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How to cut megabanks down to size
- deleted 14y ago[deleted]
- dmm 14y agoNext time they blow up just let them all burn to the ground.
- stephengillie 14y agoThe people in charge are too afraid we'll go all "Lord of the Flies" on them without the banking system to motivate us into productivity.
- mdda 14y agoSuppose JPM/Chase had failed. The day after, there would be no cash in the ATMs (unless the government stepped in). The USA would be in a Lord of the Flies situation very rapidly. And we wouldn't be interested in the bank bosses, we'd be interested in food.
- ef4 14y agoAn analogy: Bank runs are like forest fires. If you prevent all the small ones, eventually you get a giant one that's too big to stop.
- ataggart 14y ago>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?
- josephlord 14y agoSmaller banks survived this crisis with relatively few failures but that has not always been the case (e.g. Savings and Loans crisis). However the fact that they can fail is critical and a sufficient reason to break them up even if it won't make them better. Banks that are too big to fail are too big to be allowed to exist. Government protection only for the commercial/retail part is an obvious but insufficient requirement.
- ataggart 14y agoIt's not clear to me how "bigness" matters. The article makes clear that small banks were exposed to disciplining market forces, but for large banks such forces were obviated by government protection. Worrying about size seems to miss the point.
- svachalek 14y ago"Obviated by government protection" BECAUSE of their size. Thus the slogan "too BIG to fail". When big banks make money by taking crazy risks, they earned every penny and how DARE we try to tax or regulate them. When they lose money by taking risks, we need to bail them out for the good of the free world and how DARE we ask to be paid back. Small banks do not have this attitude.
- betakappaphido 14y agoAka the privatization of profit with the socialization of loss. It's absurdity. Unless you're the profiteer.
- josephlord 14y agoHow much collateral damage will there be if they fail? This is the reason the banks got bailed out, they are big and complicated so can't be unpicked and wound up. If they were smaller the collateral damage is smaller and wind up manageable. There are real reasons for not letting big banks fail so we need to avoid them getting that big and complicated so they can be allowed to fail.
- ttar 14y agoStart the Bank of the United States, cancel FDIC insurance. There problem solve.
- ttar 14y agoFDIC is a form of privatizing the profit, while socializing the risks for the banks.
- raverbashing 14y agoYes BUT it's also a form of "insurance". If there's a suspect a bank won't be able to honor deposits, bank run ensues, THEN the given bank can't honor deposits obviously, because no bank works like that today, that is: self fulfilling prophecy It's a necessary evil (for the customer's sake)
- amalag 14y agoCredit unions don't participate in FDIC insurance, they have arranged their own private insurance. So it is not a necessary evil.
- raverbashing 14y agoInsurance is a necessary evil, if it's backed by the government or by a pool of banks is a different issue
- deleted 14y ago[deleted]
- natrius 14y agoCredit unions participate in the NCUA, which is decidedly not private. http://www.ncua.gov/Pages/default.aspx http://www.ncua.gov/Pages/default.aspx
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- pdog 14y agoWe already know how. The political will just isn't there.
- alexqgb 14y agoBullshit. If you're talking about the American people, the political will is there in spades. But thanks to gerrymandering and the filibuster, their voices been successfully nullified. The GOP holds the House by a wide majority, even though their members in it received fewer votes than the "minority" in opposition. And while the GOP has a numerical minority in the Senate, they still control the chamber since it (alone in the developed world) runs on a self-imposed Supermajority rule, not a simple majority. These two departures from basic democratic control have freed the legislative body from proper accountability to the people, rendering the will of the people increasingly irrelevant to the operations of the government. Saying political will "is just not there" like this is some sad but immutable fact of life ignores the reality of the situation: America has suffered an unofficial coup. We are now suffering under an intrinsically illegitimate government that preserves its power thanks to very clear, very precise structural problems that have been magnified enough to effectively hinder the legitimate will of the people. These are facts, and they are neither debatable nor acceptable. The situation must resolve itself and it must do so in favor of the people.
- tokipin 14y agorelated: http://www.fairvote.org/electoral-college-chaos-how-republicans-could-put-a-lock-on-the-presidency http://www.fairvote.org/electoral-college-chaos-how-republic... http://rslc.com/_blog/News/post/REDMAP_2012_Summary_Report http://rslc.com/_blog/News/post/REDMAP_2012_Summary_Report
- deleted 14y ago[deleted]
- yummyfajitas 14y agoVote totals for the bailout: Aye: 171 D, 91 R. Nay: 63 D, 108 R. http://www.opencongress.org/bill/110-h1424/show http://www.opencongress.org/bill/110-h1424/show Why are you complaining about the GOP holding the house? Based on their votes, they seem to be the party of letting banks pay for their mistakes.
- rwmj 14y agoI'm confused by this. The large banks are (arguably) more efficient because of economies of scale, eg. less duplicated management, purchasing power. So it's probably not a good idea to limit the size of banks which is what this article seems to propose, because that'll make banking more expensive. But the flip side is: why don't we just let megabanks go bust? If they go bust, the government steps in, briefly nationalizes them, sells off the parts (the shareholders get nothing, of course), and life continues. As long as this period is kept as short as possible why is there any danger of "meltdown"?
- CJefferson 14y agoThe sums of debt some of these banks got into swamped their share value, and in some countries were a fair chunk of the GNP. But I certainly wish we had removed shareholders from any bailed out bank. One issue is some banks were on the border on if they needed bailing out, and shareholders might prefer the risk of catastrophic failure than taking a bailout which would lose them their shares.
- zevyoura 14y agoTemporary nationalization of banks was suggested in 2008, but the idea is not politically viable on the right in the US.
- ataggart 14y agoPer the article, size is correlated with problems but not the cause of them. It happens that large banks are the ones who are more likely to get bailed out, thus they are incentivized to take more risk, so they do. It is the potential for government bailouts/protections that is the root of the issue, thus the proposal is basically to stop doing that.
- aaronblohowiak 14y agoThe problem is not the bailout, per se, the problem is that the bailout didn't wipe-out shareholder value (and executive compensation) in the process.
- druswick 14y agoAnother interesting way to think about "too big to fail" is as a considerable government subsidy. Banks operate in a risky environment. When there's a meltdown, the government steps in to bail the largest banks out. These banks are getting a free insurance policy from the government, a subsidy that's not going to the smaller banks.
- noibl 14y agoThe word 'meltdown' is apt. [Price–Anderson Nuclear Industries Indemnity Act] http://en.wikipedia.org/wiki/Price%E2%80%93Anderson_Nuclear_Industries_Indemnity_Act http://en.wikipedia.org/wiki/Price%E2%80%93Anderson_Nuclear_...
- rumcajz 14y agoThe proposal should be extended to all "too big" companies. Big companies combine the worst characteristics of state-owned and privately-owned enterprises. On one hand, large amount of small shareholders makes them similar to state owned companies (in which everyone is a shareholder) with all the associated bureaucracy, parasitic management class, pathological incentives etc. On the other hand, being private they lack even the weak control mechanisms that democratic societies impose on state-owned companies.
- jwallaceparker 14y ago> The proposal should be extended to all "too big" companies. So break up Apple? Break up Amazon? Break up Paramount? > On the other hand, being private they lack even the weak control mechanisms that democratic societies impose on state-owned companies. They have the control mechanism of the marketplace. Doesn't this work beautifully for the big companies like Amazon and Apple? Provide a good product/service or fail.
- knodi 14y agoThe banks will never let this happen. The banks have become too powerful.
- charonn0 14y agoMy first reaction to hearing the term "too big to fail" was "then make them smaller." I'm surprised that it's taken this long for such an idea to be seriously considered.
- drgolden 14y agohttp://en.wikipedia.org/wiki/Gramm–Leach–Bliley_Act http://en.wikipedia.org/wiki/Gramm–Leach–Bliley_Act The pendulum only started swinging toward complete consolidation recently. The culprits: Sany Weil Robert Rubin Jamie Dimon Larry Summers The politicians just do as they're told, so no sense naming anyone - Clinton or otherwise. Jon Corzine
- charonn0 14y agoThe criminal actions[1] of Wachovia, Lloyds, Credit Suisse, Barclays, HSBC, et al have shown that the megabanks cannot be trusted to follow existing laws. The robo-signing debacle[2] has demonstrated amply that the financial sector can't be bothered to verify their data before destroying the lives of thousands of people. The LIBOR manipulation scandal[3] proves that even the industry's own measuring rods are bent and unreliable. The last 5 years have revealed an industry rife with crime, deceit, and unabashed greed which has severely damaged the global economy and the quality of life for hundreds of millions of people. And the penalties for these actions pale in proportionate comparison to those imposed on a street-level drug dealer. When a private enterprise becomes too essential to regulate effectively, it endangers the society in which it operates. Breaking it up into manageable chunks is the only viable option. [1]: https://www.nytimes.com/2013/01/03/opinion/how-bankers-help-drug-traffickers-and-terrorists.html https://www.nytimes.com/2013/01/03/opinion/how-bankers-help-... [2]: https://en.wikipedia.org/wiki/2010_United_States_foreclosure_crisis https://en.wikipedia.org/wiki/2010_United_States_foreclosure... [3]: https://en.wikipedia.org/wiki/Libor_scandal https://en.wikipedia.org/wiki/Libor_scandal
- stretchwithme 14y agoThe real problem is that they are successful in duping governments to underwrite the risks they take. And they LEGALLY influence legislators to rewrite laws so they can LEGALLY take more risks. And when things blow up, they LEGALLY influence them again to get bailouts. The incidents you cite above happened to exploit the fact that there is someone who will absorb all the risks of otherwise unprofitable practices.
- snitko 14y agoI always remember what Milton Friedman used to say, he was amazed be people who see failure of regulation and propose a fix by seeking to introduce even more regulation. "well this time it will surely work!" "if only we had the right kind of regulation/people in charge!" they say. That's never gonna happen. Breaking the system in chunks artificially will not work, because it will consolidate again and buy up the regulators. The true solution here is Bitcoin, precisely because it is not controlled by anyone.
- hcarvalhoalves 14y agoGive me a break. The whole point of the banking system is to concentrate capital into a handful megacorps. When you have thousands of little competitors, profit plummets and risk increases enough to make banking not a viable business anymore. Heck, that's how banking started. A handful Venetian traders got so rich they started lending money.
- maeon3 14y agoIf we call for BitCoin as the solution, The Federal Reserve will fight us, using our money, to make it the villan in the narrative. If we call the division of banks as the solution, the federal reserve will support it, because gigantic entities have clout in resisting the parasitic nature of the Federal Reserve, where minor banks would have to suffer what they must. Whatever we do, the parasites who can print and dilute our currency through systematic inflation must be appeased and satisfied, or else they will inject poison into the entire system as a retaliation for trying to remove the blood sucking parasite. The bitcoin angle won't work.