Baseline Scenario recently wrote about big
banks using 3 myths to delude us. As we know big banks are in big trouble and
we find more and more immoral and often illegal practices going on in their
midst: Reckless moves by J.P. Morgan, money laundering, Libor and the like.
Myth one is that their critics are “populists”
who just don’t understand banking or economics. Dirty ol dumb populists. But if
you look at the critics that is far from true i.e. Richard Fischer, president
of Dallas Fed; Tom Hoenig former president of Kansas City Fed and currently number
2 athe FDIC, Shelia Bair former head of the FDIC and now chair of her own
Systemic Risk Council. The list grows on. They conclude the problems is not
populism vs responsible bankers, it is just plain reckless bankers.
Myth two is the “cost-benefit analysis is
not worth pursuing. At Better Markets, Dennis Kelleher, Stephen Hal,, and
Katelynn Breadley show the industry does not want to deal with the real costs
of crisis being millions of jobs lost, growth derailed, lives disrupted and
massive damage to public finances.
Myth three is that financial reform will
hurt growth prospects. Lordy, lordy we have heard this before; it smells of
good on trickle down ideas. This folk seem never to learn from history and the situations
that lead up to the Great Depression.
The mega global banks are just to plain big
to manage well; perhaps like our country. The left and right hands seem to be
total strangers.
Solution: simple, break up the banks as we
have done with industries that grew too huge in the past. Let banks be banks
and investment houses be investment houses.
I oppose the heavy hand of the State going in to clobber these banks just for being large. After all, there is nothing like a monopoly here at all, so no justification.
ReplyDeleteThe solution is to just avoid these banks. I find it easy to do.
Of course, I do agree completely that the government should not give any special favors or handouts to these banks, either.
The issue isn't monopoly, it's the too-big-to-fail problem. Any one financial institution must not be able to be large and pervasive enough that its failure becomes an existential threat to the economy itself. Lehman Brothers, AIG, whoever. No Nukes!!
ReplyDeleteAfter the Great Crash we learned a few things and put some limiters and firewalls in place. Over time, of course, we unlearned most of the lessons, forgot why the firewalls were around, tossed them out and generally let things go wild again until they were crazier than ever.
People arguing about whether any given bailout was right or wrong for example are debating the wrong point - what really should be (but never is) discussed is, how do you let things get out of hand to the point that it even has to be discussed.
Need to get back to some old-time fundamentals of anti-trust legislation and basic anti-usury laws. Nowadays the "regulations" we have are pretty useless, focusing on fine print 'disclosures' that nobody reads. Know what, if something's wrong, you outlaw it, you don't "disclose" it.
I don't agree that bailouts even need to be discussed. For the banks or big automakers. As for too big to fail? Let them go through conventional bankrupty.
ReplyDelete