The Too Big to Fail, Too Big to Exist Act of 2009

By James Kwak

A BILL
To address the concept of ‘‘Too Big To Fail’’ with respect
to certain financial entities.

1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the ‘‘Too Big to Fail, Too
5 Big to Exist Act’’.
6 SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT
7 ARE TOO BIG TO FAIL.
8 Notwithstanding any other provision of law, not later
9 than 90 days after the date of enactment of this Act, the
10 Secretary of the Treasury shall submit to Congress a list

2

1 of all commercial banks, investment banks, hedge funds,
2 and insurance companies that the Secretary believes are
3 too big to fail (in this Act referred to as the ‘‘Too Big
4 to Fail List’’).
5 SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS.
6 Notwithstanding any other provision of law, begin-
7 ning 1 year after the date of enactment of this Act, the
8 Secretary of the Treasury shall break up entities included
9 on the Too Big To Fail List, so that their failure would
10 no longer cause a catastrophic effect on the United States
11 or global economy without a taxpayer bailout.
12 SEC. 4. DEFINITION.
13 For purposes of this Act, the term ‘‘Too Big to Fail’’
14 means any entity that has grown so large that its failure
15 would have a catastrophic effect on the stability of either
16 the financial system or the United States economy without
17 substantial Government assistance.

Introduced by Senator Bernie Sanders of Vermont. That’s the entire bill.

Note that the bill puts the lie to the “interconnectedness” diversion I discussed last week. The administration’s own proposal requires the government to identify financial institutions that are “too [insert whatever adjective you want here] to fail” — the administration just calls them “Tier 1 Financial Holding Companies.” The Fed has called them “systemically important financial institutions.” Sanders basically says, you were making the list anyway, so you can’t use that as an excuse.

The bill says that Treasury can break up the institutions any way they want to, so long as the resulting entities do not individually threaten the financial system (and thereby our economic well-being). So opponents can throw out all those arguments about why separating commercial and investment banking is bad, or why banks have to be global (a bit of an embarrassment to Wells Fargo) — now they need to argue that a well-functioning financial system must include institutions that could take down the financial system.

Here’s Nemo’s take.

Bernie Sanders’s petition here.

Comments

[lower98th:]

Thanks for the petition link. I'm in.

Now: 1. Reinstate Glass Steagall
2. No Off balance sheet. And Bonuses are not ex-items
3. Transparent Fed
4. CDSs, etc. on Exchanges
5. No anti-trust waivers.
6. No exemptions from insider trading

Nov 09 12:53 PM

[questioner5000:]

Dear Bank of America Shareholders;

Thanks for taking over Merrill Lynch and saving the U.S. and global financial systems from a catastrophic implosion at a crucial junction in the recent financial crisis. We know that that action has cost you dearly - - tens of billions of dollars of your money has gone, and billions more will go, to cover ML's losses, resulting in the value of your BAC shares plummeting and costing you billions in lost dividends, preferred share payments for TARP, and the inevitable future legal settlements, (for ML actions prior to your takeover), TARP warrant redemptions, etc. (The list goes on, but this is just a short "Thank You" note.) Your actions saved the U.S. Government and taxpayers tens of billions of dollars in losses, tens of thousands of jobs - - a real mess. (P.S. Thanks for keeping Countrywide alive as well!)

We wish you all the best, in turning ML around, recognizing all of its losses, settling all of the lawsuits against the firm, dealing with all of the Congressional investigations, etc., and rebuilding ML to its former glory.

However, as soon as it returns to health, we will require that you sell it, so that the benefits from all of your efforts will accrue to others, and we can have the pleasure of screwing you once again.

(P.S. The above is meant as sarcasm, in case you're too dense to notice.)

Nov 09 01:32 PM

[greedcanbgood:]

The govermnet has NEVER been able to make good business decisions. No such thing as "too big to fail". Let them exist and fail, thrive and falter at their own peril. Indeed, the government has itself become WAY too big. I'll endorse this bill when the government can pare down it's own size.

Nov 09 05:38 PM

[Astonished:]

Questioner5000 - quite an astonishing point you make!

Actually, its a stupid one - do you not believe in a capitalist marketplace? Why do you think it is that BankofAmerica is even still around? Because of excessive government support for an unsustainable and insolvent bank!

Ken Lewis wanted to take over Merrill Lynch - nobody made him. He was on a big ego trip about growing BankofAmerica when it was clear to anyone with half a brain that if he had waited - he could have got it for peanuts - with government help!

He destroyed BankofAmerica all by himself, it was in fac the Government that stepped in to save him from his folly at the end of the day - what more do you want? If you don't want capitalism and you want government help - what right do you then have to tell the government to get stuffed?

Answer - None. You takes their money, you takes their medicine mate. Grow up.

Nov 09 06:52 PM

[BIG-MONEY:]

CITIBANK IS A SHAM. Citibank has been closed by the Fed. Citibank has always been the joke on the street and has only said it was to big to fail to create fear and given money to live on the LIE. CITIBANK IS ALL FRAUD AND LIES. CITIBANK IS THE MADOFF TIMES ONE HUNDRED. CITIBANK HAS MILKED THE FED OUT OF $500 BILLION FORM A SECRET FED FUND. WHAT A PATHETIC BANK THAT CITIBANK IS. STOCK WENT FROM 55 TO SMASH THE BUCK AT .97 CENTS.

Nov 09 11:18 PM

[Frank S:]

Best solution Never use am American bank again. Credit union and if that doesnt work Chavez Savings and Loan would still be more honest than these guys.


On Nov 09 01:32 PM questioner5000 wrote:

> Dear Bank of America Shareholders;
>
> Thanks for taking over Merrill Lynch and saving the U.S. and global
> financial systems from a catastrophic implosion at a crucial junction
> in the recent financial crisis. We know that that action has cost
> you dearly - - tens of billions of dollars of your money has gone,
> and billions more will go, to cover ML's losses, resulting in the
> value of your BAC shares plummeting and costing you billions in lost
> dividends, preferred share payments for TARP, and the inevitable
> future legal settlements, (for ML actions prior to your takeover),
> TARP warrant redemptions, etc. (The list goes on, but this is just
> a short "Thank You" note.) Your actions saved the U.S. Government
> and taxpayers tens of billions of dollars in losses, tens of thousands
> of jobs - - a real mess. (P.S. Thanks for keeping Countrywide alive
> as well!)
>
> We wish you all the best, in turning ML around, recognizing all of
> its losses, settling all of the lawsuits against the firm, dealing
> with all of the Congressional investigations, etc., and rebuilding
> ML to its former glory.
>
> However, as soon as it returns to health, we will require that you
> sell it, so that the benefits from all of your efforts will accrue
> to others, and we can have the pleasure of screwing you once again.
>
>
> (P.S. The above is meant as sarcasm, in case you're too dense to
> notice.)

Nov 10 12:10 AM

[LoveShorting:]

BIG MONEY - - you get the award for best comment. I believe you, but how it hurts to see the lie continue day after day with the highest trading volume always being C. Some day a book will reveal who is trading C back and forth? Some day C will go to zero like Enron? One can hope.

Nov 10 09:47 AM

[questioner5000:]

So, basically, you argue that Bank of America, if it was smart and acted like a good capitalistic "predator", should have waited until Countrywide and Merrill Lynch collapsed, and then fed on the parts it wanted, dumping the rest on the taxpayers and "loyal capitalists" like you. Hmmmmmmmm. Interesting. So you advocate a strategy that would have resulted in a total collapse of the financial system in the US and elsewhere. Maybe a total collapse of BAC, C, and WFC at this time would make you feel better - - though, of course, the rest of the nation would plunge into a depression.

I guess you supported, as "REAL capitalism", JPM's takeover of Bear Stearns and WAMU, albeit with massive taxpayer-funded sweeteners from Tim Geithner to his NY speed-dial buddy, Jamie Dimon, but provided no help to BAC or WFC in their respective takeovers of other "dead entities". (I guess, instead of WFC's last-minute takeover of Wachovia, you really supported, as "more capitalistic", Geithner's plan to sell Wachovia, supported with massive taxpayer subsidies, to C, another of his "NY speed-dial buddies.)

You believe in a "capitalistic marketplace"? So, you mean that all of these government controls that existed prior to the current crisis, that stifled "pure capitalism", (like limits on deposits, Community Reinvestment Act requirements, etc.), were somehow justifiable? And you are, of course, also in favor to any government-imposed limits on pay, checking account fees, credit card charges, etc.? How about the government's efforts to assist homeowners who are capable of paying their mortgage obligations, but simply "deserve" reduced interest rates and principal reductions, at taxpayer and bank expense, just because, in this market at this time, they are "underwater" - - is THAT your "pure capitalism"? If you feel that these new laws/regulations are "just punishment" of BAC and the rest of the banks for their wayward ways, then it appears that you actually believe that the cure that will lead us back to the "nirvana of pure capitalism", is greater doses of government "socialism"! The fact is, only an unrealistic dreamer like you believes that, over the past century, we've had, or will ever again achieve, "pure capitalism"

Our government, from their own testimony, felt it had to urgently stabilize the US financial system, and was willing to take any steps necessary to get that done. You, as a taxpayer, need to recognize that BAC and its shareholders were a major factor in helping the government achieve that goal. It is YOU that needs to "grow up".

Yes, BAC has BORROWED $45 billion of US taxpayer money, but it is anxious to repay it, once the government stops putting ever increasing "pure capitalistic" roadblocks in its way - -

"Raise $33 BN in capital - - Oh, you raised $40BN? Well, now raise even MORE capital, before we'll let you repay"

"O.K., now change the makeup of your Board, to include former government regulators. Oh, you did? Well, now get rid of your Chairman, (since the bastard embarrassed us by truthfully telling Cuomo that we rammed Merrill Lynch down his throat, when he SHOULD have backed away, as a good capitalist would have done)".

"Oh, and remember that "backstop guarantee" that we were negotiating with you, but never agreed to, signed, nor allowed you to use? Well, how about $475MM, so that we can terminate our incomplete discussions!"

"Plan to earn your way out of TARP? Hell! Here's some "government-mandated capitalistic limits" on checking accounts - - "During these tough times, people should be allowed to write checks for more than is in their accounts" - - and credit cards - - "During these tough times, people should be allowed to charge above their credit limits, and also take advantage of the situation by demanding debt forgiveness. After all, what could be more "capitalistic" than walking away from a contractually-required debt?

Yes, BAC will, as soon as it's allowed to, pay off its TARP borrowings, and you won't have "cash cow"/"prime whipping boy" to pay you dividends of between 5% to 8%, redeem warrants for an additional couple of billions, all the while allowing Congress to blame all of the country's ills on "the bankers".

But, you can bet that, the next time the country calls, BAC will not take your calls, even if we get placed on the Treasurer's "speed-dial". BAC will remember these last couple of years, and it'll act REALLY capitalistically in responding to your "needs".


On Nov 09 06:52 PM Astonished wrote:

> Questioner5000 - quite an astonishing point you make!
>
> Actually, its a stupid one - do you not believe in a capitalist marketplace?
> Why do you think it is that BankofAmerica is even still around? Because
> of excessive government support for an unsustainable and insolvent
> bank!
>
> Ken Lewis wanted to take over Merrill Lynch - nobody made him. He
> was on a big ego trip about growing BankofAmerica when it was clear
> to anyone with half a brain that if he had waited - he could have
> got it for peanuts - with government help!
>
> He destroyed BankofAmerica all by himself, it was in fac the Government
> that stepped in to save him from his folly at the end of the day
> - what more do you want? If you don't want capitalism and you want
> government help - what right do you then have to tell the government
> to get stuffed?
>
> Answer - None. You takes their money, you takes their medicine mate.
> Grow up.

Nov 10 10:42 AM

[RazorKnowsT...:]

The big-10 national banks, the organized crime of the 1990s and 2000s, definitely need to be busted-up.... just like AT&T in 1982.

25 years ago, the government at all levels spent millions of dollars each year investigating and prosecuting people who engaged in the activities that these banks have been profiting from in recent years.... back then, we called them mobsters and racketeers, and threw them in prison.

We definitely need a re-enactment of the investment banking / commercial banking separations of Glass-Steagall, and then some curbs on short-sighted decisions by bank executives. My vote.... get the senior executives (the hired hands) out of the boardrooms.

This country can not afford, and will not survive, another financial meltdown like the present one. And if nothing is down to reign-in the greedy, arrogant bastards that caused this crisis, they will be back at their old tricks, and will crap-out the economy again in very short order.

On Nov 09 12:53 PM lower98th wrote:

> Thanks for the petition link. I'm in.
>
> Now: 1. Reinstate Glass Steagall
> 2. No Off balance sheet. And Bonuses are not ex-items
> 3. Transparent Fed
> 4. CDSs, etc. on Exchanges
> 5. No anti-trust waivers.
> 6. No exemptions from insider trading

Nov 10 06:35 PM

[searcher:]

Don't see how Citibank could've ever been seriously considered as a 'refuge' for Wachovia or Merrill Lynch or any other entity. B of A, aka NationsBank et al, foolishly aspired to the failed Citibank ambition to be the bloated 'Empire of Capital'. The only plausibly rational move was Wells Fargo's acquisition of Wachovia. The main reason for the 'passive aggressive' regulatory posturing relates to off balance sheet liabilities that would boggle the mind.

Nov 11 02:29 PM