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Krugman: Break Up the Giant Banks to Stop Their Domination of the Political Process
While Paul Krugman seemed to go against the rising tide of experts calling for the giant banks to be broken up, he clarified his position last week:
My
view is that I’d love to see those financial giants broken up, if only
for political reasons: it’s bad to have banks so big they can often
write laws.
Bingo!
The giant banks have enough money to - literally - purchase Congress.
As Dean Baker wrote on April 7th:
In
the United States it will always be easy for regulators to look the
other way, even when the ultimate consequences prove to be disastrous.
By contrast, cracking down on politically connected banks is difficult
for regulators. The banks' executives will call their friends in the
administration and Congress to complain about the crazy regulator who
is trying to keep them from running their business.
And, you can be
sure that the banks will have a story. They pay smart people lots of
money to develop those stories. The banks' mouthpieces will make a
conscientious regulator look like a crazed vigilante who just doesn't
understand modern finance. Just ask Brooksley Born, the head of the
Commodities Futures Trading Commission who was stopped in her effort to
regulate credit default swaps back in 1998.
And as Miles Mogulescu writes:
[Simon]
Johnson has the long-term politics right--unless we break up the 6-8
largest banks which dominate the financial system, we will both be
strengthening a self-perpetuating oligarchy which dominates the
political system to protect its own wealth and power to the detriment
of the national interest and democratic governance, and which uses it's
government guaranteed "too big to fail status" to take excessive risk
which will lead to the next bubble, the next meltdown, and the next
Hobson's choice by an even more debt-ridden government between bailing
them out again with trillions in taxpayer dollars or allowing them to
fail and sinking the economy into depression.***
TBTF is
antithetical to democracy. Because of their TBTF competitive economic
advantage, the largest banks have become even larger since the
beginning of the Great Recession in fall 2008 and the 6 largest banks
now control assets totaling over 60% of the country's Gross Domestic
Product. With this outsized control of the economy comes outsized
control of the government. A bank with assets exceeding 2 trillion
dollars can spend whatever it takes to influence elections and convince
Congress to pass legislation that favors its interests rather than
those of the vast majority of middle class voters, especially after the
Supreme Court's pernicious decision in the Citizens United
case allowing unlimited election contributions by corporations.
"Oligarchy" is a term Americans used to apply to countries like Russia
and smaller third world countries, not to ourselves. But with TBTF, as
Johnson and Kwak explain,
"The Wall Street banks are the
new American oligarchy-- a group that gains political power because of
its economic power, and then uses that political power for its own
benefit. Runaway profits and bonuses in the financial sector were
transmuted into political power through campaign contributions and the
attraction of the revolving door. But those profits and bonuses also
bolstered the credibility and influence of Wall Street; in an era of
free market capitalism triumphant, an industry that was making so much
money had to be good, and people who were making so much money had to
know what they were talking about. Money and ideology were mutually
reinforcing.
This is not the first time that a powerful economic
elite has risen to political prominence. In the late nineteenth
century, the giant industrial trusts -- many of them financed by banker
and industrialist J. P. Morgan -- dominated the U.S. economy with the
support of their allies in Washington, until President Theodore
Roosevelt first used the antitrust laws to break them up."So, argues Johnson, to preserve democracy, and to prevent the next bubble, meltdown and bailout,
"Make our largest banks small enough to fail. There is simply no other way to really end the problem of 'too big to fail.'"
I disagree with Krugman on the technical arguments for breaking up the giant banks. For example, the economy will never stabilize and derivatives will never be transparent until the too big to fails are broken up.
But
I applaud and welcome Krugman's clarification that he would like the
giant banks to be broken up so that they cannot continue to dominate
the political process.
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What Milbank said. Merely breaking them up is no solution at all.
The problem is the not just the size of financial institutions but the size of the financial industry.
It is not just Goldman that is the giant squid wrapped around the face of humanity, it is the entire industry.
Since they lobby the government as 1 cohesive force it is utterly irrelevant whether they do so as 19 big banks or as 50 moderately big banks.
Banks still have a license to print money, and they charge interest on the printed money they lend out so their share of ownership of the economy grows ever-larger.
I'm amazed Krugman can be so short-sighted. No, wait a minute, this is exactly the kind of superficially compelling, but ultimately fruitless, policy that Krugman and the rest of his Keynesian mob are always foisting on us.
Herein lies the rub: the Keynesians are RIGHT.
Yes, they are. They are right within their frame of reference. It's easier for us to sit outside of this fishbowl of debtmoney and look and say wait a minute, this particular system is not the ONLY system. But when, like Krugman, you have existed your entire life with the assumption that that set of rules was THE set of rules, you simply cannot see the forest for the trees.
Krugman may have a Princeton education, but his Ph.D. is in bullshit.
What the Keynesians say is true IS true within the confines of the debtmoney system. It looks laughably absurd to us "little people" because we haven't been inculcated in the axioms of the economics "profession." It's a dogma, pure and simple. These are its believers.
Nobody these days can even have a discourse about Real Bills Doctrine or alternatives to debtmoney. It's always creditFRNs or the "gold standard" which is a strawman that the debt merchants put up to whack down, and for good reason.
The system we have means SOMEBODY has to go into ever-increasing debt. The problem is when the usury clan expects real assets in exchange for the diluted paper. There are probably enough paper claims on real things now such that bankers nominally own the entire world.
You have to ask yourself the question: how in the hell did they get so much capital to lend such that they can own the vast majority of houses, cars, etc., in the world? The answer is very clearly that they never had the capital. Perhaps individual banks ostensibly did, but the Central Bank, the FRB, NEVER did. Not even fucking CLOSE.
The Central Bank is by definition a check-kiter. It lent capital that it never had. The Central Banking scam is clear from investigation into the BOE in the late 1600s. There may or may not have been ANY capital put at-risk by the founders of that bank. What IS clear is that they did secondary issuances nearly immediately to back out whatever capital they DID have at risk, paid themselves back any risk capital, whatever...they then put loans to the sovereign as their asset base and began kiting.
I mean, look at the balance sheet of the Fed itself prior to 2008...they had what, $800B, $1T of stated assets and what WERE those assets? LOANS TO THE USG. Where in the HELL did the Fed get $1T? Did ANYONE, EVER put in $1T worth of ACTUAL capital to constitute this bank, so's it could lend it to the government?
Sure, the Fed's initial capitalization was some gold in the basement, but since 1913, it's been a nonstop accumulation of compounding obligations by the government to this bank...you can pretty clearly see that their POMAs involved the purchase of debt obligations, iow a loan to the USG, with money/capital that they didn't actually POSSESS. Nevermind the way this system radiates out into the larger economy with consumer and financial credit creation.
The money was never there, they lent what they didn't have, from the ORIGIN of this banking racket.
Fractional reserve is NOT the problem. A goldsmith who retains 10oz of gold and lends out 90, still has nominal assets, bushels of wheat, cows, buckets of coal, or whatever collateralizing the loan. If that bank gets run, the depositors can recover against the farmer, the rancher, the miner.
The problem and bank runs come when the smith has 100oz and lends out 200. This creates the inflation, and when he gets run, the deflation and cascading default. You end up with surplus paper claims on the economy.
How about we break up Krugman?
Derivatives will never be transparent at all. There 'value' depends on them being opaque. Once they lose that opaqueness, they will be shown to have no value at all.
Breaking up the big banks (and other oligopolies) is indeed needed, however they have to be kept from growing to big again. That will be difficult, because this contrary to Capitalism, where wealth accumulates in ever fewer hands.
"That will be difficult, because this contrary to Capitalism, where wealth accumulates in ever fewer hands."
Relative to what???
How did you arrive at that dissembling conclusion...a world wide per capita income basis or just because Marx said so???
Just look at wealth distribution in the US and other Capitalist countries and see how it developed over the years. That is a very straighforward evidence.
Capitalism leads to that result - it's unavoidable.
Money always wrote laws, and that is what we call Capitalism. In the end, every western man and woman always got a good deal out of it.
I for one welcome are Bankers rullers.
Looks like Capitalism hasn't done much for your English there buddy.
Being 'so big they can often write laws' is junk argument for breaking banks. Does Prof Special K believe that SEIU should be broken for its political power (esp under O.) and CalPers for its economical power too? Or is it so that ONLY private companies shall not grow, GSE/trade unions/pension funds are perfectly OK?
Baltimore goes after the people
will banks be next lol
public urination would go from $150 to $750 , spitting in public would go from $25 to $200,It will create few jobs or preserve some, at the same time GDP will go up. Very intelligent move!
THE WISDOM OF FRANKLIN KEYES:
http://williambanzai7.blogspot.com/2010/04/wisdom-of-frankin-keyes.html
how to take care of the banks
1) have strict rules
a) develop list
2) first offense 20 years
3) next death
I don't even know why we need CDO's, all they are are bullshit insurance that each bank takes out on eachother so they can all take $B's of bullshit liabilities off the books to report good numbers each quarter.
What good are capital constraints if they can be subverted with more CDO's...?
Of course Krugman supports the very institutions that enable banks to be reckless and stay in business (Fed/FDIC). Competition in money and banking? Preposterous! Banks can't be free of politics as long as we have the Federal Reserve controlling banking. How can any economy that has a central bank not be politicized? Krugman will never address this, of course, because without the ability of the government to print money they couldn't have the welfare-warfare State.
Krugman makes me ashamed of being caucasian.
Too late now, unless they get serious and virulent about chasing and prosecuting fraudulent behaviour and then putting them all in prison. Nothing like the real prospect of personal suffering to make a banker honest. They quickly become sniveling cowards when they realise connections and money wont protect them.
Most of the politicians are bought and paid for, their function is to produce the best profit and power environment for the banks. So we will have to wait for a major catastrophe that breaks them again. Maybe not so far away.
Fundamentally, however, we need to eliminate prop trading by banks and brokerages; that will stop most of the nonsense.
Finally found something of Krugman's I can agree with; but also, we need to break up the Fed, which loves to hand out favors to the banksters.
Get those big banks out of the political sphere so quacks like me can be the supreme commanders!
It's like jellyfish. You break up Goldman into three or four mini-Goldmans and in a year or two you end up with just three or four more big Goldmans again.
The investment banks are cartels or the different families of the Mafia. Goldman was just the "Barzini" of the families, the Godfather of Godfathers.
Breaking them up will not, ultimately, change anything.
+1000000000000000
This is all a side show to prevent people from seeing the hyper-flation that is here.
Hype-inflation (or hyper-deflation if you prefer that description) is a circuit breaker for the doomed engine. Obviously, 30 years of deflation, depression, lawsuits, congressional hearings and special prosecutors - along with expanded state services and higher taxes is untenable. The architects and engineers who built this engine (Federal Reserve x IRS) knew it would one day max out and that the credit velocity would turn negative and the whole thing would begin to implode. Hyperinflation allows the system to blow up relatively quickly and painlessly. Better a quick reset with hope for re-building than decades-long agony and incremental, ever-increasing pain and suffering.
I so totally agree....oh, so thats why EVERYTHING is green? LOL Wait until oil runs back to $130 a barrel, and then people will "wake up" too late.
Peak oil bitches!
Paul "The 888 Billion Dollar Goobermint Bailout of Goobermint Itself Is To SMALL" Krugman.
After advocating for the debt enslavementof the next FOUR generations of yet to be born citizens...why not a quadrillion dollar gang rape and we could have pure effing nirvana here and now and place the next FOUR HUNDRED generations in debt boundage.
Freakin ass clown...the man has no credibilty in my book whether he stumbles into truth or truth stumbles into him.
As for Krugman: Even a stopped clock is right twice a day. What an idiot. He has always made Barry O's Peace Prize look well earned.
Krugman is of course absolutely correct on this point. The problem is the TBTF's already have the politicians , regulatory agencies , and the FED so intrenched in thier operations that there is no one powerful enough to call the shots on ending their symbiotic relationship.
There is only one way to accomplish all this. Vote them all out of office. Enough of Barney Frank, Dodd, Pelosi and all the other two faced shills in Washington. We need more politicians like Ron Paul and Alan Grayson. Hopefully the Tea Party will be in full force by 2012.
As painfull as it may be, pray some have the courage to bring the tbtf's down now.
Is this douche Krugman published anywhere that matters? Is he f---ing kidding with this noise?
Bingo!
Keynesian Klowne inadvertantly speaks semi-truth, bursts into flames...
Film at 11? He whispers hopefully.
"For example, the economy will never stabilize and derivatives will never be transparent until the too big to fails are broken up."
What economy? When the fantasy finance sector makes up the vast majority of the GDP (note I did not say majority, but "vast majority"), and the wholly-owned subsidiary of the banksters, the US government, subsidizes the banksters, who in turn utilize securitized credit derivatives (meaning both securitizations in general and credit derivatives in particular) to allow for layer upon layer upon layer of leveraging, which allows for layer upon layer upon layer of speculations, which allows them to rig and manipulate the markets, this will only happen after Hell freezes over (or Megan Fox pleads with me to spend the night with her!!!!).
Peak Fraud
It would take more energy and effort by the District of Criminals to mine and exploit the riches of concentrated wealth if it is broken up.
These articles are nothing but noise..
Break 'em up now that we gave them trillions of doelarrs. Brilliant Krugman. Where was everybody before we bailed out the banksters? They were calling for bailouts. You, Paul Kkkrugman, are bitchmade.
I concur....
i like the "bitchmade" derogation...
it's so hood like....