Break Up The Banks

commonsenseobserver

As well as consulting on stronger protections for consumers and firmer protections against systemic risk would not be at odd with Conservative principles.

But we have to recognise that it’s not that we don’t have enough regulation, but we don’t have the right regulation.

gmscan

That was my issue with TARP. It took a situation where banks were said to be too big to fail and made them even bigger. However, if you are suggesting anti-trust break-ups, I would have to disagree. I would prefer changing the current policies that favor the Bigs and hurt the Mids.

humboldthopeful

Too Big To Fail= Too Big To Exist

This is a political winner. Conservatives are not in favor of total unregulated Viking Capitalism. Here is a chance to show just that.

It is a solid conservative perspective that says, “Any bank that is too big to be allowed to fail should be broken up using the appropriate anti-trust methods.” From a pragmatic perspective, permitting any one corporation to accumulate so much wealth and power that is capable of threatening the economic stability of the Republic is foolishness.

Oh yeah, and Clinton repealed Glass-Steigel. Make the Dems own that one. And more importantly than making them own it, get it back in place.

the_invisible_hand

The issue here is one of authority. The market can decide what size is efficient for banks. My feeling is that bigger banks overextend and cannot self-regulate which is why they failed (save for TARP). In a market economy 2008 would have seen a re-adjustment to more sensibly sized banks.

But the government cannot both be small and dictating what sizes banks should be. It is also dangerous to arbitrarily say that any and all banks have to be a certain size. That pretends we can know what financing and lending sizes would be required for all time and we do not and cannot know that.

The whole point of small government is understanding our limitations Setting arbitrary sizes for banks is acting as if we know that there is some platonic ideal for the size of banks and that we have found it.

Please don’t let Romney hop on to this horrible idea.

commonsenseobserver

And most Republicans still stand by that. It wouldn’t have prevented the recession, and could have made it worse.

The Volcker rule is poorly-crafted as well, but it has some potential as a starting point.

humboldthopeful

I formally condemn myself for my outrageous anti-Viking sentiment. I am ashamed and am entering rehab, followed my an intensive 6 months of Viking Sensitivity Training.

http://www.hakubi.us/ Neil Stevens

Let’s just win elections instead and stop future bailouts.

We aid the enemy when we expand government like this. From now on, the Democrats are going to throw this in our faces the next time they argue for nationalizing an industry.

humboldthopeful

Step 1) Legislation empowering the Executive to take action
Step 2) The Executive takes the appropriate action
Step 3) The appropriate action is reviewed and overseen by the courts through due process.

The above could be called “anti-trust legislation.” It involves all 3 branches of government, preserves Constitutional rights, and doesn’t require obscene levels of funding. Nowhere in this is an overly large federal government required.

This does not require arbitrary size dictation. Regulations such as Glass-Steagall were highly effective, and weren’t size-based regulation but activity-based regulation.

deano64

Too big to fail is just one of the problems with this law.

http://www.hakubi.us/ Neil Stevens

This is progressive statism.

That you cite anti-trust, another progressive addition to the vernacular, says it all.

earlgrey

what am I going to tell my liberal friends now? (sarc.)

adamcc

Is this comment in reply to EE’s diary or did you forget how to use the “reply to this” tab?

S

acat

Standard Oil Trust, for instance…?

Wasn’t the Conservatives.

Mew

http://www.hakubi.us/ Neil Stevens

Love the guy but we do disagree at times.

http://www.texasyoungrepublicans.com Mark Brown

We are a party that believes and supports the free market. It is a big government idea that Washington bureaucrats should get to decide when a business has become too successful and big and must be broken up. What’s to stop the liberals also saying Koch Industries should be broken up?

The solution is NOT to break up banks, and there is no evidence that they are in fact too big to fail other than scaremongering by leftists craving more power. The solution is to ensure that our bankruptcy courts are fully equipped with the resources to handle a large company bankruptcy, and I would further suggest that courts in NJ and Deleware are already well on their way to having these resources, if not already.

inovrmihd

I agree whole heartedly as I think this is both good policy and good politics. I know the too big to fail issue is not the same as the “looking the other way at criminal fraud issue” I was harping on last week, but I think the two dove tail as they both demonstrate that it is not Romney who will, in the words of Joe Biden, ?unshackle the banks?. Rather it is Obama who has been in bed with them since day one.

At the risk of being excoriated, in addition to breaking up the too big to fail banks, I would suggest that Romney make the following statement: “President Obama’s justice department has repeatedly accused the banking industry of committing serious criminal activity, yet to date there has not been one criminal prosecution of any serious note. If I am elected President, I pledge to you that if my justice department believes someone in the banking industry has committed a crime, they will be prosecuted just like any other criminal.? Before you dismiss this suggestion, I ask you to consider the following two questions: 1) Is the substance of my suggested statement objectionable in any way (I am not a professional speech writer; if you object to the wording as opposed to substance, imagine it was said a little differently); 2) Would this not put Obama in the untenable position of having to defend the holder justice department in front of a very skeptical press that largely agrees with Romney?s criticism?. How do you imagine he would respond? (“Real crimes weren’t committed and my justice department was merely running a protection racket”; “Wait for my second term when I will have more flexibilty”)? Iif you think this only matters to to the OWS crowd, I would suggest to you that the same people who have been targeted by Obama?s Bain Capital and Romney won?t disclose his taxes campaign might care about a President who was seen to be “in bed with Wall Street”. At the very least, I think it would feed the feeling that Obama is just another politician and sap democrat enthusiasm.

To the poster who keeps calling me an idiot, no need to respond here as everyone knows how you feel. To the other poster who has said over and over again that I am too stupid to waste time on, I ask you to live up to your pledge and ignore me (unless, as I suspect, you are a loser with self esteem issues who measures his self-worth by the number of times he can proclaim intellectual superiority over those he disagrees with. If that is the case, go right ahead and post your little video once again. It is, after all, cheaper than a psychiatrist). To everyone else, I ask you consider ramifications of my suggestion. If you think it is a mistake, please tell me why. To me it is a perfect counter to the attacks on Romney that have been Obama?s sole talking point for the last two months.

the_invisible_hand

Your suggestion certainly passes constitutional muster, but the Constitution does not speak on whether an idea is good or bad.

The market is the solution to issues about lending and commerce. The government has no business getting involved in my view.

craigbardo

One of the myths about economics most still believe is that corporations create monopolies, oligopolies or cartels. These are creations of government policy. Think Medicare/Medicaid, FNMA/FHLMC or for history students, the East India Trading Company. Outside of a natural resources cartel, like OPEC, which is still created by intergovernmental policy, monopolies are rare.

So, do you address this by attacking banks and making some arbitrary decision about how the resources should be allocated – spreading the wealth (a not so subtle reference to what I think about this notion). Or do you remove the support that created the problem?

Banks have effectively become public utilities and are characterized by some of the same regulatory burdens. Here’s the problem, unless it’s in the area of public physical safety, government regulation rarely works. If it did, explain the hundreds of bank failures every year.

The way to reduce risks to taxpayers, borrowers, depositors and investors is to remove government regulations and back stops like the FDIC, not to hack away arbitrarily only to see the various pieces reform into a new and just as unwieldy a beast.

Think about market based regulation this way, if there were no deposit insurance or OCC (governemt bank regulator) what would you demand if you were a depositor, borrower or investor? What would be acceptable sources of information? Those institutions that provide what you need to satisfy your requirements would get your business those that don’t will go out of business or get serious about providing what you need. Innovation, customer service and pricing would improve as well as the information systems and third parties along the lines of consumer reports would step into the breach of ineffective government regulators. Banks would then probably specialize and resize on their own to meet the demands of the market rather than being arbitrarily reshuffled to satisfy a political objective.

commonsenseobserver

Both with Glass-Steagall and PACs…

McCain-Feingold only made the whole system worse, though.

hobarticus

I read the linked article, and while increasing capital requirements and eliminating subsidies & Dodd/Frank all seem like prudent steps, I’m not sure I see the connection between that and “breaking up” the banks.

Is there a conservative rationale/plan for doing so? I’d be intrigued if so, because the too big to fail regime has always seemed like a big problem without a better alternative. Anti-trust law wouldn’t seem to apply to this situation.

GreyCloak

With all due respect, the banks, et al, made $10 billion in political contributions over the last dozen years. TARP alone gave them $800 billion! That’s an 800% Return on Investment (ROI)!

President Clinton’s Republican Congress repealed the last remnants of Glass-Steagal (the law that “prevented” another “Great Depression”) in 1998, after sixty-seventy years of relative success. It only took the banks another ten years to bankrupt the nation and most of the rest of the world.

Banks did the right thing: they bribed Congress so that they could make more money. When they failed, Congress bailed them out. Win-Win for the banks, just like Reagan’s $88 billion bail-out of the Savings and Loans (S&Ls) in the ’80′s! Many Congresscritters or their friends bought up the “failed” enterprises.

It may be impossible to hold Congresscritters personally responsible for financial crises they created, or to tie their salaries or staff budgets to the performance of our National Enterprise (read__The National Debt) , but I would suggest eliminating a simple source of their funding: tax every PAC at 100% of assets as of October 1, 2012, the beginning of the Federal Fiscal Year. After all, Congress is obligeed to passs appropriations by that time. I don’t think they ever have.

Darn! Congress would have to pass such an Act. Why would they do such a thing?

http://www.hakubi.us/ Neil Stevens

I always wondered what it was like to live in a country where entrepreneurs can’t get capital, like in Europe.

Not.

renl57

The problem wasn’t the size of the bank, but the leverage.

Banks were lending out money at low reserve requirements. Financial houses were “investing” at leverage as high as 30 to 1. Etc. That pyramiding of debt had to come down eventually.

Raise reserve requirements on banks, and raise margin requirements on financial firms, and the problem will largely take care of itself. That way, banks could no longer become giants by lending out money with only 3% or less down payments.

renl57

We have not had a free market in banking since the creation of the Federal Reserve System. The marketplace doesn’t determine the wealth of banks.

The Federal Reserve sets both fractional reserve requirements and interest rates. When those are low, banks have more money to lend out to other banks, and so on.

The Fed could have prevented “too big to fail” by keeping fractional reserve requirements higher. But that would have meant slower economic growth. Given the Humphrey-Hawkings directive to the Fed to fight unemployment, I doubt such a policy could be sustained for very long unless Humphrey-Hawkins were amended.

renl57

There is no “free market” in banking.

The Humphrey-Hawkins Act directed the Federal Reserve to fight unemployment. The Fed controls fractional reserve requirements and interest rates. All banks live under those rules.

So as long as banks are wards of the Fed, we might as well accept that reality and make it work better.

Repair_Man_Jack

In fairness, this is one of “the Kingfish’s” former staff lackeys.

http://www.businessinsider.com/jeff-connaughton-the-payoff-justice-department-and-wall-street-2012-8

acat

formerly Wachovia, purchased Golden West, who pioneered the ARM.

Saying Golden West “did nothing wrong” is .. not rational.

Mew

adamd

Erick, are you referring to savings and loan institutions or large Wall Street Investment Banks.

Some “banks” like Wells Fargo and Bank of New York Mellon are large and did nothing wrong to cause the crisis.

Regarding Investment Banks, the issues are credit default swaps, structured products and other derivatives. For all the politicizing of the financial crisis, there was never a call to ban credit default obligations and credit default swaps. If you want to prevent another financial crisis, there is where you should start. The banks could be broken up, however if they keep creating and trading these financial instruments, it is not going to prevent the next melt down.

adamd

Adjustable Rate Mortgages did not cause the melt down it was CDOs and CDS. ARMs hurt individuals when the expired and they were now facing a higher rate. However, derivatives created off ARMs and all other mortgages was the cause.

I have yet to hear one politician call for CDOs and CSDs to be abolished.

acat

IIRC, Golden West, Wachovia, Norwest, and other banks that make up the *current* Wells-Fargo TBTF were pushed together by the Federal government….

Creating TBTF out of damaged pieces – Golden West would have been bankrupt, and Wachovia had more exposure than they let on – would appear to be a problem….

As for CSDs, CDOs, and other derivatives, I do not agree that they should be outlawed, but I do think the risk should be made much clearer to owners (i.e. shareholders) of companies trading in such.

Mew

inovrmihd

Well said.

dpmaine

That all business – especially banks – default to a position of secrecy, especially regarding money.

Banks, if not required to, would not provide any information. When they’ve all done this, the consumer, investors, and depositers won’t have a choice but to make a less informed choice.

Financial markets are largely about information and analysis. The best of both have an edge. This is an area that I think requires more study in terms of conservative policies. A well-oiled capitalist decision making process requires fair access to information, so that analysis can be leveraged to make a decision. Removing certain regulatory requirements for banks and leaving them to the private market forces will almost certainly lead to many people being scammed outright, and many more choosing poorly in the short-term. Long-term, you may be right that the system becomes better, but for the short and medium term, there are very serious problems.

http://impudent.edublogs.org/ kyle8

One of the failures IMO of modern free market economics is to be reflexively anti-anti-trust. While anti trust laws have been sometimes abused, I think that bigness, in and of itself is harmful to the public good.

Precisely because huge corporations and industry collectives have outsized political power, and power over regulators. A few Banks were allowed to gobble up all regional competitors and produced “too big to fail”.

Don’t confuse this for mindless left wing anti-corporatism. I just think that history shows that monopolies and oligarchies are not good for the people, and not conducive to good government.

Joshua Persons

This sentence specifically: “Banks, if not required to, would not provide any information.” Transparency can be governed by market forces just like any other consumer good.

montani

And implement the Volcker rule.

notpropagandized

Repealing Glass-Stegall was the ultimate act of cronyism. Think about it a secord. It was completely corrupt and in the interest of maintaining competitive free markets was an abomination.

It does not even take Monday morning quarterbacking to know that. Whatever the motivation was for anti-trust laws, the benefit is clear that protecting the American people from concentration of power in government or in business in the hand of a few is among the highest priorities of the Republic.

The concentration of power in the hands of “The Few” is so incredibly demonstrated by the monstrosity of Washington DC, Northern Virginia, Southern Maryland and the Federal Government wherever it exists that we understandably wonder how it can ever be unravelled and disposed-of.

The welfare paid to poorer citizens as well as the make-work welfare in the environs of DC and other Federal offices entrenches the national mediocrity that besets us.

Erick, thank you for using your platform to finally focus attention on this national illness that is our banks and other business and government monopolies and oligopolies.

Competition will heal nearly any institution as light will heal darkness.

I shall now go read the link and the many comments, above.

natedogg

I believe in regulation, but this idea is too much. Anti-trust laws don’t apply here, because there is still healthy competition in the banking sector. These are not monopolies the way Standard Oil was.

Why can’t we agree on sensible regulation? If Dodd-Frank is tainted in the minds of conservatives, fine. But why not propose something else? How about ensuring that banks don’t put too much of their investments into a single instrument (like mortgage backed securities), or at least ensure that they or those insuring them have enough capital to cover potential losses?

Let’s not throw out the baby with the bathwater. There are some efficiencies that come with size, so it’s not all bad when a company gets big.

natedogg

market forces are not the laws of gravity. Manipulation, rigging, and wrongdoing is always an option when you set no limits on human activity. It’s just human nature.

hobarticus

in particular, do you think should be the subjects of antitrust suits, and how can any one of them be construed to have a monopoly over the market for financial services?

Taken together, you’re right, the “big banks” have a monopoly of sorts, but so do the major players in many industries.

Joshua Persons

But given consumers who learn and have choices, those options are not profitable ones for very long.

http://impudent.edublogs.org/ kyle8

but sometimes it still means a bad deal for the consumer. And in this case a bad deal because of the too big to fail phenomenon.

I would make all of the largest five banks spin off some regional competitors. They would actually be stronger because they could use the cash to settle some of their own bad accounts.

http://impudent.edublogs.org/ kyle8

The history of financial regulation shows just the opposite, that there are more frauds, and scams, and even larger ones when we have a lot of regulation.

We have both Sarbanes Oxley and the Dodd Frank bill and they did not protect anyone from World com Madoff, or Corzine.

The truth is that when Banks must compete with only a few regulations then the credibility and service of the Bank is all important. Under increasing regulation however, the Financial industry soon comes to control the regulators.

There are many reasons for that but chief one being that only someone connected to the industry understands it enough to be a regulator. And so there becomes a revolving door. Industry capture of regulators is a wide area of study.

http://impudent.edublogs.org/ kyle8

monopoly power is not only caused by government, though it is often aided by such.

Too big to fail is still a real moral hazard and I am in favor of more regional competition among lenders.

acat

Just curious.

Mew

sulmak

Simply make FDIC insurance unavailable to banks above a certain size, say, larger than 5% of the banking sector.

Part of the reason we did the bailout is because we would have had to pay out anyway if they failed.

This actually would make the Government smaller than previously as it would decrease the size of the FDIC program.

notpropagandized

When it comes to monopolies and oligopolies, this voter could not find a way to disagree with you more.

It is a fundamental to freedom that power not concentrate into the influence a few to the detriment of the many.

Dems rightly, in my opinion, whine and wail against big corporations and thus agree with a growing number of conservatives who realize that cronyism is benefitted by bigness. My question to Dims has always been, “if you hate big business so much, why do you love big government?”

That was before Dems led by socialists realized that by infiltrating and taking over institutions of power that the same principle of creeping socialism applies to big corporations. So now “the Establishment” wants to keep things big and in control.

Freedom withholds control from monopolists in finance and government. Same principle our Founding Fathers taught.

So, politely, could not disagree with you more. But I’m betting that you freedom-phobics will prevail and thus render unto Obama, Hugo Chavez, et al all the power they’ll need to tell people what they can and cannot do including keeping or not keeping their wealth and property.

As to banks, what a mess to combine high-beta-minded risk takers with the low-beta-minded preservers of financial sanity. What has happened is that the old white man conservative commercial banker has been run out of town in favor of the “Pirates” (ref: Hook, the movie).

http://impudent.edublogs.org/ kyle8

Sulmak makes some sense on this.

I also think we should have tighter lending requirements. Not that I am overjoyed by the prospect of regulation, but just speaking from history. Every single boom and bust period in history was caused by easy credit. Every single one going back the the Louisiana Bubble and the Tulip Bubble in the seventeenth century.

Of course you have to be careful with that, you don’t want to stifle the market As Neil alluded to. But there can be room for some reasonable rules.

natedogg

When you say I am “freedom phobic” for taking the side of private enterprise, which is what I thought Republicans believed in. And how did this turn into a discussion about Hugo Chavez??? Are you hardwired to hate everything a member of a different party says?

notpropagandized

If your monopoly was obtained legitimately, what greater praise can an industrialist obtain other than being told that in the interest of competitive free market enterprise that he/she must sell part of her/his empire to restore free competitive markets.

And when sold, produce capital to invest in a new enterprise.

There’s always the notion that true success comes from applying greater concentrated capital to the growing of a certain industry for the public good… Absolute BOLDERDASH!

We’re now being told by very successful, influential companies and industrial leviathan’s that we should flush one principle or another and believe politically in ways that are otherwise objectionable.

Someone’s success in making and selling coffee or sandwiches in the marketplace should not be used to leverage against people’s convictions morally or culturally. THAT’s too much effing power!

http://impudent.edublogs.org/ kyle8

In which the party allies with several of the biggest parts of society, Big companies, Big labor, Big media, Academia, and they split up all the bennies of government for themselves.

The taxpayer, the small businessman, the minor functionary, they all pay through the nose.

notpropagandized

Private enterprise to the exclusion of private enterprise is not freedom. It’s croynism. And such accumulation of market power is usually done illegally and in secret for the express purpose of excluding someone else’s power. If done legally?, see below, below.

Am hardwired against concentration of power and influence to the detriment of freedom. Cronies disregard, consciously or unconsciously, their affect on others due to selfish desire to perpetuate their own gain and protect it from competition as is regularly seen in the efforts within the ranks of DC lobbyists.

Repeal of Glass-Steagall was naked cronyism for investment bankers to open everybody’s treasury to greedy fingers, an opening of Pandora’s Box such that responsible Wall Streeters get pushed aside in favor of abusers.

It is clear that in the examples of Obama and Hugo Chavez that their strategy is in the permanent accumulation of power and influence to the exclusion of others and restoration of competition. And it’s not just a different party, it’s both parties and it warms my heart to see the cronies fall. Hope it’s not a short-lived phenomenon.

sulmak

Can’t find it anywhere at least, and the only bank requirements I can find are based on type of assets and that they need at least an 8% “capital adequacy ratio” (from what I can tell a rough measure of liquid and hard assets divided by liabilities) to join.

Also the original per account insurance was $2,500. It increased several times to the $100,000 you mention in 1980, and to $250,000 in 2009.

notpropagandized

I’m blue-line-challenged. Trying to sort out comment and response.
But that personal challenge does not mitigate hunger for freedom.

checkmate2012

that my hair is on fire. While I agree that the Feds involvement in propping them up is wrong in addition to well-intended legislation, both have failed miserable. While regulations are piled on and on and on, not even the SEC knows enough to do their job! The problem stems from over-regulation and under-oversight.

That to me is the real problem. Most of the blame of the collapse should be placed on Congress and the financial oversight agencies for their lack of action to prevent such catastrophies. The big banks, became bigger after the meltdown because the Feds made them buy up the shaky banks, against their will in some cases. BOFA didn’t want to buy Countrywide.

There are others that were forced to buy smaller banks that had no desire to do so. The unintended consequences was the banks getting creative to off-set that which was thrust upon them, i.e. derivatives, CDOs, etc.

Today we have MF Global and Goldman, and Lehman getting off scott free. 60 Minutes did a nice piece on Lehman last night and it was stated that the SEC did know of the pending meltdown there.
http://www.cbsnews.com/8301-18560_162-57491089/the-case-against-lehman-brothers/

The problem is that the laws on the books prevent free market banking and are too complicated to enforce. I would agree that banks should be banks and their investment arm should be completely different entities.

Finally, the best and most effective way to eliminate cronyism is to elminate lobbyists by having a flat tax for all including corporations, simplify and eliminate the millions of federal rules and regs that no one can understand or follow and eliminate all gov’t subsidies. Once you have an equal playing field for all, free market principles will actually exist and lobbyists can’t lobby for special favors.

But calling for R&R to make this a campaign issue is not a winner for the free-market conservative principles team, unless of course you want OWS in our camp…which I know you don’t.

http://impudent.edublogs.org/ kyle8

I have a big healthy fear of too much accumulated power, whether it is in state or federal government, or a party, or an industry, or academia, or a particular business, or a powerful family, or a religion.

Power corrupts.

http://impudent.edublogs.org/ kyle8

perversity of our many financial regulations. I still would like to see some of the biggest banks forced to divest of some of their regional conquests.

Those regional banks they gobbled up should have been stopped using the anti-trust laws.

I know it is fashionable in economics to be anit-anti-trust. but I see very little public good in allowing less competition, and ever larger and more powerful banks crowding out the market.

reclaimit

The banks we have are our great advantage over the rest of the world. The US is still viewed as a safe investment. Look at the rest of the world struggling. Our stock market is back, corporate profits are at record levels, interest rates are low, taxes are at historic lows. Considering what happened four years ago, this country is in damned good shape, with tons of opportunity if you have capital to take advantage. Granted, the jobs situation is concerning, but America has been moving in this direction for the past 25 years. Companies are finding they don’t need to hire, and shareholders are feeling pretty content.

If you are a bank, you have to be incompetent not to earn in these conditions. But we are America, and we expect bigger and better profits. We can afford to gamble a little bit, and if it brings a meltdown every 60 years or so, we can recover again. Yeah, it may cost the taxpayers again someday, but who do you think is benefitting from these corporate profits? The taxpayers.

notpropagandized

We are most definitely over-regulated and mal-regulated. It’s a shame that we cannot figure out a legal system that can adjudge morality and immoral intent.

Even with a more desireable light to moderate (well-intended) regulation, there will always be those who game a system just as there is always crime as observed with Adam & Eve and Cain & Abel.

My view is that any attempt to garner power and influence to the detriment of “competitive” markets or politics should be enjoined. The task is to define and ID abuse and/or violation. Vigilant competitors can make a case through litigation. It’s a tough matter.

But we’ve strayed badly. The economic metrics within anti-trust law can be debated, but the competitive market analyses in it are ingenious. If somehow we could restore integrity among lawyers and judges….

Preservation of competition should be so focused and so conservative that abusers are confronted early and often. Our culture is infected with non-judgementalness. It should be vigilant and diligent.

There’s got to be a better way to provide capital to investment bankers than to lay open the entire population’s bank accounts to the (few?) pirates and abusers that roam around in the Wall Street edifices.

notpropagandized

nt

acat

It’s closer to a “maximum paycheck size” than I’d like, but .. maybe that’s the way to make it work…

I’m thinking of it like tax rate tables, where certain required metrics are on an incremental scale that favors (in *some* ways) smaller (and presumably more local-focused) banks over behemoths.

Suppose the little-locals are allowed to have a lower capital adequacy ratio, or some other regulatory advantages, but as a bank grows in size…

Just a thought.

Mew

checkmate2012

the general popluation at large. Back in the day, banks agreed to lend based on credit-worthiness and a hand shake. They know their local economy better than one sitting on Wall Street.

But I wonder if they would “be allowed” to divest of holdings or if a smaller regional bank could even start-up a banking business under the environment today? My guess is many banks would like to off-load unprofitable holdings and sell them to pay off some of their debt, but the Feds would oppose them.

Remember when many of the banks were ready to repay TARP funds and Treasury said, not so fast? That was crazy but it showed what they really wanted was control and not what was best for taxpayers.

I’m definitely not anti-trust, when it’s applied equitably across all industries, regardless of being a former friend of a company- Goldman Sachs and DOJ is the prime example today.

checkmate2012

with all the regs. And yes, there will always be cheaters.

There was a time when it worked, Enron, WorldCom but now even the biggest offenders like Goldman, MF Global, blatant abuses with proof and nothing. DOJ and Treasury are all buddies with these big companies and wouldn’t dare prosecute them.

Common_Cents

Govt gets little or no blame, gee, wonder why?

montani

ARMs haven’t been a problem yet because we haven’t had inflation. In the case of deflation, banks have put the risk on the homeowner. We’ve all seen that. In the case of inflation, with ARMs, banks have put the risk of the loan on the homeowner.

It’s a heads I win, tails you lose contract.

lastgopinillinois

doing three things in one legilation:

Repeal Dodd/Frank financial deform (ooops I mean reform), repeal the Community Re-distribution Act (ooops I mean community re-investment act), and re-instate Glass/Steagall act.

It wouldn’t solve all the problems, but would go a long way toward restoring some freedom in the banking industry.

6eorge Jetson

Insurance costs money.

TBTF banks can finance at rates lower than Not-TBTF banks because the investors know they’ll get their money back. Why did the Goldmans get a dollar-for-dollar when AIG crashed?

That insurance to investors is the image of the taxpayer. Implied taxpayer insurance should be taken away, and then investors would demand higher funding rates as compensation for the non-taxpayer backstopped risk.

That would be an improvement along the free-market dimension.

6eorge Jetson

nt

teapartypatriot4ever

Thie first things that must be done, is to repeal “The Gramm?Leach?Bliley Act” (GLB), Dodd-Frank, Obamacare, consecutively or all in one one Bill, in the same day.

The scond thing that must be done is to restore reinstate the Glass?Steagall Act of 1933, uimmediately following the repeal of the aforementioned.

The third thing that must be done is to reestablish America back on to the Gold standard, if they the govt refuses to enact legislation or a Constitutional Amedment preventing liberal progressive political leaders in both the White House and Congress from playing poltics with the current soft money currency policy manipulation by whomever is the US President at te time, along with the Federal Reserve Chairman.

The excessive printing of money to politically legally mainpulate the US Dollar’s currency value in recessive economic environments is extremely dangerous, as clearly evident with Obama and Bernake’s QE, I, II, III, IV, etc.. which along with Obama;s destructive socialist marxist economic and politial policies, have done inextricable damage to our economy and currency. The US dollar has lost 20% or more of it’s value since Obamabecame President and is still falling.

Does the Weimar Republic ring a bell.

apocomilitiaman

The breaking up of the banks will happen on its own without government intervention.

1. Traditional Banking (Loans, Checking, Savings, Money Markets) is not profitable enough for the big banks–look for spin-offs and M&A activity with in the next 3 years due to the BASSEL III Accords and required capital ratios. .

2. Credit Card business–look for spin offs and MA activity within the next 5 years because ofthe inter-change fees being reduced under Dodd-Frank. This part of Dodd-Frank will not go away although it should.

3. Brokerage and Investments–look for spin–offs to boost capital requirements due to the BASSEL III Accords with their required capital ratios within the next 18 months.

4. Investment Banking and Derrivatives markets will become the major source of income within the sector. The markets are primed for major growth in this area and the Big Banks will go all in on this slice of the pie as they shedtheir underperforming business units.

We won’t see a complete diivestiture of the core units but they will trim their units to fit their new business models of financial services for the middle and top-tier clients. They will broker revenue sharing deals with their former entities that they shed but those units will not be directly controlled by the Big Banks. To much risk associated with regulations, fixed cost structures increasing, and profit margins declining.

norskie

If you were a Democrat, we would laugh off your anti-Viking statements as just good old Humboldt; he just can’t help putting his foot in his mouth. But, alas, you are not. Therefore your anti-Viking comment must be the lead story at CNN, we must boycott your employer until you lose your job, and newspapers across the country should editorialize about how your comments reflect the Republican Party’s secret hatred of all things Scandinavian. Anything short of this would give the mistaken impression that we, in our commitment to tolerance, have tolerated your opinion which is wrong. Six months of Viking Sensitivity Training, a.k.a. re-education camp, is a nice gesture, but we will only be sure it has succeeded if you surrender all of your guns, embrace global warming, and advocate taxes to confiscate the ?excess? wealth being withheld from the government by anyone making more than $250,000 per year.

hobokenred

If the government shouldn’t have the power to limit the banks the government shouldn’t be involved with stabilizing or regulating the banks, such as with the FDIC. Of course this would inject massive uncertainty into the banking system which would harm the banking loan market which in turn would hurt business, large and small alike.

I believe the FDIC and banking regulation is important and necessary and because the government insures private deposits it must have the power to regulate the banks, which includes limiting their size and what banks can do with deposits.

hobokenred

Was the market place better or worse for the break up of Ma Bell. Has it become better since allowing the baby bells to Voltron back up into giant Bells?

hobokenred

Economists and market watchers who have observed Iceland have admitted, many reluctantly, that Iceland’s decision to let the banks go bust but directly insure the depositors was the correct action.

If Ireland had acted likewise it would be in a much better position today.

The caveat is this may require the government getting directly into the banking business for a limited time.

http://www.hakubi.us/ Neil Stevens

Gotcha.

hobokenred

Can you give me the definion of progressivism as it pertains to banking?

wingnut43

Remember your history. The whole Lehman episode so terrified the Fed and Gov’t that they resolved not to allow any TBTF institution to fail. When Lehman went, an electronic run started against the MMFs, so if a Federal guarantee hadn’t been put in place within an hour of the run starting, the entire world financial system would have been gone within one day. The failure mechanism for the financial system is the panic run – always has been and always will be. Keeping banks below some certain size will help allieviate this problem, but will not totally solve it. Whenever there are interconnecterd dependencies where one failure can make other things fail, you can never eliminate systemic risk. Financial panics are like forest fires. When enough dry tinder builds up, eventually a spark sets it off. Foresters have learned to do “controlled burns” to eliminate excess tinder before it builds up enough to have a big inferno. Perhaps we need to do the same with finance. We need controlled burns to shake out excess leverage before it builds up to a dangerous level.

wingnut43

By the time a President Romney can take office, the 5 year statute of limitations will have expired on all actions done prior to 2008. No one will be prosecuted for the crimes of the housing bubble.

wingnut43

All banks in the US are effectively franchises of the Federal Reserve, a government agency. Congress delegated the power to issue US Currency to the Fed and made it master of the banks. And the structure of the Fed is deliberately set up so that the banking interests can “capture” their regulator through their representation on the regional Federal reserve banks. Too Big To Fail is a feature of the present system, not a bug.

wingnut43

The banks are Franchises of the Fed, and have been deliberately allowed to capture their regulator through the banks’ representation on the 12 Regional Federal Reserve banks.

We need to adjust the system so the Fed can do controlled burns of excessive leverage before debt piles up to dangerous levels. Reducing the amount of regulatory capture might be necessary for this to work.

wingnut43

Without the CDOs and CDSs, there would have been no way for the mortgage bubble to be inflated to such dangerous levels. It was all about hiding risk and getting it off of the official balance sheet.

wingnut43

Monopolies become stagnant and uncompetitive with time. When they eventually fall, they can fall very hard. But the financial industry is different from all other industries. As long as currency is issued by the government and as long as most money is created by loans through banks, banks will always be part of a government monopoly.

checkmate2012

I see another loan crisis in the making. Many loans, not just the sub-prime loans, were approved based upon a 2nd loan. Typically people did a 20% second and an 80% first to avoid PMI. So on a typical $200k house, the second was $40K. I don’t think them get stiffed with $6 of $40K is hardly equitable.

All quotes below are from: Updated August 21, 2012, 8:25 p.m. ET.’Short Sales’ to Get a Boost, http://online.wsj.com/article/SB10000872396390444443504577603552056318314.html?KEYWORDS=short+sale

“The Federal Housing Finance Agency on Tuesday announced measures to make “short sales” of underwater homes easier for homeowners, including extending help to people who have financial difficulties but haven’t missed mortgage payments.”

Ok, fine, but then it went into the abyss with only letting the second mortgage holder get a maximum of $6,000! More losses will be incurred due to the gov’t meddling in mortgages, Oh vey!

“One part of the plan is for Fannie and Freddie to place a $6,000 cap on the amount of money holders of second mortgages can receive when the sale is completed, as a way to prevent the mortgage holders from haggling over their slice of the home-sale proceeds. Those second-lien holders would still be able to reject the sales if they saw fit.”

“Guy Cecala, publisher of Inside Mortgage Finance, a trade publication, said $6,000 may not be enough for many holders of second mortgages, who hold out on approving short sales because they don’t have the right to foreclose on properties and are seeking ways to get paid. “It isn’t a lot to offer,” he said.”

Enough is enough!

wingnut43

And Obama is a bankster’s best friend. No one prosecuted, banksters get record bonuses, everyone happy as long as Obama’s campaign coffers are very full of bankster contributions. Not even Corzine or anyone associated with his theft of billions will be prosecuted either. If Obama is reelected, his coddling of the Banksters will be a big reason why.

wingnut43

Yours is a very true description of ObamaCare.

wingnut43

everyone would have gone down with them. The politicians could not allow this. The TBTF banks were holding a Sword of Damocles over their heads.It may be true that keeping banks below some arbitrary size is the simplest and only manageable way to prevent the socialization of losses in the future.

And any regulatory scheme is guaranteed to break eventually. It will only work until a way is found to get around it.

retrocon87

The taxpayer backstop isn’t going away… the Fed will always be lender of last resort for banks, the FDIC will always insure deposits on commercial accounts, and it will be 100% impossible politically to ever change either of those. The options at this point therefore:

1) Keep Dodd-Frank and force the banks to figure out how to comply with millions of pages worth of absolutely ridiculous regulations about “which risks they can take and which they can’t” which not only won’t work (as was displayed by JPMorgan traders in London still managing to blow $3b on botched CDX trades a few months ago) but also will continue to put smaller banks out of business from the insane compliance costs and in turn direct even more business to the handful of megabanks. This is the liberal approach and I think most of us agree it’s retarded.
2) Repeal Dodd-Frank without reinstating Glass-Steagall, ie go back to the pre-2009 system. Result– let the banks’ trading desks go back to taking whatever risks on derivatives they want with their depositors’ money (hopefully responsibly but who the hell knows anymore), and if they screw up again, face another decision of either bailing them out or just allowing the entire global economy to implode from a failed banking system in the name of “letting markets take their course.” Like it or not, no politician will ever do this… even tea party politicians who now claim to be “anti-bailout” will never run on a message of “vote for me because I stood strong on my principles and allowed the economy to collapse… those 100 million people on bread lines? Yeah… that was all me.” It’s not gonna happen.
3) Repeal Dodd-Frank and reinstate Glass-Steagall, ie let the investment banks go back to doing whatever they want but at least separate them from the commercial banks so that if they screw up again it doesn’t wind up threatening consumer credit and being systemically damaging to the broader economy– in other words “let them take whatever risks they want but make sure that if they screw up again it goes back to being their own damn problem and no one else’s.”

Like it or not, the more one reads about the financial markets the more one realizes that they are nothing even remotely resembling “free” anymore… it is now just one gigantic behemoth of crony capitalism. Ron Paul (despite being a complete crazy lunatic on foreign policy) is actually I think one of the few true believers in free markets left and he opposed the Glass-Steagall repeal in 1999 because he didn’t see it as a “burdensome regulation of the free markets”… he saw it as a safeguard to minimize how much taxpayers would be on the hook in the event of excessive risk-taking by the banks. It’s not only good policy under the circumstances, but good politics… “conservatives rolling back Wall Street regulations” will only be palatable to the average voter if we can also say that we’re putting the necessary safeguards in place to prevent the banks from screwing us.

Common_Cents

Would we have had a crapstorm for awhile? yep. We just needed to backstop and guarantee deposits, suffer through a bigazz financial tornado despite the fear mongering from the banks, and strong private capital would have stepped in.

private markets get orderly in a big hurry! Look at what happened after 9/11. System was operational in days.

It’s the midas commercial, pay us now, or pay for it much more, later. What was solved by getting us trillions more in debt? NOTHING.

NOT getting a reset then has ushered in a terribly disastrous mindset and conditioned minds to a toxic way of thinking. NOT getting a reset during the last crisis could very well have sowed the seeds of our final financial death blow.

The system needs to be put back into market disciplining poor investments. Period.

Common_Cents

BIG GOVERNMENT allowed banks to operate unruly, without fidicuiary responsibility. BIG GOVERNMENT overlooked and failed in its oversight and regulation.

BREAK UP BIG GOVERNMENT of socializing losses, (alleviating risk and enabling banks to get huge and take huge risks) and the market will naturally take care of the banks that are run terribly.

RS

EDITOR OF REDSTATE

Break Up The Banks

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