Stiglitz: Banks Are Worse Off than Before Crisis

As reported at Bloomberg, there are still some people out there who are able to look past the surge in stock prices and the billions of dollars of TARP money that has been repaid, questioning whether the banking system has changed in any substantive way.

Joseph Stiglitz, the Nobel Prize-winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.

You don't hear much from Paul Volcker any more. That's not a good thing.

Comments

[Graham and ...:]

Paul Volcker is the one guy that would have a chance of solving this crisis. Problem is, no one goes for his brand of "tough love," *e.g. the Monetary Control Act of 1980, until after the fact.

Sep 14 02:17 PM

[Joseph L. S...:]

Two thoughts. One, the cabal of Geithner, Bernanke, Paulson, Reich, et al, have basically said to Volcker, the ONE man among them who has faced a similar situation, addressed it head-on and fixed it, “Don’t call us, we’ll call you, Old Man. You were placed in your position for show, not for go.”

Second, putting actual numbers on Dr. Stiglitz’s concerns, market analyst Sy Harding has computed that "as of June 30 the three largest banks, Bank of America, Wells Fargo, and JP Morgan had $2.3 trillion in deposits, or 31% of the total deposits in the entire banking industry, <> [emphasis mine.]

Sep 14 02:30 PM

[Joseph L. S...:]

The "emphasis" that did not appear above, perhaps because it was italicized to stand out, is:

"a 50% increase over the 20% they had two years ago.”

The problem was big banks allowed to run amuck in a delirious frenzy of greed. The solution proposed by the most recent two administrations? Make these same banks bigger and more protected from any consequences their rash actions might have .

Lunacy. Sheer lunacy.

Sep 14 02:36 PM

[chuck2251:]

ASK BR. BUFFET WHATS GOOD 4 BANKS,THEN FOLLOW HIS LEAD.

Sep 14 07:04 PM

[Wez:]

Volcker is 80 something, give him a break, he has bigger fish to fry. Keeping that diaper dry tends to become more important than saving the country, again....

Sep 15 12:33 AM

[5142152-337:]

The answer to all of this banking "expansion" is simple, really.

For your individual self preservation just buy PHYSICAL gold and silver. You will be happy, wealthy, and ultimately, wise!

Sep 15 08:22 AM

[Angry Banker:]

So Stiglitz thinks banks are worse off. So what? This is the same genius who thinks France has the model economy and that their GDP should include factors for how "happy" French people are. Nobel Prize? Puuuuuulleeeaaze!

Sep 15 09:08 AM

[Zmartmoney:]

Stiglitz' observations aside, as regards happy Frenchmen, the point SHOULD be well taken, that they are in the tank (read: "our pocketbooks") even further than before, as they try their daring 100 story ropewalk again. Problem is, they're way overweight, taken to drinking a little too late at night, and their step is not as steady, due to their girth. That means we get the short end, again! Does that sound like fun to you? Wake up, folks. Volcker may be old but he isn't stupid. The Washington "elite" (they think so - ask them!) are stepping and fetching to the tune of the too-big-to-fail bankers - what a bad idea that is - but who's to stop them? They don't think they're accountable to anyone anymore, with their tremendous brainpower and our checkbooks.

Sep 15 12:18 PM