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If We Broke Up Standard Oil, We Can Break Up the Giant Banks
- Alan Greenspan
- American International Group
- Bank of America
- Bank of America
- Bear Stearns
- Fail
- Fannie Mae
- Federal Deposit Insurance Corporation
- Federal Reserve
- Financial Regulation
- Freddie Mac
- Hank Paulson
- Hank Paulson
- Illinois
- International Monetary Fund
- Kaufman
- Meltdown
- Merrill
- Merrill Lynch
- New York Times
- Niall Ferguson
- None
- Robert Reich
- Simon Johnson
- SWIFT
- Ted Kaufman
- Too Big To Fail
- Treasury Department
- Wachovia
- Washington Mutual
- Wells Fargo
If we broke up standard oil, we can break up the giant banks.
Says who?
Senator Ted Kaufman (interviewed recently by The American Prospect's Tim Fernholz):
You
and Senator Sherrod Brown have proposed an amendment that would cap the
size of the largest banks and, in effect, break them up. How do you
sell this to people who are leery of what seems like a radical move?
First off, we've broken up things before. We broke up Standard Oil, we broke up AT&T, we broke up the accountants, too.
A lot of the changes we're talking about, the mergers, are just new.
When you look at the reasons these banks are so big -- and you know how
big they are -- remember the reason JP Morgan Chase is so big is
because they bought Washington Mutual when it was in trouble, and Wells
Fargo bought Wachovia, and Bank of America bought Merrill Lynch [during
the crisis]. It is pretty straightforward, now that these are back on
their feet, that it makes sense to break them up.
U.S.
regulators should consider breaking up large financial institutions
considered “too big to fail,” former Federal Reserve Chairman Alan
Greenspan said.
Those banks have an implicit subsidy allowing
them to borrow at lower cost because lenders believe the government
will always step in to guarantee their obligations. That squeezes out
competition and creates a danger to the financial system, Greenspan
told the Council on Foreign Relations in New York.
“If they’re too big to fail, they’re too big,” Greenspan said today. “In
1911 we broke up Standard Oil -- so what happened? The individual parts
became more valuable than the whole. Maybe that’s what we need to do.”
At
one point, no bank was considered too big to fail, Greenspan said. That
changed after the Treasury Department under then-Secretary Hank Paulson
effectively nationalized Fannie Mae and Freddie Mac, and the Treasury
and Fed bailed out Bear Stearns Cos. and American International Group
Inc.
“It’s going to be very difficult to repair their
credibility on that because when push came to shove, they didn’t stand
up,” Greenspan said.
Fed officials have suggested
imposing a tax or requiring higher capital ratios on larger banks to
ensure the firms’ safety and reduce some of the competitive advantage
from the implied subsidy. Greenspan said that won’t work.
“I
don’t think merely raising the fees or capital on large institutions or
taxing them is enough,” Greenspan said. “I think they’ll absorb that,
they’ll work with that, and it’s totally inefficient and they’ll still
be using the savings”...
“If you don’t neutralize that, you’re
going to get a moribund group of obsolescent institutions which will be
a big drain on the savings of the society,” he said.
“Failure
is an integral part, a necessary part of a market system,” he said. “If
you start focusing on those who should be shrinking, it undermines
growing standards of living and can even bring them down.”
Former chief IMF economist Simon Johnson:
Writing
in the New York Times today, Joe Nocera sums up, “If Mr. Obama hopes to
create a regulatory environment that stands for another six decades, he
is going to have to do what Roosevelt did once upon a time. He is going
to have make some bankers mad.”
Good point – but Nocera is
thinking about the wrong Roosevelt (FDR). In order to get to the point
where you can reform like FDR, you first have to break the political
power of the big banks, and that requires substantially reducing their
economic power - the moment calls more for Teddy Roosevelt-type
trustbusting, and it appears that is exactly what we will not get.
Former Secretary of Labor Robert Reich:
Neither
the draft bill, nor the Committee, nor anyone on the Hill having
anything to do with financial regulation, is raising what I consider to
be the two key reforms necessary for avoiding another financial
meltdown -- resurrecting the Glass-Steagall Act that once separated
commercial from investment banking, and applying antitrust laws to the remaining five biggest Wall Street banks so none is "too big to fail."
One of the world's leading economic historians, Niall Ferguson:
What's
needed is a serious application of antitrust law to the
financial-services sector and a speedy end to institutions that are
"too big to fail."***
[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 breadth as "too big to fail" banks.
And William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of both Economics and
Law at the University of Missouri - 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. And see this. Whether or not the financial giants can be broken up using the PCA, no one can doubt that the government could find a way to break them up if it wanted.
Break 'em up ...
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Centralized control as a prerequisite of absolute power in the increasingly incestuous relationship between government and business/financial institutions is the hallmark of the fascism. Webster Tarpley rightly concludes that nothing short of seizing and liquidating such entities as Goldman Sachs and outlawing and forever expunging OTC derivatives will purge an fundamentally corrupted financial system. This has about as much chance of happening as reigning in the obscene expenditures and interdicting the international piracy of the U.S. military juggernaut.
As Will Rogers once said "If you inject truth into politics, you have no politics" implying of course that truth and politics are antithetical in nature. The same can be said of our present economic system. A system of law that is selectively or arbitrarily enforced as in the case of the Prompt and Corrective Action Law implies a seriously compromised legal system. You cannot expect such a degenerative remnant of proper jurisprudence to enact its own destruction as is also implied in George's naive call for breaking up a the megalithic and maligant monstrosity of the money masters.
Greenspan, Reich, and Simon Johnson may give lip service to the quaint and amusing idea of calling to account systemic corruption and criminality, but their allegiance lies elsewhere, namely to the corporate and financial matrix which they have all served so faithfully. Once again you have Baron Munchausen's irreconcilable absurdity of trying to lift yourself up by your own bootstraps. Corruption by it's nature must follow its inevitable path to dissolution. Where the corpse is there also is the vulture.
btw, we have latter day Standard Oil with us today called ExxonMobil which, with a market capitalization of $375 billion and stratospheric profits of $48 billion in 2008, quite rightly lays claim to suzerainty over a much more extensive international arena that poor old Standard could ever have imagined.
Fascism at its best. Sure, let's let the government decide how big certain corporations or entire industries can be. Is this article a joke?
Maybe we should abandon the part fascist part socialist eocnomy the US has and actually allow the market to function. That way the only companies getting very big would be the ones that are meeting the most urgent needs of consumers in an efficient manner. The companies who couldn't get big would be the ones that failed to meet those needs.
We'd be better off just getting rid of the government so all the big companies/corporations would have to...dun dun dun! compete with each other to get market share. Get rid of the central planning nonsense (Fed) and let's see how big those banks are. Nobody is too big to fail, if companies were too large and they went bust they should just go bankrupt and more capable people will buy their assets. Why the need to have the territorial extortion racket, I mean, government, break them up?
If the author of this article wants to see the insanity in the government's antitrust policies, I recommend Dominick T. Armentano's Antitrust and Monopoly: Anatomy of a Policy Failure, specifically pp. 55-73 for a look at what really went on with Standard Oil.
thanks for the excellent sourcing on "trust-busting". nothing like a stiff dose of reality for quixotic daydreams
Break them up, reinact Glass-Steagall, reinstate mark to market accounting. Then let them fail. Its easy if your not influenced by bribes and benefits as our politicians are. Common sense.
Bank assets (including off-balance sheet hiding places) should be limited to 1/4 of 1 percent of the GDP.
This would limit any damage to the economy when they go begging (threatening the American people) to Congress and if they want to grow, they will have to grow the economy.
It is the strategy of limited market access and limited market players that must stop. It is the country that is at risk and this truly is a national emergency.
Hank Paulsons theatre before Congress-"give me the money or I plug the kid" must never be seen again.
This was a manufactured crisis so that GS could survive, while Hank killed off their competitors.
I bet those e-mails no longer exist.
And lets get these sleazy "banks" first and work on structural changes to government later. Anything else is a diversion that makes Blanky giggle.
TRANSPARENCY. END THE FRAUD KNOWN AS OFF-BALANCE SHEET.
As an investor/shareholder this is the credibility gap, and it's huge and very disappointing..
Yeah, and the failsafes on the BP offshore drilling platform all work.. my regards to those on the gulf coast. There is a large shit-bag on your doorstep.
Regarding breakups of TBTF, until one sees many of the problems "work themselves out" using the power of the real free market will I believe it's happening. This is usually evidenced by finding bloody brains splattered on a wall after the fact (a little like Lehman, but this is only the first inning.
The money mafia banks, both corporate and central, will not go down without taking as much of America with them as possible. In the United States, this is what's left of honesty and principle getting thrown under the bus (for the few that believe in that stuff).
When dealing with the mafia only one breakup is really ever credible - "line them up and mow them down." They usually do it, or Darwin implies, you have to not to perish yourself.
Breaking up is never easy, especially when you've been "in bed" together for such a long time. When Wall Street is connected to the US Treasury it doesn't seem that any credibility whatsoever is even feasible until that changes. No special purpose vehicle, like a central bank, TBTF, or world monetary fund is exempt. Give me stable money.
Government should be in finance's bedroom only to enforce/process the law.
It's easy - don't lie, don't cheat, and don't steal - especially from the lying-cheating-stealing-TBTF public.
First off my name is Joe 12 pack not six and second "you're under arrest bitch."
HAPPY 2Big2Fail DAY:
http://williambanzai7.blogspot.com/2010/04/happy-may-day-2010-capitalism...
The big banks need to be broken up. They are making high margins in an industry that should be a low margin industry because they have little competition.
If the average Joe6Pack with his aspirations to live like a king, with the Mc mansion and cars etc - all on borrowed money. No particular skills, no fire in the belly - just a constant hunger to one-up the neighboring Joe6pack - thinks he is going to damage these GS type guys - good luck with that.
These guys , by and large are smart, disciplined, often grew up in poor families ( Blankfein grew up in the projects in the Bronx). They are the Marines. The best kind of American. Want to get rid of them. Great. They dont really need you . They are tough enough and adventurous enough to go elsewhere and Iam sure many will be again quite successful in a different environment or different business.
As for the Joe6Pack dreams of perpetual easy livin based on govt handouts and debt. Well - a kind of slavery is in store. Self imposed slavery.
Iam deeply distressed by the unwillingness/inability of the congress as well as the foaming at the mouth public to try to understand what I though was a perfectly reasonable explanation by Mr. Blankfein about market makers. Market makers are not fiduciaries. ( Unless you want to have your broker refuse to sell you GLD or SKF as too risky - and to within their firm's guidelines as "appropriate" investments). You see where this going I hope.
This is all to similar rto the stupid fearmongering that gave us the homeland security monstrisity. We lost a lot of person freedoms because of the collective teenage shit-fit and rage about 911.
Now we stand to lose a lot more personal freedoms - due to the collective shit fit, teenage tantrum about house price having gone down. I fully expect that new regulations will be passed that will impose fiduciary responsibilities on brokers. Then when you want to protect yourself against the govt stealing your mponey through inflation - there will be no recourse. No broker will be allowed to sel you anything other than "safe" bonds. Gold, reverse etfs. commodities and what not will be deemed unsuitable for regular folk. Iam sure this is where this is going,.
Is there any difference at all between the current mindset of the US govt and say, Cuba, Russia ( Putin) , Venezuela or Indonesia under Suharto? It is a tired old cunical technique of weak, corrupt govts to go after the "profiteers".
I am just a regular guy - I ask myself a simple question - If I had to have a baby sitter for my 8 yr old daughter - would I rather have one of the GS guys ( any of the six who gave testimony), or one of the congressmen. Its not even close - the GS guys may be aggressive, too clever by half, arrogant etc ( but I believe they are deeply ethical in a wild west ethic - a clint eastwood ethic)- but the congresscritters are weak minded, corrupt, flabby and prone to all kinds of kinkiness. I would rather have the homeless guy down the street babysit than any of the congresscritters.
"Is there any difference at all between the current mindset of the US govt and say, Cuba, Russia ( Putin)..."
You Are Close
Go back just a little further in history. This is a central command kleptocrat economy of cronies a la the Brezhnev Soviet era.
A politically connected oligarchy design every policy law and directive to the benefit of the oligarchy's looting.... Read: The Dodd-bitch-orama "reform" bill...
Through the ownership of a corrupt political class, they label it "change" and "reform" in their propaganda media outlets and official state propaganda organs... first, of course.
The inefficiencies, ever increasing rent seeking parasites and contradictions from systemic corruption will eventually lead to the collapse of the monolith...
The parasite bleeds the host enough through ever escalating rent seeking... then the host will perish... Today's happy thought..
There are two valid argumnets for breaking and not breaking up monopolies. Small entities will have a difficult time competing on the world global platform with remaining monopolies.
More important is that you cannot create real jobs where the exact purpose of a monopoly is to reduce expenses. Spin Bear Stearns out of JP Morgan and you will create 5,000 new jobs the first day. We must destroy monopolies of money, industry and labor (labor unions) or we will be destroyed,
Let's break up the big government monopoly too. Let's do clawbacks on CONgress pay and pension. Let's have citizen oversight committees on government oversight committee members. Why not use Algores internets and require every member of CONgress to broadcast mobile video of themselves on the net 24/7.
Shouldn't we break up the govenrment based on the same logics?
They said Goldman Sachs had too much conflict of interests that on one hand they were supposed to make money for their client and on the other they could be betting against their client. They therefore should be broken up.
Well, that's exactly what the government is doing. They have FDIC on one hand monitoring banking activities so that they do not take on insane risks w/ your deposits, and on the other passed crazy regulations such as Community Reinvestment Act to force banks to make risky loans. That's conflict of interests right there. US government is one gigantic Vampire Squid that puts Goldman to shame.
In the case of Goldman, you don't need to break them up. For one customers could break away on their own knowing they'd get whacked from behind by these guys, which would naturally break Goldman down to a trading firm only. Two, had they not been bailed out in the AIG scandal they'd have gone under already, which was a natural market force enforced justice only to be rigged by Geithner and Paulson.
In the case of Government you really have to break them apart b/c you the tax payers have no escape from them. You cannot say, "Gee I'm not paying tax to these fools to run crazy regulations over me. I'm walking away." It's impossible. So the solution is to cut the nonsense parts off government and run them in limited size, aka the Libertarian way, the Ron Paul way.
The banks need to be told, no more bailouts, mark-to-market is back in ..6? or less months. Cant survive? Nationalise them, fire the senior management, wipe out the equity, break them up and re-privatise asap.
The Swedes did a good job only 10 years ago. Why is it so f'ing difficult ??
We need some nationally renowned talk show host to donate a bazillion
RESTORE GLASS-STEAGALL NOW!!! bumper stickers, posters, and WIN pins, along with a steady drumbeat on their show to get congress to do it.
A Blimp over all professional Football and beisaboll games would be equally helpful.
And a threat to your local governator to vote him/her/it out of office.
We don't need to break up the bi banks but ELIMINATE them.
I think it better to just them fail the next go'round. In a proper free market, these banks would already be history and innovators would already be up and running filling any market voids.
If not broken up NOW, in the next go 'round the banks (presuming they remain "banks" rather than hedge funds that take deposits) will be all that much stronger. The Supreme Court has seen to that with its recent ruling -- corporations can influence elections like never before.
"like never before"
Get educated. Corporations have only been banned from contributing to federal candidates since 1907, when the racist Tilman (D-SC) wanted to starve the Republican Party-the party of abolition and Lincoln- of funds. The Citizen's United decision does not change that ban. It just allows advocacy ads.
I surrender. You win. I'm a fool and am swayed by the media. Everything else I said is thereby rendered false, as is anything I may say in the future. Thank you for the whipping, sir, may I have another?
On the point. I wonder what breaking up means.
Does it mean turning the banks into banks that can fail with minimal harm or improve the banks so they grow even more too big to fail?
Change in form is no indicator of the outcome. Banks can be refitted and achieve the second outcome.
This outcome has to be favoured imo.
Interesting theory...
What do they call "breaking the too big to fail"?
As if reshaping was out of question...
If a bank changes its name, has it been broken up?
Shouldn't we break up the govenrment based on the same logics?
They said Goldman Sachs had too much conflict of interests that on one hand they were supposed to make money for their clients and on the other they could be betting against them. They therefore should be broken up.
Well, that's exactly what the government is doing. They have FDIC on one hand monitoring banking activities so that they do not take on insane risks w/ your deposits, and on the other passed crazy regulations such as Community Reinvestment Act to force banks to make risky loans. That's conflict of interests right there. US government is one gigantic Vampire Squid that makes Goldman look like a little Chihuahua.
In the case of Goldman, you don't need to break them up. For one customers could break away on their own knowing they'd get whacked from behind by these guys, which would naturally break Goldman down to a trading firm only. Two, had they not been bailed out in the AIG scandal they'd have gone under already, which was a natural market force enforced justice only to be rigged by Geithner and Paulson.
In the case of Government you really have to break them apart b/c you the tax payers have no escape from them. You cannot say, "Gee I'm not paying tax to these fools to run crazy regulations over me. I'm walking away." It's impossible. So the solution is to cut the nonsense parts off government and run them in limited size, aka the Libertarian way, the Ron Paul way.
Agreed. If a small band of rebels can break off from the biggest empire of the day, so can their heirs. Lock and load.