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Now that the 2008 financial crises is past (deferred?) why is no one talking about breaking up these "too big to fail" institutions into companies that are smal

Now that the 2008 financial crises is past (deferred?) why is no one talking about breaking up these "too big to fail" institutions into companies that are small enough to fail? I am regular reader of Charles Hugh Smith's "Of Two Minds" blog: http://charleshughsmith.blogspot.com/ http://charleshughsmith.blogspot.com/ He has a recent post where he compares the Dodd-Frank supposed reform bill (over 2300 pages!) to the Glass Steagall act (37 pages) http://charleshughsmith.blogspot.com/2012/03/we-have-no-other-choice.html http://charleshughsmith.blogspot.com/2012/03/we-have-no-othe... He goes on to provide a common sense, 5 paragraph law that would provide some actual reform to our banking system.

alecco 15y ago
Who would buy the toxic parts?
- asmithmd1 15y ago
  That is exactly the problem. The US taxpayers already "own" the toxic parts. Taxpayers are on the hook for whatever bad bets BofA has made yet there is no visibility into those bets whatsoever.
- jedberg 15y ago
  You don't break it into toxic and non-toxic. You break it up by region, so you get small regional banks each with both toxic and non-toxic parts and the don't let them recombine. ie. Make Bank of America a wet coast only bank again.
  - alecco 15y ago
    Nobody would buy it without some government insurance, making it pointless. The best paths now are either letting it orderly fail (if that's possible) or forced nationalization at a symbolic price. But if I had to bet, my money would be on some travesty against the US taxpayer like Bear Stearns good assets sold for close to nothing and taxpayers taking the junk mortgage assets. http://en.wikipedia.org/wiki/Bear_Stearns#Fed_bailout_and_sale_to_JPMorgan_Chase http://en.wikipedia.org/wiki/Bear_Stearns#Fed_bailout_and_sa... But current BofA management will keep complicating it as long as possible, maximizing their income. Also the legal pandora's box of imminent lawsuits makes thing very bleak.
  - cpeterso 15y ago
    Breaking the big banks by region sounds like the AT&T/Baby Bells break up, which created powerful regional monopolies.
    - Drbble 15y ago
      Which then all merged into Verizon. The forces of justice win once every generation, but the forces of evil advance every year.
read_wharf 15y ago
"why is no one talking about breaking up these "too big to fail" institutions into companies that are small enough to fail?" Because they're too big not to lobby.
cynicalkane 15y ago
Rumor in the commercial banking industry is that, yes, the government eventually wants to break up the banks. This is what I hear when I occasionally get to talk to people who interface with regulators at a high level. But any internet blogger can make it sound so easy, as if the government can just say, "Ok banks, time to break up," especially in the current political climate. My uninformed guess is that the government has other worries, and wants to see how the Volcker rule pans out.
- asmithmd1 15y ago
  The problem is lack of leadership. Who do you mean by "the government"? There are only people in government service and none of them are beating the drum that too big to fail is too big to exist.
  - cynicalkane 15y ago
    By 'the government' I mean Congress and all the relevant regulators such as the SEC and the Fed... ...and please don't imagine to the temptation that the world is not the way you want it because of the lack of a leader, or something. This stuff is heavily politicized and very complicated, and part of that complication is because of the generations of regulators who said 'something must be done'.
    - asmithmd1 15y ago
      I understand that generations of regulators that wanted to maintain the status quo followed the logic: Something must be done! This is something we can all agree on. This must be done! I also think an insightful leader can propose actions that disrupt the status quo and leave the world a better place. I posit that the internet would not have been able to take-off the way it did if the DOJ had not successfully broken up AT&T. Remember there used to be exactly one company who owned the phone lines running into your house and across the country. Since they owned the wires they decided what equipment you could hook onto their wires - which happened to be only equipment they sold and installed.
Symmetry 15y ago
According to Confidence Men Obama had ordered Geithner to come up with a plan to break up Citibank, but Geithner delayed coming up with one until after the window of opportunity had closed.
cpeterso 15y ago
Are there other industries that are "too big to fail"? What if all companies had limits on their size (whether that's region, market cap, or whatever)? The number of companies that exist might grow as big companies spin off divisions or new companies try to serve demand unmet by a size-limited company. More companies would mean increased competition, limiting abusive monopolies and corporate lobbying. This system might be an example of local inefficiencies that lead to a healthier whole. Big companies are supposed to benefit from "economies of scale", but are there any big companies that are not the wasteful, ineffective bureaucracies featured in Dilbert?
- Drbble 15y ago
  What you propose is called antitrust, and it is already law, but is mostly ignored or loopholed.
- anamax 15y ago
  > Are there other industries that are "too big to fail"? What about governments? If there are companies that are "too big to fail" and therefore should be broken up, surely the US govt should also be broken up. (CA's govt may qualify as well.)
  - cpeterso 15y ago
    Good point. I would support that. The US government was designed to be a federation of state governments, but power hunger interests have twisted the definition of "federal" government so as to consolidate power. :\

alecco 15y ago

Who would buy the toxic parts?

asmithmd1 15y ago
That is exactly the problem. The US taxpayers already "own" the toxic parts. Taxpayers are on the hook for whatever bad bets BofA has made yet there is no visibility into those bets whatsoever.
jedberg 15y ago
You don't break it into toxic and non-toxic. You break it up by region, so you get small regional banks each with both toxic and non-toxic parts and the don't let them recombine. ie. Make Bank of America a wet coast only bank again.
- alecco 15y ago
  Nobody would buy it without some government insurance, making it pointless. The best paths now are either letting it orderly fail (if that's possible) or forced nationalization at a symbolic price. But if I had to bet, my money would be on some travesty against the US taxpayer like Bear Stearns good assets sold for close to nothing and taxpayers taking the junk mortgage assets. http://en.wikipedia.org/wiki/Bear_Stearns#Fed_bailout_and_sale_to_JPMorgan_Chase http://en.wikipedia.org/wiki/Bear_Stearns#Fed_bailout_and_sa... But current BofA management will keep complicating it as long as possible, maximizing their income. Also the legal pandora's box of imminent lawsuits makes thing very bleak.
- cpeterso 15y ago
  Breaking the big banks by region sounds like the AT&T/Baby Bells break up, which created powerful regional monopolies.
  - Drbble 15y ago
    Which then all merged into Verizon. The forces of justice win once every generation, but the forces of evil advance every year.

read_wharf 15y ago

"why is no one talking about breaking up these "too big to fail" institutions into companies that are small enough to fail?" Because they're too big not to lobby.

cynicalkane 15y ago

Rumor in the commercial banking industry is that, yes, the government eventually wants to break up the banks. This is what I hear when I occasionally get to talk to people who interface with regulators at a high level. But any internet blogger can make it sound so easy, as if the government can just say, "Ok banks, time to break up," especially in the current political climate. My uninformed guess is that the government has other worries, and wants to see how the Volcker rule pans out.

asmithmd1 15y ago
The problem is lack of leadership. Who do you mean by "the government"? There are only people in government service and none of them are beating the drum that too big to fail is too big to exist.
- cynicalkane 15y ago
  By 'the government' I mean Congress and all the relevant regulators such as the SEC and the Fed... ...and please don't imagine to the temptation that the world is not the way you want it because of the lack of a leader, or something. This stuff is heavily politicized and very complicated, and part of that complication is because of the generations of regulators who said 'something must be done'.
  - asmithmd1 15y ago
    I understand that generations of regulators that wanted to maintain the status quo followed the logic: Something must be done! This is something we can all agree on. This must be done! I also think an insightful leader can propose actions that disrupt the status quo and leave the world a better place. I posit that the internet would not have been able to take-off the way it did if the DOJ had not successfully broken up AT&T. Remember there used to be exactly one company who owned the phone lines running into your house and across the country. Since they owned the wires they decided what equipment you could hook onto their wires - which happened to be only equipment they sold and installed.

Symmetry 15y ago

According to Confidence Men Obama had ordered Geithner to come up with a plan to break up Citibank, but Geithner delayed coming up with one until after the window of opportunity had closed.

cpeterso 15y ago

Are there other industries that are "too big to fail"? What if all companies had limits on their size (whether that's region, market cap, or whatever)? The number of companies that exist might grow as big companies spin off divisions or new companies try to serve demand unmet by a size-limited company. More companies would mean increased competition, limiting abusive monopolies and corporate lobbying. This system might be an example of local inefficiencies that lead to a healthier whole. Big companies are supposed to benefit from "economies of scale", but are there any big companies that are not the wasteful, ineffective bureaucracies featured in Dilbert?

Drbble 15y ago
What you propose is called antitrust, and it is already law, but is mostly ignored or loopholed.
anamax 15y ago
> Are there other industries that are "too big to fail"? What about governments? If there are companies that are "too big to fail" and therefore should be broken up, surely the US govt should also be broken up. (CA's govt may qualify as well.)
- cpeterso 15y ago
  Good point. I would support that. The US government was designed to be a federation of state governments, but power hunger interests have twisted the definition of "federal" government so as to consolidate power. :\