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EDITOR’S NOTE: The plain fact is that the top six banks are getting increasing large measured by all standards except one: equity. They are continuing their super-leveraging and Obama’s pick of Daley as Economic Adviser is a virtual guarantee this claptrap that bigger is better. Each step they take stretches the boundary between debt and equity. Each step brings us closer to a brand new economic disaster worse than the one before. Everyone knows that this is escalating and nobody is actually doing anything about it.
The hubris of Government Sachs and the other megabanks is simply astonishing. They will cross more international borders, increasing their size in each geographical location, while all the time borrowing more to invest more, knowing that for sure, the slightest hiccup will bring the government back in to bail them out.
If we don’t stop them, who will? The next crisis and the crisis after that are already on the planning board, the first one being this year when the bond market collapses bringing the stock market with it. How is it that ANYONE can believe their lies? How is it that ANYONE can be willing to go along with a program that is guaranteed to fail — as far as the effect on taxpayers, shareholders, and governments are concerned — but not the executives running these monstrosities.
They are already too big to regulate. They were too big to regulate when the GREAT RECESSION hit. Now they are more unwieldy and obviously planning to spread their tentacles around the throats of all countries. Is it just me who sees where this is leading? These are firms considered based in the U.S. The effect of more and larger crises is not just going to bring the world financial system to its knees, it is going to result in most countries seeing us as their common enemy. If you have ever read a history book you know there is only one end to this story — the fall of the U.S. Empire.
Thank God for Simon Johnson, James Kwak and other economists, including the apolitical Paul Volcker who tried and failed to get the administration to change course. Without them, we would only know the brainwashed message brought to you by the megabanks who now constitute collectively 64% of our GDP. That means their are, in size, 2/3 of our entire economy as we now measure it. WHERE IS THE OUTRAGE, THE FEAR, THE UNWILLINGNESS TO HAVE 10% UNEMPLOYMENT FOR THE NEXT 10+ YEARS?
THE FOLLOWING IS AN EXCERPT FROM WWW.BASELINESCENARIO.COM
Goldman Sachs: “We Consider Our Size An Asset That We Try Hard To Preserve”
By Simon Johnson
To great fanfare, this week Goldman Sachs unveiled the report of its Business Standards Committee, which makes recommendations regarding changes for the internal structure of what is currently the 5th largest bank holding company in the United States. Some of the recommended changes are long overdue – particularly as they address perceived conflicts of interest between Goldman and its clients.
What is most notable about the report, however, is what it does not say. There is, in fact, no mention of any issues that are of first order importance regarding how Goldman (and other banks of its size and with its leverage) can have big negative effects on the overall economy. The entire 67 page report reads like an exercise in misdirection.
Goldman Sachs is ignoring the main point of the debate made by – among others – Mervyn King, governor of the Bank of England, regarding why big banks need to be much more financed by equity (and therefore have much less leverage, meaning lower debt relative to equity). On p.10 of his Bagehot Lecture in October 2010, for example, King was quite blunt: Read the rest of this entry »
The Bill Daley Problem
By Simon Johnson, co-author of 13 Bankers (out in paperback on Monday)
Bill Daley, President Obama’s newly appointed chief of staff, is an experienced business executive. By all accounts, he is decisive, well-organized, and a skilled negotiator. His appointment, combined with other elements of the White House reshuffle, provides insight into how the president understands our economy – and what is likely to happen over the next couple of years. This is a serious problem.
This is not a critique from the left or from the right. The Bill Daley Problem is completely bipartisan – it shows us the White House fails to understand that, at the heart of our economy, we have a huge time bomb.
Until this week, Bill Daley was on the top operating committee at JP Morgan Chase. His bank – along with the other largest U.S. banks – have far too little equity and far too much debt relative to that thin level of equity; this makes them highly dangerous from a social point of view. These banks have captured the hearts and minds of top regulators and most of the political class (across the spectrum), most recently with completely specious arguments about why banks cannot be compelled to operate more safely. Top bankers, like Mr. Daley’s former colleagues, are intent of becoming more global – despite the fact that (or perhaps because) we cannot handle the failure of massive global banks. Read the rest of this entry »
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