He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.Volker has it right. Letting the banks stay in the investment business, even if they are heavily regulated, will not work. Over time, regulators tend to adopt the view that they are there to serve the regulated, not the public. Call it a bureaucratic version of the Stockholm Syndrome, if you like. Alan Greenspan is right in that we cannot outlaw economic euphoria, but we damn sure can make it difficult for the banks to play that game again.
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The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.
The banks fucking around with risky investments and collapsing the economy as a result has now happened twice in less than 20 years, if you do not count the period of time between the enactment of the Glass-Steagall Act in 1933 and its repeal by the Gramm-Leach Act in 1999. The problem here is that Lawrence Summers, chief of President Obama's Council of Economic Advisors, was one of the guys involved in killing Glass-Steagall and Timothy Geithner, the Secretary of the Treasury, represents Wall Street, so those two guys are not going to change anything. The banks are all saying "we learned our lesson, trust us", which is like trusting a smack addict to stop using heroin after recovering from a bad hit.
Two things need to be done: First, we need to re-enact an updated version of Glass-Steagall. Second, we need to break up the largest banks. "Too big to fail" should mean "too big to be permitted to exist." Nuclear weapons are designed to be "single-point safe", so that if one point of a nuclear weapon is hit hard (say by a bullet), the bomb doesn't have a high-order detonation. Our economy should be the same way; the failure of one bank (or any other entity, such as AIG) should not be enough to cause an economic catastrophe.
The largest banks need to be broken up. All banks need to be prohibited from operating as investment houses.
Which is why the various banking lobbyists are deploying sacks of
5 comments:
Give me a "public option" bank and watch as all the commercial banks shrink down below the "too big" line.
Of course Beck and his ilk will scream that it will destroy the universe...
Why don't we try progressive taxation for banks? Let them pay the standard rate up to their first billion, then double it for the next billion, and so on. That ought to discourage bankers from buying each other. And a country with ten billion-dollar banks is in better shape than one with a single ten-billion-dollar bank.
Yep, like I said a couple weeks ago, we need to bring back the McFadden Act. Back when it was actually illegal for interstate banks to exist, the whole notion of "too big to fail" was too ludicrous to envision. Break the big banks up into 50 individual parts. Some of those parts will be solvent, some not, but none of them will be too big to fail.
- Badtux the Breakup Penguin
I -- trying to be brief (it's hard for me) -- have a new response to all the complexity in today's issues.
FDR had it right.
Nationalize them. Break them up. Make banks be banks and let Wall Street be a casino. Honset, simple folks can stick with banks. Masters of the Universe can play all day at their casino.
But there's one thing. All the 401K money Uncle Sam deposits into its retirement accounts every two weeks goes in the banks.
Cripes, his replacement was saying the same thing a few days ago.
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