Debunking the 'Too Big to Fail' Myth Once and for All

As MIT economics professor and former IMF chief economist Simon Johnson points out, the official White House position is that:

(1) The government created the mega-giants, and they are not the product of free market competition.

(2) The White House needs to "regulate and oversee them", even though it is clear that the government has no real plans to regulate or oversee the banking behemoths.

(3) Giant banks are good for the economy.

In response to the latest claims by the government, let me recap the real reason the government doesn't want to break up the too big to fails.

We Need Them To Help the Economy Recover?

Do we need the Too Big to Fails to help the economy recover?

No.

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard

• Simon Johnson (and see this)

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout

• The head of the FDIC, Sheila Bair

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer - who was Ben Bernanke’s thesis adviser at MIT - say that - at the very least - the size of the financial giants should be limited.

Even the Bank of International Settlements - the "Central Banks' Central Bank" - has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

If We Break 'Em Up, No One Will Lend?

Do we need to keep the TBTFs to make sure that loans are made?

Nope.

Fortune pointed out in February that smaller banks are stepping in to fill the lending void left by the giant banks' current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven't been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation's smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under...

As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

BusinessWeek noted in January:

As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners...

At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks...

Indeed, for the past two years, small-business lending among community banks has grown at a faster rate than from larger institutions, according to Aite Group, a Boston banking consultancy. "Community banks are quickly taking on more market share not only from the top five banks but from some of the regional banks," says Christine Barry, Aite's research director. "They are focusing more attention on small businesses than before. They are seeing revenue opportunities and deploying the right solutions in place to serve these customers."

And Fed Governor Daniel K. Tarullo said in June:

The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks...

For example, while the number of credit unions has declined by 42 percent since 1989, credit union deposits have more than quadrupled, and credit unions have increased their share of national deposits from 4.7 percent to 8.5 percent. In addition, some credit unions have shifted from the traditional membership based on a common interest to membership that encompasses anyone who lives or works within one or more local banking markets. In the last few years, some credit unions have also moved beyond their traditional focus on consumer services to provide services to small businesses, increasing the extent to which they compete with community banks.

Indeed, some very smart people say that the big banks aren't really focusing as much on the lending business as smaller banks.

Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks' own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.

Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don't really need credit in the first place. See this and this.

So we don't really need these giant gamblers. We don't really need JP Morgan, (JPM) Citi (C), Bank of America (BAC), Goldman Sachs (GS) or Morgan Stanley (MS). What we need are dedicated lenders.

The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:

The largest banks often don't show the greatest efficiency. This now seems unsurprising given the deep problems that the biggest institutions have faced over the past year.

"They actually experience diseconomies of scale," Narter wrote of the biggest banks. "There are so many large autonomous divisions of the bank that the complexity of connecting them overwhelms the advantage of size."

And Governor Tarullo points out some of the benefits of small community banks over the giant banks:

Many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries--to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.

A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.

It is simply not true that we need the mega-banks. In fact, as many top economists and financial analysts have said, the "too big to fails" are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.

The Giant Banks Have Recovered, And Are No Longer Insolvent?

Have the TBTFs recovered, so that they are no longer insolvent?

Negatory.

The giant banks have still not put the toxic assets hidden in their SIVs back on their books.

The tsunamis of commercial real estate, Alt-A, option arm and other loan defaults have not yet hit.

The overhang of derivatives is still looming out there, and still dwarfs the size of the rest of the global economy. Credit default swaps have arguably still not been tamed (see this).

Indeed, Nobel prize winning economist Joseph Stiglitz said recently:

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 today 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.”

While the big boys have certainly reported some impressive profits in the last couple of months, some or all of those profits may have been due to "creative accounting", such as Goldman "skipping" December 2008, suspension of mark-to-market (which may or may not be a good thing), and assistance from the government.

Some very smart people say that the big banks - even after many billions in bailouts and other government help - have still not repaired their balance sheets. Tyler Durden, Reggie Middleton, Mish and others have looked at the balance sheets of the big boys much more recently than I have, and have more details than I do.

But the bottom line is this: If the banks are no longer insolvent, they should prove it. If they can't prove they are solvent, they should be broken up.

The Government Lacks the Power to Break Them Up?

Does the government lack the power to break up the TBTFs?

Wrong.

One of the world's leading economic historians - Niall Ferguson - argues in a current article in Newsweek:

[Geithner is proposing that] there should be a new "resolution authority" for the swift closing down of big banks that fail. But such an authority already exists and was used when Continental Illinois failed in 1984.

Indeed, even the FDIC mentions Continental Illinois in the same breath as "too big to fail" banks.

And William K. Black (remember, he was the senior regulator during the S&L crisis, and is a Professor of both Economics and Law) - says that the Prompt Corrective Action Law ((PCA)), 12 U.S.C. § 1831o, not only authorizes the government to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law by refusing to close insolvent banks.

Whether or not the banks' holding companies can be broken up using the PCA, the banks themselves could be. See this.

And no one can doubt that the government could find a way to break up even the holding companies if it wanted.

FDR seized gold during the Great Depression under the 'Trading With The Enemies Act'.

Geithner and Bernanke have been using one loophole and "creative" legal interpretation after another to rationalize their various multi-trillion dollar programs in the face of opposition from the public and Congress (see this, for example).

And the government could use 100-year old antitrust laws to break them up.

So don't give me any of this "our hands are tied" malarkey. The Obama administration could break the "too bigs" up in a heartbeat if it wanted to, and then justify it after the fact using PCA or another legal argument.

Is Temporarily Nationalizing the Giant Banks Socialism?

Many argue that it would be wrong for the government to break up the banks, because we would have to take over the banks in order to break them up.

That may be true. But government regulators in the U.S., Sweden and other countries which have broken up insolvent banks say that the government only has to take over banks for around 6 months before breaking them up.

In contrast, the Bush and Obama administrations' actions mean that the government is becoming the majority shareholder in the financial giants more or less permanently. That is - truly - socialism.

Breaking them up and selling off the parts to the highest bidder efficiently and in an orderly fashion would get us back to a semblance of free market capitalism much quicker.

The Real Reason the Giant Banks Aren't Being Broken Up

So what is the real reason that the TBTFs aren't being broken up?

Certainly, there is regulatory capture, cowardice and corruption:

• Joseph Stiglitz (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action

• Economic historian Niall Ferguson asks:

  Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].

• Manhattan Institute senior fellow Nicole Gelinas agrees:

  The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span

• Investment analyst and financial writer Yves Smith says:

  Major financial players [have gained] control over the all-important over-the-counter debt markets...

  It is pretty hard to regulate someone who has a knife at your throat.

• William K. Black says:

  There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

  Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well. There have been no prosecutions of the chief executives of the large nonprime lenders that would expose the “epidemic” of fraudulent mortgage lending that drove the crisis. There has been no accountability...

  The Obama administration and Fed Chairman Ben Bernanke have refused to investigate the nature and causes of the crisis. And the administration selected Timothy Geithner, who with then Treasury Secretary Paulson bungled the bailout of A.I.G. and other favored “too big to fail” institutions, to head up Treasury.

  Now Lawrence Summers, head of the White House National Economic Council, and Mr. Geithner argue that no fundamental change in finance is needed. They want to recreate a secondary market in the subprime mortgages that caused trillions of dollars of losses.

  Traditional neo-classical economic theory, particularly “modern finance theory,” has been proven false but economists have failed to replace it. No fundamental reform can be passed when the proponents are pretending that there really is no crisis or need for change.

• Harvard professor of government Jeffry A. Frieden says:

  Regulatory agencies are often sympathetic to the industries they regulate. This pattern is so well known among scholars that it has a name: “regulatory capture.” This effect can be due to the political influence of the industry on its regulators; or to the fact that the regulators spend so much time with their charges that they come to accept their world view; or to the prospect of lucrative private-sector jobs when regulators retire or resign.

• Economic consultant Edward Harrison agrees: Regulating Wall Street has become difficult in large part because of regulatory capture.

But there is an even more interesting reason . . .

The number one reason the TBTF's aren't being broken up is [drumroll] . . . the 'ole 80's playbook is being used.

As the New York Times wrote in February:

In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.

In other words, the nine biggest banks were all insolvent in the 1980s.

Indeed, Richard C. Koo - former economist at the Federal Reserve Bank of New York and doctoral fellow with the Fed's Board of Governors, and now chief economist for Nomura (NMR) - confirmed this fact last year in a speech to the Center for Strategic & International Studies. Specifically, Koo said that - after the Latin American crisis hit in 1982 - the New York Fed concluded that 7 out of 8 money center banks were actually "underwater" and "bankrupt", but that the Fed hid that fact from the American people.

So the government's failure to break up the insolvent giants - even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up - is nothing new.

William K. Black's statement that the government's entire strategy now - as in the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts") makes a lot more sense.

Comments

[fwi:]

Great article. It was this time last year that the Primary reason stated for bailing out the big money centers was so that they would lend to small businesses and individuals. And yet all of these "profits" are nothing more than trading and rearranging the board with deals. No lending, no interest in doing any lending. It never was the point.

My idea is to do a few simple things, and the house of cards would fall. Either remove all access to the cheap taxpayer money that only the big banks have access to, or allow everyone to have access to it. Require all the off balance sheet assets to be brought on balance sheet. Triple the capital requirements for all trading positions. These banks are using other people's money to take big risks they are not fully hedged for. The spread alone (without taking into account any winning trading positions) is making them "profitable". Why should an individual with good credit ratings have to pay several times more for the money he borrows then the TBTF's?

Oct 14 11:03 AM

[bob adamson:]

Thank you “Washington” for summarizing all this research so well.

“Washington” and most of you commenting on this article focus on the question of whether the big US investment banks should be broken up. Arguably the more interesting question is how and when this might best be done. Consider the following:
1. The US investment banking system was front and centre in the summer and fall of 2008. The clear and present threat was that the implosion of the key banks and their satellite hedge funds and securities firms would in short order lead to cascading collapse of US and global banking, commercial credit and economic activity.
2. The task from then until now has therefore been to stabilize the US and global credit system and economy and, given the panic and fragility of the banks and near banks, this required that the US investment banking system be sheltered and reassured in the short run. Not only was its continuation but also its active help was needed to meet unforeseen daily crises as they arose.
3. Besides the larger US and global credit and economic imperative, two other concerns must have influenced US policy makers. Only the remaining investment banks could take over the failing ones on short notice in an orderly fashion. The future of New York as the world’s prime centre of finance was at stake.

Thus, in the near term, the need was to stabilize the US investment banking system even though this entailed massive infusions of US government credit and even greater consolidation of these banks.

When the economy and credit system have regained their footing, however, is that not the time to restructure the US investment banking system? Currently the focus in that regard is on retooling the regulatory framework within which that system functions and on whether banks should continue to be able to be both commercial and investment banks. Should not that focus broaden to include question about the functions, number and size of the investment banks themselves? In a sense the issue of whether a bank should continue to be able to be both a commercial and investment bank itself raises the ‘functions, number and size’ issue.

Clearly it will be very difficult to orchestrate an orderly break up of the banks and, in doing so, to avoid the tendency to greater consolidation. Government, to avoid disruption of banking activity and political infighting, will want to move quickly and quietly when the time comes to move. One would guess that much of the preparation and execution of an orderly creation of more and smaller investment banks in place of the current concentration will take place under the guise of dividing commercial and investment functions.

Any thoughts?

Oct 14 12:00 PM

[Alex Filonov:]

Sure, if they are too big to fail, make them smaller. Let FDIC to set max size of US operations of any bank, as measured by provided credit. It won't solve all problems (nothing will), but it will kill monsters.

Oct 14 12:45 PM

[DonFurio:]

Another short busting day!

Look, the banks are already heavily regulated. The shadow banking system was not. There is still plenty of competition, but guess what a lot of people like having their products with a national bank as long as the pricing is right. People especially like having an atm in every city they go to.

Also, many of the people you mentioned that want to break up the bigger banks, which won't happen by the way, are either perma bears or wall street haters and have something that they would personally gain from it occurring. Too bad you didn't have the guts to buy the KBE or XLF earlier this year, maybe you'd be singing a different tune.

Oct 14 01:33 PM

[fwi:]

Breaking up the TBTF would be no more difficult than when AT&T was broken up in 1983. Wall Street would find a way to make money on it, smaller banks would have a freer competitive environment, and the so-called toxic assets would be out in the open and dealt with. All in all, the whole system would be rejuvenated. To say the the TBTF in all their might could not survive without the Feds is a myth.

Oct 14 03:14 PM

[wcinvest:]

Frankly most major industries have too much lobbying power.

The big banks have influence in government but there are a lot of groups that have just as much power or more power and have a bank unfriendly agenda.

Roubini etc. has been proven wrong so far this year. At the beginning of the year, he matter of factly stated that later in the year, it would become obvious that the major banks -- not just Citi -- had to be nationalized because everyone would see that they were insolvent. B******t

The truth is Citi is the only behemoth bank that has had real major problems. BAC got screwed by the government but they made a profit last year and will make a profit this year as well. Big banks are big since there is an economic advantage to the larger size.

It's nice to have a couple of bank accounts with Bank of America and JPM and be able to find an ATM throughout the country. Yes, the tradeoff is a slightly lower interest rate but that is a tradeoff I am millions of others knowingly make.

It really is the smaller banks as a whole who have had more problems since the regulators don't watch them as much. The government and taxpayers will make a profit off of Wells Fargo, BofA, Citigroup, and JP Morgan.

I was not in favor of the AIG bailout and the government should never have allowed the Fanny and Freddy to take on such ridiculous leverage but none of those companies that will lead to permanent losses are banks.

The dirty secret but the regulators did a reasonable job in regulating the major banks but BAC and Wells Fargo were screwed when they were forced to raise capital even though their businesses were stabilizing and both of them earned a profit in 2008 and were well above capital ratios.

Oct 14 03:14 PM

[MutantCapit...:]

Just can not help but think the "to big to fail" crowd believes they are too big and too interconnected to prosecute. Time and a few good prosecutors will tell.

"It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression."
Pam Martens: How Wall Street Blew Itself Up
www.counterpunch.org/m...

Oct 14 04:05 PM

[Kinabalu:]

"Indeed, some very smart people say that the big banks aren't really focusing as much on the lending business as smaller banks."

One of the few real nuggets in the article. Unfortunately there is also some real dreck like:

"The Obama administration could break the "too bigs" up in a heartbeat if it wanted to, and then justify it after the fact using PCA or another legal argument."

The thought that the government could easily, or effectively, fix the TBTF problem is really delusional.

Oct 14 05:06 PM

[Big Bubbette:]

These too big to fail were created after Clinton and a group of Republicans repealed the Glass-Steagall Act in 1999. Re-instated the Glass-Steagall Act. Separate the savings banks from the investment banks as they were before 1999. Send them through bankruptcy court to get rid of the toxic assets instead of shifting the debt to the backs of the taxpayer.

Instead Obama wants to create more government bureaucracy to run private business. We do no need more government.

Oct 14 05:10 PM

[JeffDB:]

Good article, MutantCapitalism, even if it is a little dated (Jan. 08)

The track for this train wreck was put in place in December 2000 when Congress passed the Commodity Futures Modernization Act giving a free pass on regulation to the over-the-counter trading between sophisticated individuals and institutions. Brooksley Born, then Chairperson of the regulatory body, the Commodities Futures Trading Commission (CFTC), literally begged Congress to slow down the train and carefully consider the future ramifications of this legislation. Speaking before the House Committee on Banking and Financial Services on July 24, 1998, Ms. Born said:

"The CFTC or its predecessor agency, the Commodity Exchange Authority, has regulated derivative instruments for almost three-quarters of a century. Its authority is contained in the Commodity Exchange Act ("CEA" or "Act"), which is the primary federal law governing regulation of derivative transactions. The CEA vests the CFTC with exclusive jurisdiction over futures and commodity option transactions whether they occur on an exchange or over the counter. The Act generally contemplates that, unless exempted, futures and commodity options are to be sold through Commission-regulated exchanges which provide the safeguards of open and competitive trading, a continuous market, price discovery and dissemination, and protection against counterparty risk."

Alan Greenspan, Chair of the Federal Reserve Board at the time, testified before Congress in favor of this legislation and asked that it be "expedited." Last week, Mr. Greenspan joined the payroll of the hedge fund, Paulson & Company, which last year made $15 billion in profits betting that poor people's homes would be foreclosed on while using the unregulated over-the-counter contracts that Mr. Greenspan assisted in making possible.

The counter-party risk that Ms. Born highlighted in her testimony is now set to take center stage in 2008. As it turns out, this non-exchange based market of darkness totaling $34 trillion has done business with some parties that are unable to pay up or are teetering on a death spiral due to looming ratings downgrades. Last week, Merrill Lynch announced it was writing down over $3 Billion as a result of problems with its counter-parties."
---
On Oct 14 04:05 PM MutantCapitalism wrote:

> ...
> Pam Martens: How Wall Street Blew Itself Up
> www.counterpunch.org/m...

Oct 14 11:42 PM

[Kimball Corson:]

The lesson that really comes home to me solidly now is that we should have let the mega banks and investment houses fail like we did Lehman Brothers. Bankruptcy or an FDIC solvency proceeding turns out to be too good for them. They are rotten and at the core of our economy.

Oct 15 04:30 AM

[bob adamson:]

Mr.Corson,

The only problem I have with your position is that there was too much to do and too much at stake in the summer and fall of 2008. Convince me that the collapse of these banks and investment houses would not have brought down the global banking system generally (or at least frozen global commercial credit for months on end) and I'm with you.

bob adamson

B


On Oct 15 04:30 AM Kimball Corson wrote:

> The lesson that really comes home to me solidly now is that we should
> have let the mega banks and investment houses fail like we did Lehman
> Brothers. Bankruptcy or an FDIC solvency proceeding turns out to
> be too good for them. They are rotten and at the core of our economy.

Oct 15 12:17 PM

[Kimball Corson:]

Bob, I can understand that position and felt the same way at the time. I overstate my position here. I think the banks should have been run thru FDIC insolvency proceedings. If actually and badly insolvent, the bad debt of a bank would have been scraped off and the good assets sold to new buyers to begin running a cleaned up bank. We would have solved a big chunk of our overleveraging problem, gotten rid of a ton of bad debt and have gotten a number of smaller clean banks to go forward. That is just what we should now want -- not the mega giants we now have out for themselves, engaged in much "controlled fraud," sucking up tax payers money like crazy, defiant of everyone, paying huge salaries and bonuses and doing the economy no real good.

Oct 15 01:36 PM

[bob adamson:]

Kimball –

The trouble with overstating your position is that it plays into the lazy emotionalism of the “strangle the last hedge fund CEO with the guts of the last investment bank CEO” crowd on the far left and far right. I don’t suggest you are of that ilk, however; only letting off steam.

The real challenge will be to find the political will and the intelligence (in the US, in the UK etc.) to systematically restructure the investment banking system in a fundamental but orderly way over the next three or so years.

In short, it was too risky to attempt this over the past two years, it is now time to begin planning for this restructuring but still too risky to force fundamental change and it will be difficult in the future to find the political will for fundamental reform once the crisis is seen to be pasted. The danger, if fundamental reform does not occur, is that the global and US economies will simply be recreated as they existed in 2005 except that government debts and deficits will be much higher; a recipe for true disaster.

The focus, therefore, should not be on what should have been done over the past couple of years as this simply diverts attention from discussion of what needs to be done and the timing of these needed future actions.

Bob adamson


On Oct 15 01:36 PM Kimball Corson wrote:

> Bob, I can understand that position and felt the same way at the
> time. I overstate my position here. I think the banks should have
> been run thru FDIC insolvency proceedings. If actually and badly
> insolvent, the bad debt of a bank would have been scraped off and
> the good assets sold to new buyers to begin running a cleaned up
> bank. We would have solved a big chunk of our overleveraging problem,
> gotten rid of a ton of bad debt and have gotten a number of smaller
> clean banks to go forward. That is just what we should now want --
> not the mega giants we now have out for themselves, engaged in much
> "controlled fraud," sucking up tax payers money like crazy, defiant
> of everyone, paying huge salaries and bonuses and doing the economy
> no real good.

Oct 15 02:38 PM

[Tony Daltorio:]

Explain to me why I should own companies who deal in paper assets with no real demand and an endless supply when I can own companies who own REAL assets with finite supplies and fast-growing demand.

You can keep the banks, I'll take the natural resource companies.


On Oct 14 01:33 PM DonFurio wrote:

> Another short busting day!
>
> Look, the banks are already heavily regulated. The shadow banking
> system was not. There is still plenty of competition, but guess what
> a lot of people like having their products with a national bank as
> long as the pricing is right. People especially like having an atm
> in every city they go to.
>
> Also, many of the people you mentioned that want to break up the
> bigger banks, which won't happen by the way, are either perma bears
> or wall street haters and have something that they would personally
> gain from it occurring. Too bad you didn't have the guts to buy the
> KBE or XLF earlier this year, maybe you'd be singing a different
> tune.

Oct 15 03:15 PM

[DonFurio:]

I could care less what you invest in.

My point on the banks is correct from a business perspective.

From an investing perspective, many people on this site missed out on big gains this year or have big losses with short positions because they were afraid and then refused to admit when they were wrong. I chose to buy financials along with other sectors and I have been rewarded.

On Oct 15 03:15 PM Tony Daltorio wrote:

> Explain to me why I should own companies who deal in paper assets
> with no real demand and an endless supply when I can own companies
> who own REAL assets with finite supplies and fast-growing demand.
>
>
> You can keep the banks, I'll take the natural resource companies.
>

Oct 15 07:34 PM

[Washington:]

Update: Alan Greenspan just came out in favor of breaking up the too big to fails.

Oct 15 08:20 PM

[Washington:]

www.washingtonsblog.co...


On Oct 15 08:20 PM Washington wrote:

> Update: Alan Greenspan just came out in favor of breaking up the
> too big to fails.

Oct 15 08:20 PM

[derryl:]

bob adamson wrote, "The danger, if fundamental reform does not occur, is that the global and US economies will simply be recreated as they existed in 2005 except that government debts and deficits will be much higher; a recipe for true disaster."

I think this is exactly what the powers that be are trying to make happen. Not the future disaster part, just the keep the party going awhile longer part, so each of the banksters can glean their last few hundred million in bonuses and the politicos can take their rightful thrones on the boards of the TBTF. But it will end in calamity as the nation's monetary wealth is transferred to a few while the nation's debts are spread to everybody. This is a classic recipe for Depression.

By last January I was pretty sure that this is not "the big one". But I am pretty sure the next one, not too many years out, will be.

Oct 15 10:15 PM

[Living4Divi...:]

Breaking up the mega banks is the right thing to do. The problem is that breaking them up will require enormous political willpower. The political will to break up the big banks is not there yet in sufficient quantity.

Oct 16 10:33 AM