Should Megabanks Be Broken Apart?

see also SIMON JOHNSON (FORMER IMF ECONOMIST) — YES

THE ANSWER IS YES:

EDITOR’S NOTE: It doesn’t really matter who you ask. Whether they are from one political ideology or another. The answer is obvious: The mega banks are too big to govern themselves, they are too big to regulate, and so they are the only sector of the economy that is completely above the law. They operate in a risk-free environment. If you knew you could kill someone and that you would definitely get away with it, there would be more murder. Moral hazard is contained by two things — fear of discovery and consequences. In a risk-free environment, and the risk free context in which the managers of these megabanks operate, answering to nobody, it is hard to imagine that they wouldn’t rob, steal, lie and cheat.

So that is exactly what they did. Our wimpy government is too timid and too enmeshed with them to do anything about it. So it is either going to happen in the courts or in the streets. I prefer the courts because I am 63 years old and I don’t want to live through riots and chaos. But I know that people are only going to stand for this so long before the people themselves do something about the coup d’etat of their government — something we thought was not possible with all the checks and balances built into the our system of government.

Through FICO scores and other numeric indexes we have replaced common sense with computer algorithms. Loans are “approved” 3,000 miles away by anonymous computer consoles instead of a relationship between a banker and a customer looking at each other eye to eye. The deposits you make in Wichita is used somewhere in Thailand. The loan you want for your business is disapproved because it doesn’t fit with the policy and business model of a megabank whose criteria are not even vaguely linked anymore to the needs of the community from which they seek deposits and loan business.

We need massive decentralization of banks. Even the multistage branching was a mistake, let alone repeal of the Glass-Steagal Act. We learned these lesson in 1929 and now, as the pendulum swings we forgot all those lessons and the consequences are already here and building. Speaking in historical terms, we are in the later part of 1928. The hole is deepening by the day and somehow everyone except a few hard realists are expecting a result different than 1929. Why?

should-megabanks-be-broken-apart?ref=business

Introduction

Ed Nacional and E. Marinovich

The economic crisis in Ireland has shown that “too big to fail” can quickly turn into “too big to save” as the Irish government tried to shore up faltering private banks, with catastrophic results for the entire economy. In a recent Op-Ed article, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wrote that despite financial reform legislation, the biggest banks still control our economy and pose a serious threat. After the last round of bailouts, the five largest financial institutions are 20 percent larger now than they were in 2008.

If large American banks run into trouble, would they ever be allowed to go bankrupt? If not, what can be done if they start to fail? As global financial institutions grow in size, how perilous is this condition for the U.S.?

Posted in bubble, Corruption, Eviction, securities fraud |