Two Senators And Larry Summers On Bank Size

By Simon Johnson, co-author of 13 Bankers

Bank size is suddenly the issue of the day – with politicians lining up to oppose any meaningful restriction on the size of our largest banks.  Their reasoning is varied and all quite flawed, particularly when they insist there must be no Senate floor debate on the Brown-Kaufman amendment.

Senator Dick Durbin may be right to say that the Brown-Kaufman amendment is “a bridge too far” and will not pass in this legislative cycle – presumably this sounds like a tactical political assessment.  Surely in that case he would not oppose bringing it to the floor of the Senate and allowing that body to prove him right (or wrong).

Senator Chris Dodd opposes the amendment, but his reasoning is rather vague.  Here’s what he says in his interview with Ezra Klein, which appeared yesterday,

“It’s not size; we’re preoccupied with size.  And I’m not suggesting that any size is okay, but it’s really risk, it’s these other elements in here.  A relatively innocuous product line in a relatively small company can pose huge, systemic risk.  That said, in our bill, we provide the authority to break up companies.  That is clearly in the bill, the authorization to do that under certain circumstances.  But I’m not sure that we ought to become so preoccupied with it.  And again, I’ve looked at the 13 Bankers book, and so forth, that approach, and hear this, by the way, not just from them, but from CEOs of major corporations.  This is not some left/right question.  But I just don’t think that it makes a lot of sense.  I don’t think it’ll prevail.”

Senator Dodd is completely correct that this is not a left/right question and he is also correct that come CEOs and other heavy hitters from the business sector completely agree with us.

But his other reasoning is shaky.  No one disputes that risk is the issue here.  But our proposal to reduce bank size is in addition to everything already in the bank bill – so in order for this to be a bad idea, you would need to argue that breaking up the big banks would actually lead to more system risk.

Given what we have learned about the serial incompetence of megabanks, with their distorted incentives and perverse belief systems, such an argument seems like quite a stretch.  But it is a stretch that Larry Summers – ever the top level debater – understands that the anti-Brown-Kaufman view implies or even requires: 

“Brown: The too big to fail issue, why not go further? Why not just limit the size of banks?

Summers: Jeff, that was the approach America took to banking before the depression. That was the approach America took to lending in the thrift sector, before we had the S&L crisis. Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States. But that’s not the important issue, they believe that it would actually make us less stable. Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn’t have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.”

There are two substantive points here (ignoring the rhetorical distraction in the first two sentences).

1)      “Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States.”

2)      “Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn’t have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.”

I’m not sure who the “most observers” are with regard to either point.  I have heard the arguments before but, as we review in 13 Bankers (see the last chapter), neither of these is the mainstream fact-based view regarding big banks.

The idea that breaking up big banks this would “hurt our ability to serve large companies” is often claimed by Jamie Dimon and some other bankers.  But it is contradicted and refuted by the CEOs whom Chris Dodd cites.  If you find a CFO from a nonfinancial US company who would like to discuss this in more detail (preferably in public, but we also talk to many people off-the-record), send them along – so far, no bankers have accepted our challenge to come out and debate.

On the idea that individual banks are more risky, this is obviously disingenuous.  As Summers knows very well, the “risk of failing” depends on the amount of capital that banks have.  Large banks have long believed they need less capital because they are well-diversified, but the weaknesses in their thinking were painfully exposed in September 2008. 

Again, if you know a top banker who is willing to discuss in public how their risk management systems – broadly and appropriately defined – failed in 2008, and how those flaws have been fixed, please ask them to speak out in detail and with specifics.  I understand they may be reluctant to engage in an open debate, but how about at least producing a working paper that has some verifiable evidence in it?

Summers is right that small banks can fail – in fact, they fail all the time in the US and he likes the FDIC resolution mechanism so much that he is proposing this as a way to deal with all financial companies (even though it cannot, by definition, work for large cross-border banks because it is not a cross-border authority).  We need a financial system in which firms of all kinds can fail – without this, you no longer have any kind of “market” economy.

So the heart of Summers’s claim is that (1) small banks would all fail simultaneously, and (2) this would be more costly to deal with than what we faced in September 2008.  Claim (1) is implausible – nothing is that synchronized, including his main supporting episode (the S&L crisis).  Claim (2) is also not supported by any evidence – again, the S&L crisis was much less costly than the September 2008 fiasco (and after the S&L episode many people went to jail and even more thrifts went out of business – what’s our score on this round?)

Can Summers really claim, with any credibility, that a set of troubled smaller banks would have got the incredibly generous package of support received by the 13 bankers and their ilk?  Of course not, smaller bankers would have been fired, their board of directors would have been dismissed, and their creditors would have faced losses (as with all small bank failures).

And Summers – or others – cannot fall back on the 1930s to say “small banks are bad.”  The world has changed fundamentally since that time because we have deposit insurance.  The domino collapse of small banks was a result of retail runs.

As I travel round the country presenting 13 Bankers to audiences – including leading experts on these issues, as well as just deeply interested and informed individuals – “most observers” agree that breaking up big banks is an additional measure that would reinforce the Dodd bill and reduce system risk.  We agree that breaking up the banks is not sufficient for financial stability – we merely insist that it is necessary, particularly in a political system that has been so completely captured by the biggest bankers.

If you or Larry Summers have any evidence to the contrary, please send it to me.  Or just put in on the web in a way that people can assess and critique.

Why is this critical question for our country’s future being fixed up behind closed doors?  Why not come out into the open and have a proper public discussion as befits a democratic country.

Even better, let the Brown-Kaufman bill come to the Senate floor for a debate and an up-or-down vote.  What exactly are the opponents of this suggestion afraid of?

86 responses to “Two Senators And Larry Summers On Bank Size

  1. There is an old saying: Never attribute to malice that which can be adequately explained by stupidity.

    But in the case of Larry Summers, the “smartest guy in the room” (just ask him), I am afraid it is the other way around.

  2. “Anonymous” is me, of course. Stupid Intertubes.

  3. Dianna Jackson

    We watched you on Moyers. We watched Summers on PBS. He was unbelievable. You guys are the smartest guys in the room. We called Harry Reid. Our CA senators are on the right side of this I think.

    Keep up the good work. We really think that if we don’t get a good reform package passed, we(average retired Americans) will be screwed. Our financial security is at risk. Is there anything people like us can go to help the cause?

  4. “Bank size is suddenly the issue of the day – with politicians lining up to oppose any meaningful restriction on the size of our largest banks. Their reasoning is varied and all quite flawed….” –So claims Simon Johnson. But Mr. Johnson’s superior reasoning is obviously incomplete: Nowhere does he address the economic issue of bank size, i.e., the tendency under mature capitalism toward concentration and centralization of capital, oligopoly, and monopoly; a tendency accentuated by the corporate form of capitalism. This tendency is that of the evolution of the capitalist system as such; the subliminal imperative of all those voicing pro-bigness arguments that Johnson finds so flawed. In a word: Johnson is all about turning the clock back on capitalist evolution; a highly dubious prospect in any long run and, given the current balance of political forces in the USA, in the short run as well. Mr. Johnson is very strong in the fact of argument; but very weak in the argument of capitalist economic fact.

  5. Summers number 2 reason stinks like a number 2. so if one of the 30 hair salons here in Lansing were to fail for whatever reason (notice summers doesnt say why the bank would fail like 4 mismanagement) then all hair salons would fail?

  6. I watched the interview with Summers on PBS newshour
    last night. I am happy to see your response today.

    I truly cannot believe that anyone with a molecule of sense, would listen too a word that men had to say.

  7. soloduff, mr johnson is looking 4 open honest fact-based debate. y is what he proposing wrong? where is the evidence? i would also like to touch upon the point mr johnson makes about @ least bringing the kaufman amendment to the floor for debate. i think our democracy is currently so flawed that proper governing has been thrown out. elites now control everything so much that fixing problems have to b cleared by them

  8. another point i would like to make regarding size. in the 90s the big 3 auto companies outsourced subcomponent manufacturing because they wanted that diversity & competition to make everyone better. they knew that if one supplier failed, they could quickly switch without large production losses. y wouldnt banking work basically the same way?

  9. http://4.bp.blogspot.com/_l9XzMHIyUOE/S7kTPPqEzwI/AAAAAAAAAL8/_ahrZaRDMG0/s1600/Two+Clowns.jpg

    If these guys were half as smart as they think they are they’d be ten times smarter than they are.

  10. Summers: “Jeff, [limiting size] was the approach America took to banking before the depression. That was the approach America took to lending in the thrift sector, before we had the S&L crisis.”

    So disingenuous, rotten-cherry picking at its worst.

    America had small banks all throughout the remarkable period of stability from New Deal through the 1970s. As the current period of turbulence began in the 1980s, we saw both a large bank crisis (Latin American debt crisis) and a small bank crisis (S&Ls). The large banks were coddled via subsidy and forbearance, and survived to fail another day. As Simon points out, the small banks were resolved in a way that preserved bankers’ incentives to be prudent. There are a variety plausible causes of the S&L crisis, but smallness is not among them.

  11. As far as the S&L crisis causation—”The Keating Five” springs to mind. Which included our Republican Presidential wannabe of the 2008 elections. His name escapes me now. I think he’s from Arizona or one of those states where you occasionally see a Mexican illegal darting across the road headed north.

  12. Keep in mind Obama selected and supports Summers — as well as Geithner, Storch, and Bernanke.

    The whole banking reform dance from the Administration is a form of Kabuki theater – though I “worry” about disparaging Kabuki theater. Just think of the Administrations performance as more smoke & mirrors, lies and deception, and perception management.

    I want them all tried for treason.

  13. Dianna,
    Leave your bank and join the nearest Credit Union.
    http://www.creditunion.net/
    Make certain your credit union belongs to the NCUA
    http://www.ncua.gov/

    Membership rules for Credit Unions are much easier than in years past and most likely they can get you in somehow. Then enjoy higher rates on your savings, lower rates on your loans, and better service.

  14. Dianna,
    After you’re sure all of your money has been transferred out of your bank and they hold nothing on you, make sure to tell them you don’t like being crapped on and paying for “off balance sheet” transactions (derivatives and swaps) with your tax dollars. When they look at you, acting like they are bewildered, say “Sir, you got a F-ing hearing problem???”

  15. Called both senators earlier today; one’s voicemail was full so I got her senatorial staffer on the line and also spoke to staffer for the other Senator: telling both staffers to tell their respective Senators that if they want my vote in November, to urge the Senators to support the financial amendment proposed by Senators Brown and Kaufman.

    Maybe…. just May be…..

  16. As someone who knows large bank operations well, I have to laugh out loud at Summers, who is the personification of arrogance.

    Simon, take a look at how a large bank like Wells Fargo runs its retail banking operations. Notice that they call bank branches, “stores.” And that’s where the scam merely begins. Bankers are salespeople and yes even tellers. They’re told to make sales or they’ll be fired. So what do they do? Commit fraud on a *massive* scale. This means that ordinary customers are sold various “products” that are merely devices for fee extraction. Take a look at their debit cards or their “credit reports” or opening all sorts of superfluous accounts. When that fails, bankers and tellers are forced to open accounts for each other and their own families. This of course causes their credit scores to decline as their credit is checked each time.

    And Wells Fargo isn’t the only one.

    You thought you shouldn’t trust your banker. Well, you really shouldn’t.

  17. save_the_rustbelt

    In an MSNBC interview today Rep. Barney Frank said bank size was not one of the major issues.

    So what do the Democrats really want?

  18. S.J……Why is this critical question for our country’s future being fixed up behind closed doors? Why not come out into the open and have a proper public discussion as befits a democratic country.

    Indeed. On issues this important to the American people where is the presidents campaign promise of greater transparency? This is a far cry from change we can believe in. In fact, it is business as usual.

  19. “(1) small banks would all fail simultaneously…Claim (1) is implausible – nothing is that synchronized, including his main supporting episode (the S&L crisis).”
    -Completely agree.

    I believe that those who say if we break up Goldman for example we would just have say 10 smaller banks with the same risk matrix do not have a leg to stand on. People with this idea, in my opinion, fundamentally misunderstand the banking industry.

    Prof Johnson’s idea is to let the bankers design a restructuring plan makes since they do have investment banking departments. Lets go further… Anyone who worked at a large investment bank knows that the management structure and organizational structure is more or less split by asset class. For example: Capital Markets: Fixed income desk, Equity desk, currency desk, M&A, Investment banking; Commercial banking: auto loans, home loans….we could go on.

    Anyway the only logical way to break up the banks is by Asset class: Goldman Sachs/10 = Fixed income firm ABC, Equity Firm XYZ, Boutique Investment Bank 123 and so on.

    No asset class has negative correlation, but for the most part these different asset classes are not perfectly correlated. Risk would fundamentally change. A banker may say well that’s why we need these monstrosities because they diversify “our” risk away. The problem with that is they get extreme market power (the top banks hold 95% of industry assets or so), which leads to monopoly pricing of basic financial services.

    Break them up = less market power, less political power and less risk because once banks are allowed to fail the governments implied insurance policy (subsidy) is removed. The bankers would then be playing with their shareholders capital competitive markets would then be able to work their magic. Gambling and losing capital would = unemployment not an 8 figure bonus for being better then Lehman.

  20. “Large banks have long believed they need less capital because they are well-diversified, but the weaknesses in their thinking were painfully exposed in September 2008.”

    Technically the banks seem to be correct here – regional banks that have capital concentrated in particular cities or industries have higher risk. The argument needs to go a bit further:

    First, smaller banks have options to sell or partly sell assets (much like re-insurance), thus allowing small banks to benefit from some level of diversification. So the advantage of “big” is probably overblown.

    Second, and perhaps most importantly, because large banks feel they are more diversified, they allow their individual departments to engage in riskier behavior to seek higher yields. In other words, the diversification achieved by size merely encourages banks to push their risk tolerance even further – which exposes them to severe risk when asset correlation rises in a downturn AND forces smaller banks to follow their lead or lose market share. (This is a separate argument from moral hazard.)

    I cannot for the life of me figure out why smaller banks are fighting on the side of their bigger cousins here – not only do they not benefit, but they actively lose. Why so much banker solidarity?

  21. Barney Frank, Chris Dodd, Summers, Geithner, Bernanke, Emanuel, and the other members of our ruling oligarchy will fight tooth and nail to preserve the big banks’ power. After all, that’s the source of their money, and that’s where their best friends and future jobs are.

    Fighting TBTF was always a game to these jokers. They have no intention of breaking the power of the banks.

  22. WendyinCalif

    I agree.

    Why do we put money into a bank…because it has highest rate of return on deposited cash. The attractive rates will fall as few banks compete for customers. Low interest rates, then put my cash in the stock market, do we have a choice if we want to compound our money…no. Then, the same thing happens all over again with the next artificial and manufactured bubble was these men rip through the country’s assets like a locust infestation.

    These men know what they are doing and have decided being that rich is worth the trouble.

  23. Ted raises an even deeper point in that the moment we all think that those in power have all the power, then we have lost it all.

    We all have real power if we use it (except for me as I’m still only in the US as an English tourist – but I’m working on correcting that!).

    Indeed, the ‘web’ technologies are, at last, bringing real power back to the citizens – and it’s much better than the gun! ;-)

  24. True story smaller banks and corporations drank the kool-aid on this one corporations and even buy-side investment firms pay some of the most exorbitant monopoly prices.

    In the FT today Soros says “It is more puzzling that some of the multinational corporations are opposed [to financial regulation]. The only explanation is that tailor-made derivatives can facilitate tax avoidance and manipulation of earnings.” That is certainty true but its more then that they drank the free market fundamentalist kool-aid and these managers cant see this fact through their warped view of the world.

    of course we also need leverage control, a clearing house for derivatives, consumer protection, etc…. preaching to the chorus I guess.

  25. Great read Simon.___First,nobody sees legislation today until passed (communism/closed political system)? Second,I never hear about financing from “Venture Capitalist” being a problem (think about it)? Third,Lawrence Summers is not a Lawrence Lindsey (1st Chief Financial Advisor/ WH,Bush#43)or Mr. Paul O’neil (1st Treasury Secretary/WH,Bush#43) the two bravest,and honorable Americans of the 21st century. They literally committed political suicide,and were fired immediately when they told the world that Bush’s(#43) War’s would cost upwards of one-half trillion dollars. Oh,and by the way Mr. Ben Bernake was Bush#43 top economist,and housing advisor before becoming the Federal Reserve (2006)Chairman. Fourth(final),this will throw a monkey wrench into Mr. Summers rational: The Neoclassical Growth Model( late 1950′s)the Business World’s Gospel used by(small,midsize,and largest) the Industrial/Financial Sectors – “Solow-Swan Growth Model”! Thanks, and please “Keep-Up the Good Digging for America’s Sake”

  26. Simon, my response is simple. The reason no one does a paper or offers to debate is that they just don’t have facts on their side. But when, if ever, in this democracy, did a politician, now a card carrying member of the plutocracy, allow facts to get in the way of rhetoric? I hope that you keep your optimism. Sadly, I have none left. They talk about legislation as verbal sausage making, but now the sausage, still not a pretty picture to watch, is being made from intellectual rotted meat. We shouldn’t have to eat it, and need, desparately to get back to having a real government of politician who have not been fully and fatally intellectually and fiancially captured.

  27. I think the Henry Ford quote was “Whether you think that you can, or that you can’t, you are usually right.”

    If you keep pounding out the logic some will seep through. The legislation will not be perfect, but that’s only the battle the war is with the ideology.

  28. You must be new here…

  29. “Why is this critical question for our country’s future being fixed up behind closed doors? Why not come out into the open and have a proper public discussion as befits a democratic country.”

    They’re getting ready to sell out again, just like they did on health care. Prof. Johnson, I think even you are an outsider in this process. As in health care, it begins to seem that everyone who wants to solve the problems in good faith is being shunted aside to make way for the money. I’d really like to know who the insiders are, aside from your 13 bankers.

  30. It beggars belief that Larry Summers has any credibility to pronounce on financial matters given his track record managing Harvard’s endowment which lost close to $1 billion under his guidance by entering into poorly chosen derivatives positions.

    I don’t care how many awards he has won or papers he has published–he is the financial equivalent of Paul Wolfowitz in foreign affairs–an extremely dangerous and stupid individual who has convinced a handful of powerful people that he is extremely smart. A marine officer in Iraq once said of Wolfowitz–”He’s the dumbest motherf@#^&# I ever met.”

    IMO, anyone with a shred of common sense is forced to render the same judgement about Summers. The guy simply has no capacity to learn from his mistakes. At least Greenspan was intellectually honest enough to admit he was wrong.

  31. Simon,

    YOU are doing “God’s work” on this!

  32. Larry Summers, born of bankerly ethics, dangerous and powerful.

    Speaking of his papers, he once suggested that it was a good idea for the U.S. to export its waste to third world countries. I kid you not.

  33. David de Jong

    Simon, there is one major flaw in Summers argument regarding the strength that diversification offers, and that is that he only mentions funds moving to prop up a failing deposit taking division and completely ignores an opposite transaction.

  34. Statsguy,
    You better tell these 7 banks in Illinois that were shut down (Friday April 23) that “the advantage of ‘big’ is probably overblown”.

    Plus the 50 other bank failures in 2010, 140 banks in 2009, and 25 failed in 2008. All those banks are curious to know why AIG and Goldman Sachs are still in business and they are collecting dust. Let them know when you have the answer for that Statsguy.
    http://finance.yahoo.com/news/FDIC-shuts-down-7-banks-in-apf-3746090585.html?x=0

  35. Too much dogma about free and unfettered capitalism is what got the US and the world into this hole. The first rule for getting out of a hole is to stop digging.

  36. Two points that might or might not temper Simon’s points:

    1. In a world of imperfect information, breaking up banks into smaller pieces will not prevent herding as actors learn from each other leading to greater co-movement in behaviour and potentially systemic consequences. Arguably one form of bailout will be replaced by another, even if it doesn’t involve identifiable banks. The question is then to understand the welfare and distributional effects of each bailout.

    2. The relationship between competition and risk is not straightforward. There’s an unspoken assumption that breaking up banks will lead to more competition which is a virtue per se; but the case is more ambiguous. To the extent competition pushes down returns, it may lead to more aggressive risk-taking as banks seek to compensate for lower profits and/or go for broke because they have less to lose. This point is made clearly in the bank charter literature -and again if enough banks face similar incentives, micro behaviour can easily morph into macro-behaviour with dangers for innocent bystanders…

  37. “Since 1995, the assets of the six biggest banks have grown from less than 20 percent of GDP to more than 60 percent”(Washington Post).

  38. Have read the comments on breaking up the mega banks, but have never seen an example of how it should be done. Take JPM or BAC and show how each could be broken up to meet the objective of an asset limit of $100B. Sale to another financial institution? Spin off to the same shareholders? How would the credit card business be broken up? East/West of the Mississippi? Platinum and Gold card in one bank and the rest in another bank? Or sell the credit card business to Bank of China? What should be the fate of the transaction businesses such as domestic and global payments, global securities services? I think specific examples of how to implement your strategy will make it real and better understood.

  39. Dead-on Simon. Robert Reich had an excellent piece about so many important decisions made in back-rooms, done deals, without any public hearings, denying citizens any opportunity to express their sentiments through their elected representatives.

    http://robertreich.org/post/367059482/our-incredible-shrinking-democracy

    What ever happened to President Obama’s pledge for an open and transparent government?

    Simon, write a letter challenging the Banks to a debate over financial reform and have it signed by every major economist. Have it printed on a full page in the NY Times and WSJ. Get Jim Lehrer and/or Bill Moyers to moderate.

    Pose the challenge as Ben & Jerry’s did against Haagen-Dazs: What’s the Pillsbury Doughboy afraid of?

    http://www.rezoom.com/money/from-the-vault/read/5679/

    Upload a catchy video on YouTube with the challenge. Get Jon Stewart and Stephen Colbert on board.

    We can picket outside the banks on Wall Street demanding a debate. The news media will have a field day.

    Ask your faithful to donate to the costs.

  40. To hear the Randroids tell it, the solution is to keep digging till you see the Forbidden City.

  41. It is difficult to figure out whether Summers’ positions are based on free-market doctrine or membership in the politico-financial complex. In either case he seems unable to think independently of the current received wisdom. At best, his argument is inductive and dismisses contradictory evidence–as posited by SJ. In particular, the diversification claim is specious. Diversification is achievable in numerous ways, and is not a real, or conventional application found under the roof of one business entity. Summers is talking about horizontal integration, which lies at the heart of TBTF. Or, conglomeration; conglomerates are always advocated as the model for efficiency; they consistently fall apart. Bigger is better is a fantasy. Such behemoths are difficult to monitor and control, for every division that thrives others under the monolithic roof suffer. Sandy Weill’s Citi-supermarket is the poster-child for this. Clearly, the incentive for due-diligence diminishes when a financial instrument is passed from one division to another rather than tendered from seller to buyer. It is all about control; a game in which points are measured in dollars; where he who dies with the most wins. Purpose and service is lost–even dismissed as irrelevant. Ego is insatiable.

  42. Obscenly rich…Has a better ring-lyric and truthier.

  43. The new GM commercial about “being back” after getting a second chance eloquently illustrates where Obama is with respect to the globalism, corporate finance and the “New Economy.”

    The automaker received U.S. subsidy so that it could bust its domestic union contracts and commitments with respect to wage and health benefits secured through collective bargaining agreements. Simultaneously, under U.S. government control, the “socialist” Obama (as the right wing loves to call him) assisted the manufacturer in outsourcing much of the little auto mobile production left in the U.S. to Canada and other lower cost labor markets.

    Regardless of what the American public thinks of unions, the message is clear: Obama’s loyalty is to corporate persons.

  44. David de Jong

    You’re quite right. TBTF is actually misleading, although it sounds good. A better structure would the one JohnnyO suggests in an earlier post. A company such as BoA, would become a holding company for a number of individual companies with different rules and regulations applicable their operations.
    People forget that the original bailouts, worldwide, came about due to a sudden rise in the interbank lending rate caused by banks fearing borrowing banks might be overexposed. This led to a total freeze on liquidity and borrowing resulting in government lending to the banks.
    What Summers is patently ignoring is that it was the non deposit taking divisions of the bank that caused the liquidity problem for the normal banking division.
    It was a bit like trying to pay your monthly bills, only to find that your partner has bet all your money on the horses.

  45. What amazes me is that no one is taking on a thorough examination of ‘risk’ and what that really means. Housing was assumed to be the safest investment one could ever make for about the past 80 years. Only in the last two did it become risky. Risk and size at simply too vague, some very definite lines in the sand need to be drawn, no prop desks can be affiliated with retail banks; the larger you are the smaller your capital ratios must be (less leverage); FDIC and SPIC insurance should be much higher; including leverage a bank may not have more than 10% of it’s total capital in one investment category.

    Face it, you won’t be able to control size or risk but you can put a lot of roadblocks in the way and impose enough ‘penalties’ it wouldn’t behoove companies to be as large.

  46. Every freaking bank they ‘absorbed’ in 90′s should be spun off-just like the frenzy of cosolidation at that time. You could call it, I don’t know, The Adam Smith Competetion Act.
    J.P. and Bear S. should be investment banks(and not allowed FED money), Chase-commerical. CITI should divest and get rid of Travlers Insurance and Solomon Smith Barney, and broken up. BAC should obviously lose Merill and all the ‘smaller’ banks. All should be split as often as it takes to get it done, and letting the Euros and Chinese deal with them as they wish. How about incorporate the bank IN THE COUNTRY they reside in, thus, and call me crazy on this one, invest in the local economy.

    To those who think losing these ‘banks’ will make us non-competitive, question, “Are there still investment and big banks still around? How about Lazard and Northern Trust?–both fiscally responsible and large.

  47. The critical decisions are being taken behind closed doors because that’s how an oligarchy works. Come on, Simon, I know you’re smarter than this. And what do you mean, “our” country?

  48. “The story of Robert Rubin’s life is one of influence and applause for his talent and intelligence. But if we balance his losses with his successes the net results would indicate a man whose central idea has been an unmitigated disaster. In a few months or collective reality, all the spun sugar financial empires built up by Rubin and his followers have vanished. Huge profits remain in the hands of a very few, but America as a whole is much diminished.”

    I wrote this regarding Robert Rubin – however it applies equally to Larry Summers. Hubris loses it power to explain their behavior.

    But we need to understand this. Behind every public disaster that the financial carny barkers have created there has been a huge profit for those at the top. According to BusinessWeek* last year the number of affluent went up 12%, miilionaires 16% and multi-millionaires increased by 17%.

    We are on our way to third world income distributions. Not to worry however, income can be had from the poor. Merely look at the Forbes **richest man in the world who made his money in Mexico. Yes, Mr. Smith blood can indeed be got from a stone.

    *Businessweek http://www.businessweek.com/news/2010-03-09/u-s-millionaires-ranks-rose-16-in-2009-study-says-update1-.html

    **Forbes http://www.forbes.com/2010/03/09/worlds-richest-people-slim-gates-buffett-billionaires-2010-intro.html

  49. Although the 2008 financial crisis was sold to the world by Treasury and the Fed as a liquidity crisis, it was, is and will most likely remain an insolvency crisis. It “will” because even with massive U.S. tax payer subsidy, massive increases in base money (< ~$13T since the end of 2008), regulatory forbearance and "creative accounting," the TBTF institutions are still under water with respect to toxic assets.

    Record (or near record) and obscene "post-crisis" profits by Gold Sachs, et al. not withstanding, it does not seem possible that the remaining U.S. financial institutions could unwind the lion's share of a quadrillion dollars in global derivatives instruments floating around the world before the crisis, especially without an international debt sharing arrangement.

  50. a letter i wrote to the ft:
    Sir,
    For well over a year now I have been writing the editorial staff regarding the danger of having a few financial oligopolies dominate the market place. I have expounded upon the conflicts to effective functioning of the capitalist system in having under one roof all of the functions of a modern large investment bank. Origination, sales, prop desk, trading positions, market maker, analyst, liquidity provider, etc. Surprise, surprise, investigations reveal problems with Goldman and cds origination and sales, the influence of big banks on the rating agencies, and now Ms Tett points out a fact I haven’t even thought of which is taking legal action against an “all powerful financial firm”. (Goldman roles in spotlight Pg. 13, bankers influenced ratings agencies, )

    None of these events come as a surprise to me, and if one thinks about the situation they are/were to be expected because of the design flaws inherent in the current system. This is why I have no problem discussing stock market manipulation. If any one firm trades a high percentage of the market the market has the potential to be manipulated, and in fact I would define it as manipulated. The structure encourages bad behavior. Remember for every event that comes to light there are likely many more that never reach public scrutiny. Even if these events never occurred, it is clear on theoretical grounds why having such concentrated power in a financial system is damaging to market function. Just on the principle of excessive pricing power and (banks charging too much for their services) and the barriers to entry the industry should be broken into smaller pieces. Add the potential/expected conflicts and what should happen is clear.

    I would like to add that had the Goldman cds deal gone through more firms would it have seen the light of day? If Goldman had put it together, but not been the seller would the seller of the cds performed due diligence and refused the sell the product.? In a system that provides itself on the ethos “buyer beware”, the more hands that check the product the more likely problems are to be caught.

    this from the ft:
    http://www.ft.com/cms/s/0/5969788a-4e3d-11df-b48d-00144feab49a.html
    “So the world needs to move towards making its financial system more robust and simpler. Banks must be smaller, better capitalised and less interconnected. That means predictable insolvency regimes for big financial institutions. Banks must also issue more debt that automatically turns into equity in a crisis. There must, in addition, be investigations into why there is so little competitive pressure in the sector.”
    NOT A LIBERAL PAPER

    my letter to the nytimes:
    I don’t think policy makers focuses enough of the hazards of having all functions under one roof.
    i.e if goldman originated the bonds, but couldn’t trade them on their own prop desk would the outcome have been different.
    the ability ease of potential fraud by financial supermarkets is too great.
    one point never mentioned is that if a few firms dominate trading on the exchanges the exchanges don’t function they way they should. (makes manipulation)
    i like the invisible hand stuff, but you need a lot of hands to make it work.
    goldman buys the mortgage company, builds the bonds, sells the bonds, trades them on their prop desk, makes the synthetic cds that trade along with the bonds. now don’t you think he market would function better if “one” company didn’t do all those roles.
    Like Haldane and turner you have to structure the market to achieve what you desire. the current configuration promotes ease of fraud, manipulation, concentration of political power. you got to end federal subsidies at the trading desk and using deposit money for trading. you want to raise the costs of trading, so that lending (which in theory helps the economy) is the primary income stream.
    in the current quarter the big banks have made their money trading. not lending. Note, this also destroys the major transmission mechanism of fed interest rate policy. they don’t lend, but use the cheap funds to trade and purchase higher yielding securities. no transmission of monetary policy. In fact starve lending, keep the free money flowing, continue to make outsize profit from trading. the very system incentives what you don’t want!!! the goal is to make stability an socially useful functions. So yes you don’t get all by getting rid of too big to fail, but you make much of the garbage of the system easier to deal with.
    A small firm that just did what goldman could be shut down and closed. if they just were a trading house they could not have built things to fail, sold them, in theory each separate function acts as some potential police. all under one roof destroys this. If goldman was corrupt to the core, there’s nothing you could really do under the current system.
    market makers, originators, supplemental liquidity providers, owners of trading platforms, the list goes on and on. Being to big to fail concentrates economic power making them indispensable.!!
    the markets would work better with smaller firms. more competition for services, so they have less pricing power. (can’t rip off municipial bonds anymore)!!!

    Krugman on size:
    http://krugman.blogs.nytimes.com/2010/04/18/six-doctrines-in-search-of-a-policy-regime/
    Size: Clearly, there was a massive increase in financial concentration, with a few true behemoths emerging. It’s easy to argue that this creates moral hazard, because the giant firms know that they’re too big to fail – which is also an easy slogan to remember. The idea that size is the problem has gained a lot of credibility from Paul Volcker, who personally embodies the truth of too big to fail (if you’ve ever met him); more seriously, Volcker has argued strongly that the repeal of Glass-Steagall, allowing financial firms to grow big in part by merging conventional banking with investment activities, set the stage for the crisis.

    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. But I’m not sold on the centrality of too big to fail to the crisis, for reasons best explained in terms of the second doctrine.

    THE POINT i AM ATTEMPTING TO MAKE IS THAT THE ISSUE OF SIZE GOES WAY BEYOND THE SINGLE ISSUE OF STABILITY. THEREORE, THE DEBATE SHOULD NOT ONLY BE FRAMED WITHIN THIS CONTEXT

    1) political power
    2) pricing power and competition
    3) the very theory of how the market functions (invisable hand, potential manipulation, conflcits of interest designed within the system, potential fraud)
    4) matching design with desired policy:
    the big banks can effectively starve the system of capitial, this keeps the fed funds rate low, and allows them to continue with massive trading profit. this means they may do better starving main street instead of helping it. it destroyes the federal reserves mechanism of transmission of monetary policy
    5)it makes the economy hostage to a few firms. effectively they cqn blackmail the government

    if you are goldman sachs, and have enough short positions you make money in your prop desk dropping the market. you do so until you get the policy response you want from the fed (zero interest rates, QE, become a bank holding company, get rid of mark to market). the huge banking oligopolies have a perverse incentive to ddestroy things becuase the more they do the more they gain

  51. David de Jong

    I agree. But the original problem was liquidity. The fact that the investment divisions were technically insolvement once the deriveratives were shown as being worthless assets, is where the problem lies. The deposit taking divisions were operating normally until the reality hit the market that their investment divisions were holding assets that were actually toxic. So I don’t understand why Summers is advising against splitting the two.

  52. lam

    we need this pseudo populist rah rah to rally the fear of the people response
    in the non bloody minded wing of the elite

    there are contradictions between hi fi corps and reular economy corps
    we the weebles have elite allies
    mostly in brand x places
    but we oughta keep up the bally hoo

  53. The “big businesses need big banks” argument is a circular one. The too big to fail phenomenon applies to both businesses and banks. Remember GM, anyone? According to the EMH and MPT school, systematic risk cannot be increased or decreased. So presumably the size of the banks or businesses cannot affect systematic risk. However, diversification can reduce unsystematic risk. If the incompetance or occasional misstep by CEOs is an unsystematic event, limiting the size of banks and businesses will create more players and a more diverse business universe, thereby reducing unsystematic risk. So the risk argument also favors limiting size. And not to mention ECON 101, which tells us that competitive markets (the ones where the invisible hand is presumed to work well) requires large number of participants whose actions cannot influence the market. I like to hear Summer’s assumptions that lead to his conclusions.

  54. “concentration and centralization of capital”

    what does this parochial recitation add ???

    at that exceeding weak level of illumination
    all modern corporations are black

    you fail to notice

    “contradictions among the corporation”

    you notice a flow towards greater
    “socialization ” of the “capitalist” economy
    and fail to attend to its zig zags
    in particular
    the back and forth
    of the interfacial divide between
    public and private “bourgeois ” institutional forms of socialization

  55. then welcome the new mate on board
    playing de facto gate guard is chuch lady crap

  56. I take it then that nationalization is completely out of the question? Too bad. Otherwise they could be given a choice… Break yourselves up “voluntarily” or be nationalised and we’ll do it for you while you make license plates.

  57. Submerging Economies. At least the captains are more than willing to go down with the boat… Unless their plan IS to scuttle the ship and then make a sneaky escape to the New New World…

  58. That’s a good one. I wish it were true. I don’t know, but I’m afraid that they are at least half as smart as they believe. Their failures are caused less by ineptitude than by (what most of us would consider) misplaced priorities.

  59. But (very roughly) isn’t that what both Roosevelt’s did, and what has periodically saved us from that undesirable natural capitalist end-state. Can’t we have another saving reset at this time?

  60. My reply was to “Soloduff”.

  61. What they really want is to keep shoveling in bribes (campaign contributions) and keep getting reelected. It is the only thing Democrats have wanted since Adlai Stevenson proved that wanting anything else was madness.

    The Democrats don’t have to fool the followers of this blog. They only have to fool a plurality of those who are content with blissful ignorance and value their vote as a measure of their self esteem.

    One moron, one vote. This is what you get.

  62. I donno. From my (always very incomplete) study, the burdens the unions put on the automakers were awfully, awfully onerous. I think this is a case where there’s two legit sides to the argument. People had been retiring with enormous pensions in the aggregate that drained resources significantly. “Free” enterprise is bad, government is bad, unions are bad, All, from time to time. We make a mistake when we isolate one and label IT as the problem. Usually, I think, that tendency amounts to propaganda, designed to accomplish a disguised objective.

  63. If anyone doubts that under the current structure the banks by not lending keep the fed fund rate low and enhance their traing profits. They inflact have AN INCENTIVE TO “STARVE MAIN STREET” look at this: Our currnet sysem is structured so the big banks have a financial incntive to screw us. I did not see this before, just predicted their behavior based on the current system.

    Mega-Banks Which Received Bailouts Slashed Lending More, Gave Higher Bonuses, and Reduced Costs Less Than Banks Which Didn’t Get Bailed Out
    Submitted by George Washington on 04/23/2010 19:38 -0400

    TARP

    USA Today points out:

    Banks that received federal assistance during the financial crisis reduced lending more aggressively and gave bigger pay raises to employees than institutions that didn’t get aid, a USA TODAY/American University review found.

    ***

    • Lending fell. The amount of loans outstanding to businesses and individuals fell 9.1% for the 12 months ending Sept. 30, 2009, at banks that participated in TARP compared with a 6.2% drop at banks that didn’t.

    • Employee pay rose. Average pay at banks getting aid rose 9.4% in the program’s first year. By contrast, non-TARP banks increased salaries 1.8%.

    • Cost-cutting limited. Banks in TARP cut costs less than those outside the program. Government-aided banks increased branches by 2.7% while non-TARP banks cut branches by 1.2%.

    This helps to confirm what I’ve been saying for many months: breaking up the too mega-banks will actually increase lending to small businesses and individuals.

    Breaking up the giant banks is also required before derivatives can be made transparent. See this, this and this, and to stop the big banks’ domination of American politics.

  64. Re: @ giulio….Yes indeed,God’s work of rigtheousness for all the people. A unique altruistic individual is he,…

  65. Simply put the banks are “Top Heavy”,as previously depicted in Lehmans collapse onto itself.

  66. scary … Larry Summers in drag … ouch!

  67. Re: @ EC….KISS (please take no offense). Basic flow chart: #1)Bank Entity Only(Re-organize Charter)____#2)Credit Card Issuer Entity only(ammend interstate commerce laws/int’l. commerce laws)____#3)Investment/Brokerage Entity (modify existing rules&regs.for stand alone)____#4) Insurance Entity(modify as all above to pre-existing Glass-Steagall Act) ie.) the format is quite easy to work with within the parameters shown.

  68. Smaller banks will still be able to serve large corporations, and meet all their credit/financing needs. But they won’t be able to serve so many, nor serve all of the credit/financing needs of very many. And this is what the bitching is about. The very few largest banks would like to perpetuate their oligopoly and the bonus pools.

  69. I need a quick response to this if any of the regular readers and posters feel so inclined. Day before yesterday, or so, Simon suggested that we call the President and our senators to push for that Brown-Kaufman amendment. I flippin’ forgot to do that. Someone please tell me, is it too late for that? Have they moved on? Should I call, and what should I say? I need a little coaching. I contacted my congress-people several times regarding the healthcare initiative. After it was all over I realized that I had contradicted myself repeatedly. I don’t want to do that again.

    Thanks in advance. I will continue to monitor this.

  70. In an attempt to refine regulatory realities, Senator Dodd holds that “It’s not size; we’re preoccupied with size. And I’m not suggesting that any size is okay, but it’s really risk, it’s these other elements in here.” But in a world of financial complexity, innovation, and bubbles, I argue that it is “randomness” that includes both uncertainty and risk that should become the main focus of robust capital market governance.

    Uncertainty is different from, rather than a higher degree of, risk. This distinction was made famous by economist Frank H. Knight in his seminal book, “Risk, Uncertainty, and Profit” (1921). Risk refers to situations in which the outcome of an event is unknown, but the decision maker knows the range of possible outcomes and the probabilities of each. Uncertainty, by contrast, characterizes situations in which the range of possible outcomes, let alone the relevant probabilities, is unknown.

    Accordingly, capital market “Too Random To Regulate (TRTR)” governance dilemmas are framed by three questions.

    1. Does uncertainty exist in the capital market to a material degree?
    2. If so, can it be regulated by one-size-fits-all deterministic governance?
    3. What metric(s) demarcate risk from uncertainty in the capital market?

    These questions, in turn, engender the following responses.

    1. As there are innate complexities in the capital markets, the element of uncertainty always will be a part of complex adaptive systems.
    2. Absent randomness segmentation, indeterminate information cannot be processed effectively and efficiently by determinate metrics.
    3. The bright line that demarcates determinate from indeterminate underlying economic condition depends upon structure.

    The conflation of “risk” and “uncertainty” exacerbates capital market structural problems thus accelerating the troubling trend of larger and more frequent economic dislocations. It is not so much the riskiness of the structural processes related to proprietary trading, hedge fund, and/or private equity that is troublesome, but whether the instruments’ contractual randomness contained in the portfolio’s investments are of a “risky” or “uncertain” nature.

    The prime governance issue is whether it is more preferable to solve the “symptomatic problems” of scale that is “Too Big To Fail (TBTF)” and scope that is “Too Random To Regulate (TRTR)”, or whether it is preferable to fix the “market foundation” by segmenting the underlying economic condition in terms of predictable, probabilistic, or uncertain governance regimes.

    Stephen A. Boyko

    Author of “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System” and a series of articles on capital market governance.
    http://w-apublishing.com/Shop/BookDetail.aspx?ID=D6575146-0B97-40A1-BFF7-1CD340424361

  71. The point is we live in an oligarchy where monied interests control the political process and key economic decision making. This truism, which I contend most of us live in denial about, is being painfully exposed in the political scene right now. Doesn’t matter who is in power, how “well meaning” they are, decisions that reduce the power of the banks and financial institutions will NOT be made by politicians brought into power on the dime of the same institutions. We just have to face that fact. Either we limit the role of money in politics, and the revolving door between the financial aka gambling industry and government, or nothing will change.

  72. 57 banks closed by the fdic this year to date after 140 last year.

    http://online.wsj.com/article/SB10001424052748703988804575203792572442802.html?mod=WSJ_latestheadlines

    we are currently winding down 2 to 4 “small” banks per week. where are the OMG systemic risk the world is failing headlines? oh that is right there aren’t any because these banks are small enough and undiverse enough (is that a word lol) to be wound down and allowed to fail. and in my world this seems proof that the public statements against the brown-kauffman amendment are indeed malarkey.

  73. Just watched Bill Black on PBS. Awesome guy. Same for Bill Moyer sorry to hear he is retiring.

    I’d like to nominate Simon Johnson and Bill Black to debate Jamie Dimon and Larry Summers on bank size. Suggested venue? How about Syracuse University :)

    But the question is: Would Dimon and Summers accept the challenge for a public debate?

  74. What would be the reason Summers or Dimon would debate Simon Johnson or Bill Black? Johnson and Black have nothing at stake. Nothing to surrender while Dimon, in particular would. We are dealing with a survival issue for Dimon.

    Along these lines, I cannot wait to see which Momser prevails in the contest between Blankfein and Levin. A number of people I talk to regularly are all agog over the pittance selections Levin made cherry picking millions of items with a congressional staff. What was picked was the thunder and lightning? But,I think Levin is as big a momser as Blankfein. Evenly matched I think. It will depend on who was fighting longer and dirtier.

  75. A view from Europe:

    For everyone interested in this matter, and, eh, if anyonne would care to send it over to Larry Summers,
    not at ease with numbers as Harvard well knows nut maybe do he still read other things than stories for
    BAM’s daughters ( what else is he doing in the White House ? Walking the dog ? )
    the transcript of Bill B;ack’s interview on PBS last night, where he rightly evokes ‘A criminogenic environment’:

    http://www.pbs.org/moyers/journal/04232010/transcript4.html

  76. “Johnson and Black have nothing at stake.”

    Well they are not elected officials so there is no personal political stake. But then Summers and Dimon are not elected officials either. So Summers and Dimon couldn’t take the heat … because they know they are wrong?

  77. Larry Summers is a lapdog of the banking industry…he is there to protect the banks’ interest first and foremost…he could’nt care less about the small businessmen…the homeowners…the pensioners…the average Joe…after his stint at the White House he will be welcomed with open arms at one of the Big Banks for being a “good soldier”…

  78. Dimon has his fortune and position to lose. Why take heat unless putting down the heat pays off? Taking on Carl Levin , for example, and making him look like a fool in the eyes the audience following congressional hearings would be a gain. I doubt he has the chutzpah to even try.

    I wonder if Dimon and the others at the top of the financial heap are capable of seeing that others might legitimately hold them as being in the wrong? These would be the very people they sprang from.

    A great deal of the political difficulties in solving the financial problem revolve around middle class angst. The classic Boobus Americanus written about by H. L. Mencken. The classic George Babbit of Sinclair Lewis. The detestable bourgeoise of the Marxists . They are still here , more than ever, as a social type. Proudly ignorant, given to simplicities that do not exist and seething with personal righteousness. My point here is that Dimon, Blankfein and the others cannot win approval against such an audience. They would be revealed as fools if they tried.

    One of the interesting aspects about the financial leadership is that the bulk of the big shots and amoral players came from the Boobi Americani or just below in the lower middle class. These players understand their source and know just how to play them.That is intellectually. They seem conflicted though. Honesty would destroy the play. What fascinates me though is that to the last person they do not know how to fold the con with a successful blow off. That is, they are hopelessly bourgeoise and true to their roots. They believe their own con. They are truthers for what they do.

    If you live off your savings , or aspire to do so, are you by definition a member of the classic bourgeoise. My brother is a mechanic working in local government. His view is essentially that of the worker. Labor. My view is that of the manager, about as bourgeoise as one can get. Blankfein’s father was a postal clerk. He obviously understands the class problem in America and decided to jump to the top of the heap. Dimon is a generational step from Blankfein’s situation.

    The message of America is you claw your way or die. You survive by being ” Dirty Harry”. As far as I can tell, there is not a single kid I grew up with that did not learn the facts of real life just as Lloyd Blankfein did. Then, did college confuse the issue? Certainly, a liberal arts education before might confuse early learnings. So, these people at the top of the financial heap might be very confused to say the least, as I see it.

  79. lol … so there are singular and plural forms of Boobus Americanus

    Dimon and Blankfein might be be conflicted and confused. But not so confused they would be caught in public defending the indefensible.

  80. typographicerror

    The issue I have with free market capitalist are (one) most of America’s big business; banks included are in favor of competition as long as the other guy has to deal with it. Big Tech, Big Transport, Defense Contractors all are either, Government dependent on Contracts for the majority of their income, thus really Government dependent enterprises. Or Like Big Pharma, Airospace, Airlines, Big Agriculture, Big Banks; dependent on Government to protect the market system that allows them to remain prosperous, impose barriers to competition. (Two) The most innovative parts of our economy and us the citizens are being sucked dry by these vampire parts of our economy because they are sucking more and more blood as time goes on. We need them, but not as parasites, but as cooperative organisms that help the competitive economy function and grow. We need to begin to treat trading for trading as a problem which drives up costs for the rest of us. We need to perhaps begin to treat billion dollar contractors which get the majority of their revenue from government contracts as Government Dependent enterprises and set rules for lobbying, campaign contributions, executive pay and profit margins because such big business is not getting it contracts overtime because it out competes but because it has a cozy relationship with its customer our government. (it is an OK relationship as long as you treat the “private” company as being an adjunct of the government) And how a private big business behaves and the government behaves is hard to tell apart.

    The major problem is we have very short memories especially policy makers and politicians. The S&L failure in the 80′s was basically the same problem we are having now. Only the where and the who have changed. And I blame policy makers with past or future interests in ensuring that the system allows for chaos so that the traders can make killings in the market; off the noise, chaos creates. If the system was tighter, then there would not be the level of chaos, inside info, inside deals, and speculative trading. Of course the Big 5 Banks need this trading chaos to generate the big profits and salaries they have become accustom to. My community bank pays its president under one Million a year in salary stock and bonuses. I do not think any of the big 5 bank presidents need to make much more. I am sure they think they need to make more though.

    In conclusion one we must think of our economic system as a whole system, and in parts like industry sectors. If the parts work against the concept of the whole, then we need to make changes to the parts so the our banking policy, or our airline policy or Ag policies support competitive business practices. Since our Banking policy has failed and allowed the traders to ruin the economy it is crazy not to make radical reforms instead of the incremental, ineffective changes which are the norm. Of course if Larry Summers, or The treasury secretary forcefully worked to make the system tight, they would have much less promising future job prospects. And have to deal with these large institutions breaking apart, and the bad feeling the big egos that built these companies would create. Just like there are some really wealthy families that still hate FDR for the New Deal, and Social Security and have worked ever since to undermine those changes.

  81. Then allow me to restate:
    People, do your homework before posting.

  82. With a $100B asset cap this KISS process becomes more challenging. Monoline credit card issuer funded only by wholesale funding-is this a better risk business than if the card business is in a bank-like the smaller banks. Etc.

  83. Dodd’s comment that this is about risk and not size shows he is either clueless or protecting the big banks. With greater size comes greater risk, that is pretty obvious. As a former regulator, I can tell you that a large bank exam was always more complicated than a small or mid size bank exam.

  84. There is a term that should also be used when describing these large financial firms:

    Too big for their britches.

    The financial industry is not mentioned in the Constitution, so there are no checks and balances on them. These “firms” control too much money – any one of the firms is larger than the United States was at its inception – yet they are not subject to election by the population as are legislators and presidents and governors and mayors and city councils. They are beyond the control of the public.

    So let’s bring them under control.

  85. Nick B from DC

    Naked Capitalism today has a good post today arguing within strictly economic reasons for the end of TBTF.

    http://www.nakedcapitalism.com/2010/04/alford-why-dismantling-too-big-to-fail-firms-makes-economic-sense.html