period.

If you have a strong stomach, research how those same CEO’s took advantage of QE1 to sell fraudulent Mortgage Backed Securities at 100% of book value to the Federal Reserve. It is the single biggest R.I.C.O. qualifying conspiracy in the history of the planet – and the Obama administration forced a settlement of less than 1/1000th of a cent on the dollar down our collective throats this past February.

Shall I go on …?

PolAgnostic on June 4, 2012 at 11:40 PM

They didn’t all cheat and steal, that’s why nobody’s gone to jail. They just took very big risks but pretty much within the law, partly due to lack of any regulations around derivatives.

One A and a C and another C and another C and yet another C can very legally end up as an A even though it’s not sound finance. If I’m allowed to do this and profit off of it, then there’s no reason I shouldn’t (unless I’m just a really nice person or own the bank).

We had a diverse market. That’s why derivatives travelled all over the world and everybody lost. Fannie/Freddie takeover was a supposed fix but regardless of that the risk was there. As long as few people can control trillions of dollars in derivatives market with no bounds on risk taking things can go wrong and hurt everyone involved or not.

lester on June 4, 2012 at 11:26 PM


They DID cheat and steal.

When you set up the M.E.R.S. system to bypass having to pay county recorder fees for tens of millions of real property transactions over a 10+ year time period – you are, by God, cheating and stealing.

When you then use the same M.E.R.S. system to facilitate the process of bundling a single mortgage into more than one tranche of debt in a Mortgage Backed Security (MBS) trust document, thereby falsifying the risk stated for each tranche of debt, you have committed a felony.

When you further compound your perfidy by using M.E.R.S. to facilitate the process of assigning that same singular mortgage into more than one MBS, you have committed another felony actionable on both the state and federal level.

With regard to derivatives, you know even less than you do about cheating and stealing done by the TBTF.

PolAgnostic on June 4, 2012 at 11:51 PM

PolAgnostic on June 4, 2012 at 11:51 PM

What kills me is the no doc loan crap that was passed on as investment grade. Unreal.

lexhamfox on June 5, 2012 at 12:02 AM

PolAgnostic on June 4, 2012 at 11:40 PM

It’s not a question of naivete. I know PERSONALLY at least three of those people who didn’t need one cent of that money and only took what they had to, to get out of the room.
As far as the discount window is concerned, THAT’s WHAT IT’S FOR!!! It’s a temporary liquidity facility, and there were several of those banks that didn’t use it to any degree over their average use of it in the years before. So what’s your point?
And tell me about those “Fraudulent mortgage Backed securities” that the Fed wanted to buy at Book value. In the first place, what exactly is a “Fraudulent” MBS? And in the second place, there were quite a few of those banks that didn’t have a lot of MBS’s to sell to the Fed, at any price because they never bought that many to begin with.
Believe it or not, some of those banks didn’t do a lot of stupid things but they got smeared with the same federally sponsored brush anyway.

Lew on June 5, 2012 at 12:03 AM

As a former investment banker in my early years I am surprisingly strongly in favor of restoring Glass-Steagall. Banks have demonstrated the industry cannot be allowed to socialize risk. I don’t know that breaking up the banks is necessary, but any deposit-taking institution needs to invest money far more conservatively than banks have done in the years since Glass-Steagall was repealed.

MTF on June 4, 2012 at 11:11 PM

Agreed, but imagine yourself a small bank in an environment where government is actively and overtly picking winners and losers on the whims of political fancy. Where lies the conservative play in that game, when it can change tomorrow? Will you still lend your assets and at what risk?

Difficultas_Est_Imperium on June 5, 2012 at 12:15 AM

I wasn’t talking about government investing, I was talking about government regulating financial institutions so the derivatives mess can’t happen again. It’s actually not unlike preventing private businesses from printing money.

lester on June 4, 2012 at 11:33 PM

About 85% of all derivatives are unregulated after Dodd Frank. And even if they were 100% regulated, it won’t stop massive crashes. All the regulation in the world can’t prevent losses brought on by Fed-induced bubbles. Derivatives did not cause the crash of 2008, a massive drop in home values did.

Chuck Schick on June 5, 2012 at 12:17 AM

It’s not a question of naivete. I know PERSONALLY at least three of those people who didn’t need one cent of that money and only took what they had to, to get out of the room.

Well, thanks for admitting your objectivity is compromised. Have any of those people you know personally ever provided you or your family with special services or benefits not available to the run of the mill customers?

As far as the discount window is concerned, THAT’s WHAT IT’S FOR!!! It’s a temporary liquidity facility, and there were several of those banks that didn’t use it to any degree over their average use of it in the years before. So what’s your point?

When you can no longer obtain the funding required from the open market sources on an ongoing and systemic basis, you should be reported by both the internal and external auditors as no longer being a going concern. If that information had been made public, the TBTF’s in that room would have been out of business, as they should have been, the very next day.

And tell me about those “Fraudulent mortgage Backed securities” that the Fed wanted to buy at Book value. In the first place, what exactly is a “Fraudulent” MBS?

For that remark, I was tempted to get nasty but let’s presume for one moment you are just as dumb as you are pretending to be:

PolAgnostic on June 4, 2012 at 11:51 PM

The basics are laid out in that post I made.

And in the second place, there were quite a few of those banks that didn’t have a lot of MBS’s to sell to the Fed, at any price because they never bought that many to begin with.

Well, that’s just a flat out lie or the most glatring admission of ignorance I have EVER some across. Which one do you want to go with?

Believe it or not, some of those banks didn’t do a lot of stupid things but they got smeared with the same federally sponsored brush anyway.

Lew on June 5, 2012 at 12:03 AM

The TBTF banks are at the heart of a corruption so deep and perverse that Treason is too mild of a descrption for it.

PolAgnostic on June 5, 2012 at 12:22 AM

What, exactly, makes this site conservative again?

Dante on June 4, 2012 at 10:06 PM

This article makes me wonder. Romney had better not take this position.

netster007x on June 5, 2012 at 12:26 AM

PolAgnostic on June 5, 2012 at 12:22 AM

All I see are a bunch of blustering assertions and not one shred of a fact….NONE! I can see no reason whatsoever why any intelligent human being should waste one more second with such a screeching moron, so I won’t.
Have a nice day!

Lew on June 5, 2012 at 12:37 AM

Agreed, but imagine yourself a small bank in an environment where government is actively and overtly picking winners and losers on the whims of political fancy. Where lies the conservative play in that game, when it can change tomorrow? Will you still lend your assets and at what risk?

Difficultas_Est_Imperium on June 5, 2012 at 12:15 AM

Fewer regulations are better, and preventing the OCC or the Fed or state regulators or the new Warren-organized consumer watchdog from having control over bank lending would be great. Getting rid of CRA audits would be even better.

MTF on June 5, 2012 at 12:38 AM

Getting rid of CRA audits would be even better.

MTF on June 5, 2012 at 12:38 AM

But, but…Trayvon Martin!

Dack Thrombosis on June 5, 2012 at 12:44 AM

Get the government out of the bank running business and get the banks out of the taxpayer pocketbook.

Charm on June 5, 2012 at 12:45 AM

All I see are a bunch of blustering assertions and not one shred of a fact….NONE! I can see no reason whatsoever why any intelligent human being should waste one more second with such a screeching moron, so I won’t.
Have a nice day!

Lew on June 5, 2012 at 12:37 AM


Well, hush my mouth

I am soooo surprised to find you ignoring the facts I laid out regarding fraudulent MBS’s (and could prove them to be true by googling them yourself) and instead running off in a hissy fit …

… so you can avoid answering my first question:

Have any of those people you know personally ever provided you or your family with special services or benefits not available to the run of the mill customers?

ZOMG! Former Senator Chistopher Dodd, is that you ????? Hey, How’s Angelo doing?

PolAgnostic on June 5, 2012 at 12:51 AM

Better idea: Weld shut the revolving door between Wall Street and the government.

LCT688 on June 5, 2012 at 1:46 AM

I wouldn’t mind seeing a few other industries have some large players broken up, too.

trigon on June 5, 2012 at 1:47 AM

When a dozen executives can sit in a room and take multi-trillion dollar risks with no, as in ZERO personal liability if things go wrong then government must step in.

lester on June 4, 2012 at 11:06 PM

wow. what a strange post.

here’s the deal. the best is when CEOs take risks. if they fail they go out of business. SKIN IN THE GAME.

governments have little skin in the game…and therefore make bad, corrupt decisions (can we say Solyndra?)

r keller on June 4, 2012 at 11:11 PM

I don’t know about that. Seems like the trend for a long time has been that if they feel they should make $5 million a year, but only end up with $4 million, then it’s not really worth the effort to them. In their minds they’ve lost $1 million. They’ll sell off what they can, liquidate, file for bankruptcy and so on and move on to greener grass. It’s a game to them or deep-seated fear of failure, not making the mark and being embarrassed if they don’t achieve the success they desire (or certainly more than others in their income tax bracket that they socialize with.)

Don’t have a problem with any of that, as that is how free enterprise is supposed to work. However, there are real social repercussions to all of this like it or not, and of course bigger companies have a bigger impact on our economy one way or another. That certainly includes banks.

Lastly, I do believe that our national wealth (and foreign) has been evaporating at an alarming pace and not solely due to the overspending of governments. The money being lost is no longer being replaced and then some by new wealth creation.

Dr. ZhivBlago on June 5, 2012 at 2:38 AM

Absolutely break them up!

We don’t have a free market in banking in a great many ways. We have different rules for different banks. We have enormous societal risks, including the important TBTF problems. Our small number of big banks have far too much power to influence government and use it, of course, to squelch competition.

MJBrutus on June 5, 2012 at 6:22 AM

In the housing loan sector the CRA is the least of the worries. Fannie, Freddie and Ginnie (and to degrees some places like Agriculture) have had say on who to lend to, at what rates and what the level of risk is on those loans. That is a rigged system used by politicians to push loans out the door to favored groups. Ginnie is the lynchpin as it is the one that puts the federal stamp of approval on the securitization of loans. It is after Ginnie got put in place that the commercial banks could start competing at a local scale against small institutions and offer lower rates than the local economy would allow as the local banks had an interest in preserving the health of the local economy. You got the S&L crisis from this and the excuse for CRA. Fannie and Freddie were then ramped up to offer loans via institutions to more individuals with the result being that through proxies these quasi-governmental agencies now had control of parts of the actual real estate market.

Not just CRA but all the legislation creating this mess on the real estate and securitization side must GO.

Banks must be informed that there is no such thing as TBTF and that the government will not step in to save any bank or organization of banks including those in the Fed. Tell the American people who, exactly, is part of the FR and how it is run and make all of its processes open to public scrutiny. Americans will have no trust in an institution that it can’t hold accountable and that is exactly what the FR is.

Then start repealing the last of the large federal pieces of oversight on interstate banking and tell the States that they can form their own systems based on Constitutional norms for interstate banking and that the US legal tender will be used for trade with the outside world while backed tender will be the realm of interstate commerce for State governed institutions. That allows the States to form banking systems to suit a varied set of regions and populations and yet requires common and agreed upon standard valuation for the resultant currencies. This would require the US Mint to start handing back all of the gold taken by FDR and a large proportion of all newly acquired gold and silver back to the States via common coinage and backed currencies. The federal government may need a utility supply of precious metals for National purposes (like the 16 tons of silver used during the Manhattan Project for electromagnets) and that can be set by law at some low percentage of current reserves or enough to fill up two levels of Fort Knox and turn the rest into government safe storage facility.

Walking out of the Statist Progressive nightmare won’t be done in a day, or a year, and a decade might just be too short as well. Staged in pieces it can be done and the large banks put on notice that they can and must adjust or be subject to standard bankruptcy proceedings and stockholder accountability.

And maybe some genius can figure out that the US debt should be held by citizens, instead of overseas entities and banks, and start working out how to put citizens in charge of the National debt that has accrued to them. I bet that how people view government changes once they realize they are on tap for the cost of its debt… and yet you know that someone will figure out how to make money off of that, as well without selling it to foreign holders. That might just be enough to attract some of that older debt back to the US… this requires getting the geniuses in Congress to stop passing the buck to banks and start passing the cost to the taxpaying public and the non-taxpaying public as well. Want federal goodies? Do you earn more than your debt holdings for the government? A simple reverse means test will let the poor know that the free lunch system is over… unless they can find a way to make money off of debt and start paying off their share of it. And, yes, a debt currency is a valid one as it is used by many Nations that have gone insolvent: debt is all they have left. The idea is not to go that insolvent in the first place and you get there by putting those who theoretically want the deficit spending on the hook for paying it off… not the government.

A feedback loop is necessary in deficit spending so people get to know just what it is they are voting for. Handing a bill to them would be a great first move. You want it? You can pay it off? Want to be charitable? Help to pay off the debt of the poor. You would also see a balanced budget in no time as the demand to cut spending would be one that has a real and immediate feedback to it.

But then I’m all for having feedback loops, transparency and letting people know that their vote matters and federalism is a vital concept to living with liberty and freedom and that YOU are accountable as well to what you ask for. All of the American people are smarter, more inventive and more productive than any aspect of government or all of all governments COMBINED ON THIS PLANET. That is how we grew from a bunch of impoverished ex-colonies to the dominant force on the planet for prosperity. How about we try that part out again, and stop trusting government and start holding it accountable and ourselves, as well?

ajacksonian on June 5, 2012 at 6:51 AM

The economy of scale in the computer age argues for the greater efficiencies of larger institutions. The banking problems were all brought on by federal policies and regulations. If they hadn’t forced lenders into the subprime market in a big way, and allowed Fannie and Freddie to underwrite them, and put in mark-to-market rules and all the other insanity of Sarbanes-Oxley and now Dodd-Frank, there wouldn’t have been the threat of widespread failures.

Not to mention, as has been above, federal regulations forced and favored big banks, they feed them the failures at a discount.

The solution to excessive meddling isn’t more meddling. We need deregulation – and a recognition that no one is too big to fail, and they should be prepared and act accordingly, and investors and depositors should be aware of all risks.

Adjoran on June 5, 2012 at 6:53 AM

This is like stirring the soup pot, than being asked to remove all the spices…

right2bright on June 5, 2012 at 7:10 AM

Instead of breaking up the big banks, make being a large bank more expensive than being a small bank. Get rid of a large part of the regulations, and let bankers determine their risks. Charge more for government guarantees on large banks, as large banks are as likely, if not more so, to go bankrupt and when they do, they will require far more help than a small bank. Once you get rid of the false economy of scales that large banks enjoy due to government meddling, you will start seeing these larger banks losing share to the smaller banks who will be more efficient as they cater to those close to home.

astonerii on June 5, 2012 at 7:15 AM

Mike you lack a basic understanding of the role of government. You do not belong on this site. Weak.

Trashfactor on June 5, 2012 at 7:16 AM

If anyone has time today:

http://www.youtube.com/watch?v=JXt1cayx0hs

dom89031 on June 5, 2012 at 7:30 AM

Get rid of a large part of the regulations, and let bankers determine their risks.

astonerii on June 5, 2012 at 7:15 AM

I’m sorry, but this is this is one of the dumbest things anybody has ever said. Were you around a couple years ago?

urban elitist on June 5, 2012 at 7:44 AM

I think most on this thread seem to agree that the big banks as they currently exist, have overtly benefited from the government picking winners and loser. So,the question boils down to the best way to put them, and the industry as a whole, back into a position of being truly subject to market forces. IMO, forcing a breakup is putting the government in the position to choose winners again. We cannot completely undo what has already happened, but we can remove the mechanisms and well-intentioned (or not) “regulations” that created this mess and let the market sort it out. I think we would find the market does an amazing job of unwinding a big mess as efficiently as possible.

If the thrust of your argument is “error on the side of government” you probably aren’t making a conservative argument. Several posts by Jazz have taken similar approaches on different topics, most recently the Amazon tax.

The Hammer on June 5, 2012 at 7:46 AM

I think most on this thread seem to agree that the big banks as they currently exist, have overtly benefited from the government picking winners and loser.

In what way?

Breaking up the banks is actually a way to limit the systemic risk posed by by the potential failure of the largest banks with minimal regulatory intervention.

Dodd-Frank is necessary because the top five banks are huge that the failure of a single one would be disastrous for the economy as a whole. If Citi — to pick one — were a third the size it is, it’s failure would be painful, but not nearly as broadly damaging to the non-banking sector as it’s failure today would be. By breaking them up, you lessen the need for significant oversight.

urban elitist on June 5, 2012 at 7:55 AM

Yes and no. Every single thing that has been done since 2008 has been a delaying action. Delay and pray if you like. So it did save the economy for a time, but that time is over now.

DFCtomm on June 4, 2012 at 11:13 PM

No and no. We wouldn’t have seen anything differently had no action been taken. Same with the debt ceiling theater last year. Nothing apocolyptic was going to happen if the ceiling weren’t raised.

Dante on June 5, 2012 at 7:55 AM

Yeah, no thanks. Get rid of the silly regulations that led us here, get the government out of the business of picking winners and losers, and I think the market will work itself out.

Aquarian on June 5, 2012 at 7:58 AM

crosspatch on June 4, 2012 at 10:06 PM

Actually, I don’t think you are right here. The big banks were here long before the mortgage crisis. They were started when American banks were fighting the huge Japanese banks (Japan only had four of them at the time and they were close to owning Hawaii). They got a start long before S-O and the other regulatins everyone brings up. They were started when the gummint did away with limits on interstate banking. That allowed the big East and West coast banks to gobble up the rest of the country. Then they let the big foreign banks in, Credit Suisse, HSBC, RBC and the other foreign huge banks. We still have many stable, very large, state banks. Then they got in trouble by letting the banks sell stocks. Bankers didn’t really know how to do that.

We have the same problem when they let the state limited public utilities be bought by the big eastern utilities.

I note, from many, many comments above that you younger folks have a very limited historical knowledge. No wonder we go from trouble to trouble. I think that most of you think that history started with the Clintons or Geroge Bush.

Old Country Boy on June 5, 2012 at 8:04 AM

In what way?

Breaking up the banks is actually a way to limit the systemic risk posed by by the potential failure of the largest banks with minimal regulatory intervention.

Dodd-Frank is necessary because the top five banks are huge that the failure of a single one would be disastrous for the economy as a whole. If Citi — to pick one — were a third the size it is, it’s failure would be painful, but not nearly as broadly damaging to the non-banking sector as it’s failure today would be. By breaking them up, you lessen the need for significant oversight.

urban elitist on June 5, 2012 at 7:55 AM

You can read my post from last night at 10:55 for a fuller answer. Trusting the same government that created much of this with “Breaking up” the correct ones correctly isn’t something I’m willing to do. I would remove the “regulations” that favored big banks and let them survive or fail in the real market. Who is to say Citi isn’t ran well enough to survive at it’s current size? We can’t possibly know as constructed, because Washington won’t get out of the way.

I’m of the opinion most of the big banks would unwind with some pain, but nothing disastrous to the entire economy. I have more faith in our economy than that. That’s quite different than breaking them up.

The Hammer on June 5, 2012 at 8:05 AM

They didn’t all cheat and steal, that’s why nobody’s gone to jail.

lester on June 4, 2012 at 11:26 PM

So then you believe fraud is legal.

With regard to the too big to fails, bring back Glass/Steagal, claw back all taxpayer money, let them deal with their insolvency, break them up, put scores of people in jail.

voiceofreason on June 5, 2012 at 8:06 AM

The problem is having the government intervene again.

This is like having a contractor build you a house…the floor is slanted, ceilings cracked, foundation shifting, no closets, the whole thing a mess…so you call him up to fix it, he “fixes” it, and it is worse, he disconnects the plumbing, only wires wrong, and no chimney for the fireplace…so you hire him to build you another house because the one he built, than fixed is unlivable.

That is what asking the gov. to come in to fix the problem will create.

right2bright on June 5, 2012 at 8:35 AM

I don’t think your rationalization is correct: You equate the “financial sector” with the “big banks”. They are not the same thing.

TouchdownBuddha on June 5, 2012 at 8:35 AM

Yeah, no thanks. Get rid of the silly regulations that led us here, get the government out of the business of picking winners and losers, and I think the market will work itself out.

Aquarian on June 5, 2012 at 7:58 AM

Who doesn’t agree with this?

right2bright on June 5, 2012 at 8:37 AM

“Break up the banks” – By what means? Ah, yes the government. Only it has the authority to break up anything. How about let’s break up government instead? We need a much smaller government or this country will continue a downward slide economically and breaking up banks will not solve anything.

rickv404 on June 5, 2012 at 8:56 AM

No and no. We wouldn’t have seen anything differently had no action been taken. Same with the debt ceiling theater last year. Nothing apocolyptic was going to happen if the ceiling weren’t raised.

Dante on June 5, 2012 at 7:55 AM

If not for the interventions since 2008 most of the large banks would have collapsed and sent us into a sever depression. The banks needed liquidity and liquidity was created. They survived at the cost of the American tax payer. They bought time, but at a huge cost, and now that time is up.

You guys seem to think that there is a path out of all this with relatively little pain, but you’re deluded. No matter what we do people will suffer, and the nation may not survive. I don’t know if the Apocalypse is just around the corner, but I do know some very hard times are.

DFCtomm on June 5, 2012 at 9:15 AM

I’m of the opinion most of the big banks would unwind with some pain, but nothing disastrous to the entire economy. I have more faith in our economy than that. That’s quite different than breaking them up.

The Hammer on June 5, 2012 at 8:05 AM

What economy would that be? Would it be our powerful manufacturing base? We gave up a real economy decades ago for an economy of financial smoke and mirrors. If you think losing the five biggest banks in the financial sector isn’t going to hurt then you’re lying to yourself, but hey if that’s what lets you sleep at night.

DFCtomm on June 5, 2012 at 9:19 AM

It will always be the responsibility of the federal authorities to back up the money supplu, and I think FDIC insurance is critically important. Retail banking is central to everyone’s life and the security of deposits, as well as continued lending ability is the central nervous system of main street America.

But all investment banking activities, other than (maybe) tightly supervised book-matching and risk hedging activities, belong outside of government control and well outside of FDIC coverage. The proprietary bets large banks (like JP Morgan) make to earn additional money should never be at the taxpayers expense, should the curve move against them. Highly leveraged returns may look great to Jamie Dimon, but not to anyone outside of the bank forced to make good on those debts when they go wrong.

Reinstitute Glass-Stegall. Split Morgan from Chase. Force retail banks to abandon principal investing of all stripes and prevent investment or large commercial banks from getting any access to public funds. Maybe require private insurace cover some percentage of their trading books, if they insist (as Goldman and JPM do) on being hedge funds.

Big banks, per se, are not the problem. Big banks can be very efficient, saving money for everyone, because of the economies of scale. It’s what those banks do that matters, and where they get the capital to do it.

MTF on June 5, 2012 at 9:32 AM

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