From Banks Too Big To Fail to Bigger Still — another Failure of American Government

© 2010 Peter Free

 

02 December 2010

 

 

Government in name only — doing nothing constructive

 

Examples of plutocratic control of democratic institutions have become so much the norm that individual instances of subverted democracy usually escape public attention.

 

One, however, is so obviously bad for Americans that it shouts for remedy — the bailed-out banks have become bigger still.

 

 

How on earth did that happen?

 

 

One would think that the “too big to fail” realization that accompanied these banks’ control of our nation’s pre-recession economy would have motivated government to make them smaller and more accountable.

 

Instead, Congress’ and the Executive’s “no strings-attached” approach allowed taxpayer-rescued financial corporations to control an even larger share of the American economy.

 

The President of the Federal Reserve Bank of Kansas City wrote yesterday about this problem:

 

Last summer, Congress passed a law to reform our financial system. It offers the promise that in the future there will be no taxpayer-financed bailouts of investors or creditors. However, after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.

How is it possible that post-crisis legislation leaves large financial institutions still in control of our country’s economic destiny? One answer is that they have even greater political influence than they had before the crisis. During the past decade, the four largest financial firms spent tens of millions of dollars on lobbying.

© 2010 Thomas M. Hoenig, Too Big to Succeed, New York Times (01 December 2010)

 

 

What can be done?

 

 

Our Too Big to Fail trouble began with repeal of the bank-regulating Glass Steagall Act — when people from both political parties decided to ignore the history of predatory (unregulated) capitalism in America and deregulate the financial industry.

 

Mr. Hoenig suggests that returning to an era of smaller banks, with stricter debt-to-equity requirements, would fix this problem.  I agree.

 

 

An irony — “too big to fail” requires subsidies to keep the Market alive

 

Pure-Market ideologues consistently prattle about the wisdom of markets, apparently being too stupid (or too deceitful) to look back at a history filled with examples that soundly disprove their ideas.

 

In the “too big to fail” instance, the largest financial institutions required taxpayer subsidies (bailouts) in order (i) to survive and (ii) to keep financial markets alive.

 

The markets did not regulate themselves.

 

Nor did their biggest financial players achieve any sort of minimally desirable economic efficiency.  Unless economic efficiency is defined as the ability of corporate insiders to make themselves wealthy by taking money from taxpayers.  They did that rather well.

 

 

Unregulated corporate thievery

 

When the richest corporations buy government, the People lose.

 

It is our pockets they’re emptying — with the aid of their allies in thievery, our elected federal representatives.

 

 

This is not class warfare

 

Corporations and the people who run them are not worse than the rest of us.  But like us, they require regulation aimed at benefiting the whole society.

 

Financial and political power corrupt.  It is time we acted as if we were aware of that.

 

 

Action

 

Pick a side in the “too big to fail” battle.  Defend your reasoning to your children and grandchildren.

 

Then do something.

 

The People’s Democracy is running through our fingers like starved water.