In early February I suggested there was a showdown underway between the US Treasury and the country’s largest banks. Treasury (with the Fed and other regulators) is responsible for the safety and soundness of the financial system, the banks are mostly looking out for their own executives, and the tension between these goals is – by now – quite evident.
As we’ve been arguing since the beginning of the year, saving the banking system – at reasonable cost to the taxpayer – implies standing up to the bankers. You can do this in various ways, through recapitalization if you are willing to commit more taxpayer money or pre-packaged bankruptcy if you want to try it with less, but any sensible way forward involves Treasury being tough on the biggest banks.
The Administration seems to prefer “forbearance”, meaning you just ignore the problem, hope the economy recovers anyway, and wait for time or global economic events to wash away banking insolvency concerns. But this strategy is increasingly being undermined by the banks themselves – their actions threaten financial system stability, will likely force even greater costs on the taxpayer, and demonstrate fundamentally anticompetitive practices that inflict massive financial damage on ordinary citizens.
As the NYT reported yesterday, the Federal Reserve – on behalf of all bank supervisers – recently requested banks in no uncertain terms (1) not to reveal stress test results, (2) not to give other indications of their financial health, and (3) most of all, not to announce capital raising plans immediately. The point, of course, is to manage the flow of information so that plans can be made to help the weaker banks at the same time that the market realizes exactly who needs what kind of help.
Amazingly, the biggest banks are defying the federal authorities on this point, insisting on signalling their soundness and – in the case of Goldman Sachs – rushing to raise capital. In the case of Goldman, the explicit intention is to pay back TARP funds and to escape all government-imposed limitations on compensation. This would obviously be good for Goldman and the people who run it. Anything that strengthens their advantage over competitors and increases market share will presumably raise their profits and compensation, making it easier to attract even more good people. (See my discussion with Terry Gross yesterday for more on these dynamics.)
Such developments would worsen the business prospects of other large banks and potentially threaten their financial situation. The government’s forbearance strategy is fragile unless big banks do as the supervisers tell them. But Goldman and other major players apparently think they have so much political power – and this may be more about connections on Capitol Hill than links with the Administration – that they can ignore the supervisers.
Treasury can try to refuse repayment of TARP funds, but Goldman would hardly have made its move unless repayment (particularly after announcing the intention) is essentially a done deal. Supervisers can send more assertive emails, but these are hardly likely to have any effect. The President himself can call on leading bankers to behave better, but didn’t he just do that (and isn’t that what Valerie Jarrett is working hard on)?
My practical friends in the Administration like to emphasize that “we are where we are” and that we need to understand the limitations of the policy tools in hand and the realities of our political constraints. I completely agree.
The Department of Justice’s Antitrust Division should be called in to investigate the increasing market share of major banks (remember that Bear Stearns and Lehman are gone), the anti-competitive practices of some market leaders (there’s more than one predatory way to force your rivals into bankruptcy and to move closer to monopoly power), and the broader increase in economic and political power of the biggest financial services players over the past 20 years and the last 6 months – this is potentially damaging to all consumers and, obviously, to all taxpayers.
Think of the costs arising from the market power of major banks – and it is financial market power that makes them “too big to fail”; the FDIC has no trouble handling the failure and liquidation of small banks. We started this crisis with privately held government debt at around 40% of GDP. My baseline view is that we will end up closer to 80% of GDP. This means higher taxes for all of us, and this is absolutely not a “left vs. center” or “left vs. right” issue. This is left, right, and center against those parts of the center who insist that we should go back to having the same organizations, essentially unchanged compensation schemes (and all they imply about “Wall Street owns the upside and taxpayers own the downside”), and even more concentrated market power in our financial system.
Probably we need to modernize our thinking about the exact nature of threats arising from financial trusts. Perhaps we need, at some point, new legislation that reflects this thinking. But we can make a great deal of progress, here and right now, with appropriate enforcement of our existing antitrust laws.
The pushback, of course, will be: you can’t do this in the middle of a recession – it will slow the recovery. Honestly, as my colleague Mike Mussa emphasized last week, banking is more likely to follow than lead the recovery; in fact, this is the exact logic that underpins the Administration’s forbearance strategy.
The goal of this antitrust action is to prevent some big banks from further destabilizing the system, hence reducing a serious downside risk. It’s also to limit the taxpayer costs arising from this crisis; for all major bank rescues, the cost is not just the bailout, it’s also the higher fiscal deficit, increased debt, taxes down the road and – given today’s predicament – the very real inflation risks arising from even more monetary expansion. The overarching goal, of course, is to (re)build a more sustainable, sound, and – in all senses – competitive financial system.
By Simon Johnson
The Baseline Scenario 
My practical friends in the Administration like to emphasize that “we are where we are” and that we need to understand the limitations of the policy tools in hand and the realities of our political constraints. I completely agree….
Yes, even without new legislation and regulation (though we need those too) we have plenty of existing policy tools to get started.
The problem is the limitations of the personnel, not the tools.
Thus:
Probably we need to modernize our thinking about the exact nature of threats arising from financial trusts. Perhaps we need, at some point, new legislation that reflects this thinking. But we can make a great deal of progress, here and right now, with appropriate enforcement of our existing antitrust laws.
The pushback, of course, will be: you can’t do this in the middle of a recession – it will slow the recovery. Honestly, as my colleague Mike Mussa emphasized last week, banking is more likely to follow than lead the recovery; in fact, this is the exact logic that underpins the Administration’s forbearance strategy.
We have tools. What we lack is not just modern thinking, but even the capacity for new thought. What we have is an utterly reactionary, atavistic cadre, and nothing will or can be accomplished with it.
Even with all the conscious good will in the world (which I do think Obama, if no one else, has), this political cadre is simply congenitally obstructionist.
great post and really nice intereview with Terry Gross yesterday. thanks for the concise info and great links in your piece.
To me, this is the greatest failure of our system over the last 20 years. It is not the greed of bankers, mortgage lenders, or even the irresponsibility of over-leveraged consumers (though I do believe we need a citizenry who is financially literate, and we could spend less time in high schools arguing about evolution and creationism, and more time educating our citizens how exactly our modern financial system works). Rather, it is that government turned a blind eye towards the consolidation of finance, and the threat to competitive capitalism that this consolidation implied. Indeed, our government encouraged it by repealing Glass-Steagall, and allowing investment banking and commercial banking to merge.
I have no problem with greedy bankers and traders (gamblers?) in the financial system. The problem comes from the separation of who owns the downside and who owns the upside (we’ve been saying this for months now). However, we cannot expect bankers to voluntarily give away power, and getting angry at them for being selfish is an ultimately futile pursuit. Humans are greedy, and we should not be surprised when they act in a greedy manner. What we need, is a government that we can trust to uphold the ideal of competition, and that won’t sacrifice this ideal in the interest of other social pursuits (artificial employment, government subsidization of home-ownership, even the requirement of pension funds to hold AAA assets – which outsources risk management from investors to rating agencies).
Simon – I had not contemplated action by the Department of Justice until reading today’s entry; and, quite frankly, I’m still digesting how I feel about it. As a fellow believer in all that laissez faire stands for, I’m going to re-read today’s column and think about the ramifications of this action further.
In the meantime, http://www.bobgreenfest.wordpress.com continues to remark on many of the financial, banking, and economic issues that you continue to discuss, in both a direct and tongue and cheek style. Thanks for your continued consideration.
Simon —
You were wonderful on Terry Gross yesterday. I kept waiting for a zinger, but your British, courteous understatement precludes that kind of style. Sure, you made all the points if one listens to the whole interview, but I think Terry was getting a little confused. As the interview went on, you would expand on earlier answers, so it became clearer that you were really saying the very worrisome things you had hinted at earlier. I loved it, but I wonder whether some Americans will “get it.”
I agree that the next few weeks will tell us whether the government or Goldman Sachs is running this show. I am not optimistic.
I, too, listened to most of your Terry Gross interview; however, it still left me with the feeling of powerlessness. No matter how much you explain and clarify the current global and U.S. financial condition, I don’t make enough money to buy sufficient influence and access to decision makers. And, those that do likely do not agree with your assessment of the financial crisis.
As I’ve always mentioned, the banksters will continue with their greed and gamble, it’s just in their genes and they’re addictive to it, it’s easy (other people’s) money earned. Money and power Junkies cannot and will not stop until the outside world intervenes.
Only a very firm hand of the government with vision and stringent anti-trust regulations can save the world from another financial disaster.
If Obama turns a blind eye on this, as it seems, hes not worth the blind adoration he got until now.
Antitrust? There are no barriers to entry into the banking business that have a significant impact on the market. The banking industry is not overly concentrated to the point that the consumer overpays or the banks enjoy a monopoly rent. The issue is the political power of the banking industry. The banks enjoy this power because they bought political influence. They have been aided and abetted in this by the Paulsons, Geithners, Rubins, Summers and Bernankes of this world together with corrupted politicians of both parties in the political center.
Current government policy is anti-competitive through and through. Goldman Sachs should raise capital on the open market if they need it and if they can find investors. The time to bring in anti-trust is the day Goldman Sachs kowtows to the Fed in this matter.
can anyone who knows anything about US anti-trust law comment?
“There are no barriers to entry into the banking business that have a significant impact on the market.”
Seriously? How about you and I go and start up an investment bank tomorrow. We’ll call up our friends and take them public using the balance sheet that we both have and the extensive institutional investor clients that we talk to on a daily basis. Furthermore, we’ll both provide daily liquidity on these securities using our seats on the stock exchange and the connectivity to the electronic exchanges we have, not to mention the extensive market making expertise we both possess. And we’ll fund this whole operation with the access to the credit markets (read: banking relationships) that we’ve built up over the last 100 years.
I think you get my point. While banking isn’t capital intensive in a “bricks and morter” sense, it is extremely capital intensive in terms of relationships and balance sheet. I think the barriers to entry in this business are among the highest of any, and hence the propensity for it turning into an oligopoly are very high. Notice how the number of securities firms has been dwindling over the last 100 years. While there are certainly some economies of scale in terms of having a large balance sheet in order to bring things to the market, there is no justification for the goliaths of banking that we have today.
And if you want any further proof on the matter, ask any investment banker why they charge the fees they do for IPOs and M&As. Those exorbitant fees wouldn’t exist if it weren’t for the oligopoly that banks have.
In a nutshell — as you and James said in an earlier article — Obama should strive to emulate not Franklin, but Teddy.
(As an aside… By raising $5 billion in private capital, Goldman has met the requirement for repaying the TARP laid out in the original term sheet. At this point, their regulators could block the repayment on the grounds of capital requirements, but I do not think Treasury itself has much choice. The term sheet is pretty clear.)
It’s possible that the wholesale unwind of AIG positions has been responsible for Goldman’s remarkable “profits” this quarter. Since the US government is propping up AIG, losses on these sales are no skin off their back. In turn, the resale of bargain priced trades by Goldman could be making them a pretty penny. AIG has proven to be a stupendous funnel for Treasury to pass huge sums to its friends in banking. And we all wondered why they were being saved in the first place.
Trust/Anti-trust?
I absolute do not see a “showdown” between Treasury and the bankers. Instead, I see the last administration’s Treasury Department, run by a Goldman Sachs guy, use the power and money of the US government to fertilize the field for Goldman Sachs.
Thanks to a decision from Paulson, a major Goldman competitor – Lehman – is gone.
Thanks to federal money coming in from TARP (and from AIG’s TARP), Goldman is having a great year – the economic crisis that has been catastrophic for so many industries and so many American workers has been very good and very profitable for Goldman.
Would that have been possible without the direct intervention of Paulson – whose ties to Goldman are deep and binding?
I agree that a showdown is needed – but I see this administration doing nothing to change the dynamics. Talk about reform is not the same as reform. Wise advice from the president is absolutely not effective when dealing with oligarchs who are desperate to save their position, power and profit.
Asking the people who got us into this fix to “behave better” is an inherently weak approach to reform.
You talk about how the feds want the banks to reveal nothing about their health:
“The point, of course, is to manage the flow of information so that plans can be made to help the weaker banks at the same time that the market realizes exactly who needs what kind of help.”
First of all, if it is so important to keep this information secret, then fine the hell out of the companies who fail to heed the call of the Feds. Make them pay for divulging information that Treasury feels is dangerous to the economy.
But how long do we prop up failed companies in an effort to determine “who needs what kind of help?” Why don’t we already know this?
Is asking healthy banks to remain silent for as long as needed is a realistic approach to solving this crisis?
Is there money enough in the world to salvage companies on life support?
With the Washington and Wall Street seemingly operating in close alliance to protect Wall Street’s interests, I don’t know that any laws – let alone anti-trust regulations – that exist to protect the country from the voracity of the financial community.
So… if I get it right in layman terms; the Goldmans, Morgans, Merrills invent the CDS disaster, sell it to AIG. AIG can’t pay the bills as soon as the Goldmans, Morgans and Merrills ask for a payout. Then the taxpayer is called in to pay the bill for AIG as they are too big to fail. At the end the Goldmans, Morgans and Merrills get their CDS paid out (by the taxpayers) and get rich again with the same scheme.
Now, the Goldmans, Morgans and Merrills want to pay back the TARP money because they want to kick out these pesky guvmint regulators who (try to) regulate the bonusses and shady financial schemes that nobody understands but themselves and start up the money mill again.
What World are we living in???
PS After Goldman, Morgan reports very good Q1 figures. I wonder, does this so called Financial Crisis really exist??
Coming to computer near you, a genuine internet bank paying +25%pa on deposits. It’s inevitable. The question is not who or why but when will the regulations be amended to ease in the new entrants waiting in the wings.
“You can do this in various ways, through recapitalization if you are willing to commit more taxpayer money or pre-packaged bankruptcy if you want to try it with less, but any sensible way forward involves Treasury being tough on the biggest banks.” – Simon
This is bunk. Look at the cost of Lehman.
Call the antitrust division? What antitrust division? Antitrust rules have been hollowed out over the last couple decades, just like banking regulations and most other constraints on big business have been. With the active efforts of Wall Street M&A houses leading the charge. And do you think the Bush Administration DOJ–the same folks who brought you the US Attorneys scandals, warrantless wiretapping, legal justifications for war crimes etc–do you think they have any staff willing to take on big business lobbyists in the name of abstract ideals of consumer welfare or market efficiency? And do you think the Obama administration has done anything as yet to really dismantle the Bush DOJ bureaucracy and mindset?
You’ve heard a one sided argument of a very complex issue.
Here is Simon debating his colleague at the Petersen Inst.
http://www.iie.com/events/event_detail.cfm?EventID=109
Here is another debate with a different colleague.
http://www.petersoninstitute.org/publications/pp/20090309johnsoncline.cfm
It is silly not to hear both sides before forming your own opinion.
The part that is bunk in the above quote is:
“pre-packaged bankruptcy if you want to try it with less”
No one expect the consequence of Lehman. Paulson just did it with blind fate that the system can take the shock. Simon’s view is also base on blind fate. He has never presented any data to support his view that shock to the system is acceptable.
Saving Lehman would probably cause tens of billion but not saving Lehman is a deep global recession.
Simon’s view is gambling on blind fate that got us here in the first place just like Paulson’s action with Lehman.
If Simon can present impact analysis data to support his view than I stand to be corrected.
I should also mention both programs have audio and transcript. These 2 debates are excellent.
Wall Street – not the Administration – allowed the failure of Lehman. Unless you think Paulson was working for the Administration when we was TS.
The purpose of letting Lehman fail was inoculation – having this “destructive” event scare everyone from doing the right thing.
Strategy worked perfectly.
Paulson saved AIG after he saw the aftermath of Lehman.
Wow, you think the unintended consequence of a deep global recession “worked perfectly”! That is good for a giggle!
pebird, I read your comment too quickly the first time and missed you sarcasm.
I still don’t agree with your view that Paulson worked for Wall St. The fact is US financial firms lost 80% of their market value. In fact, they are worth less than what they were worth 10 years ago.
Simon,
Please roll up you sleeves and do hard work of analysis the consequence of your ideas. Anyone can pontificate. I expect more from a MIT student.
-Silly Things
Treasury Department showdown with the banks? Justice Department? Hardly.
The Treasury’s PPIP is a borderline fraud-enabler itself. And the DOJ reports to the President and plays ball.
It is real simple folks. Talk of moving the appendages of the same captured government to fix itself is not going to work.
This is a deeply political problem. Democrats and Republicans have engaged in a game of flip the coin with the American people for over a 100 years. The coin is a sadly appropriate metaphor, because both parties are truly just different sides of a singular money-backed system, and that system is fully controlled and paid for by the elite. They largely do not care who wins, as long as their control of system does not change—we see that all the time with simultaneous donations to the two parties.
As the situation worsens–and it will– the American people will eventually will have had enough. A new political landscape may emerge with leaders and parties willing to play for keeps, and start prosecuting those who have subverted the law. This is the most optimistic scenario.
The other scenario involves what has historically happened to governments which have been co-opted by corruption and no longer represent the will of a heavily-armed citizenry.
Simon,
Remind me again how much money Wall Street showered on the politicians in DC since, say, 1990?
With the price tag of any federal election (Senate, Congress, Presidential) which politician would consciously bite the hand that feed him/her?
I rest my case.
Dear Mr. Silly Things —
As near as I can tell, every argument you have made boils down to: “The banks are too big to fail, therefore they must not be allowed to fail.” You could say the same in fewer words and far fewer comments than you are currently using.
On the other hand, if you agree that “too big to fail is too big to exist”, then perhaps you could provide your own proposal for how best to transition to a system where the financial firms no longer have the power to extort hundreds of billions of dollars from taxpayers.
The following exchange is from the JPM earnings call this morning. Jamie Dimon said that JPM not only doesn’t need TARP capital, and doesn’t plan to participate in PPIP, but also that they’d prefer if TLGP didn’t exist either, because it’s supporting competitors (ARE YOU LISTENING CITIGROUP!) who would be losing money if it didn’t exist. TLGP is the FDIC’s guarantee program for bank debt, begun last fall in the midst of the financial panic.
The undercurrent of everything he said on the call was: The day is coming when we will separate out the winners and JPM will be one.
: Remember, TLGP had asymmetric benefits for people. And when that all happened, I would say that some people couldn’t fund at all and were able to. And some people were able to fund a lot cheaper than they were able to fund. It (JP Morgan!) wasn’t a lot cheaper. I think maybe 100 basis points.
: In the short end, our issuances, getting — it’s come in a lot relative to what unguaranteed issuance — what unguaranteed issuance would be versus guaranteed, obviously.
: So our cost would be 100 basis points higher or something like that. And we get an unguaranteed deal and those markets will come back eventually. You’ve seen January, February, March, were some of the biggest bond markets ever, which includes now high yield debt, Double B, Single B. Some high IPOs. And the capital market will eventually get healthy again, people will finance.
: Doesn’t mean necessarily spreads will come back all the way to where they were, but we don’t necessarily need or expect that to happen.
: No, because it’s not that big a deal for us. Betsy, we have a trillion dollars of deposits and $700 billion of loans. So if our non-deposit costs go up a little bit it’s just how you price or manage stuff going forward. But I would say it’s not a tremendous deal for us. It could be a tremendous deal for some other people. They either won’t get the money or it’s going to cost them 500 basis points more. And that basically eliminates profit.
DOJ is a lot more likely to go after conduct problems raised by TARP — collusive bidding for assets, reciprocal buying, information exchanges, and flat out bid rigging for TARP assets. The problem with seeking structural relief is that DOJ is boxed in by years of court opinions and its own pronouncements on geographic market definition, which tend to be focused on effects in local banking markets. It doesn’t really look at the “Big Picture,” which is what the commenter is seeking, ie, some sort of aggregate concentration theory, This would be difficult to prove and to litigate, as the effects would have to be demonstrated in each of the hundreds of local markets.
P.S. The market cap of the banks is a meaningless measure of Wall Street’s health; common stock is for little people. How have the employees of the major financial firms done over the past 10 years, while they were blowing a multi-trillion-dollar hole in their companies’ collective balance sheets? A hole, by the way, that taxpayers now get to fill, with any proposal to do anything else labeled as “bunk” by people like you?
I find it remarkable that you object to Goldman raising capital to pay back the Government. I realize they may be “disobeying” the Fed, but it is a stretch that the lender of last resort has this authority. The Fed and Treasury started this problem when they panicked over AIG in September. On March 17, Gretchen Morgenson reported that it was unclear if AIG’s portfolio had even experienced any defaults as of that time.
No matter how this is sliced, I think it is clear the Fed and Treasury screwed up in September and at the very least should have taken their time to think about it. Credit spreads began their spike after the AIG takeover and after the first TARP speech by Bush. I therefore believe those actions by the Government caused the spike. They yelled Fire.
Let’s use Goldman as the stalking horse example. Assume Goldman was hedging their portfolio with AIG (as opposed to merely shorting, although economically the issue is the same). Mark to market accounting presumably caused them to take losses which they could not offset with their AIG positions, as the latter could not post collateral. Instead of requiring the banks to work this out among themselves and AIG (think LTCM, 1998) The Fed rushed in and paid them their cash to keep them whole on mark to market. Meanwhile, it appears these marks were probably too steep. Then the Fed permits Goldman et.al to unwind AIG’s book and lock in their gains (because spreads would have widened relative to when they were first entered into).
Assuming the default rates end up lower then was assumed in the mark to market unwind—which is almost surely the case—-,the taxpayers permanently get ripped off. The portfolio they were hedging rises, and the AIG portfolio, which presumably would have risen too, is now gone with the wind. But who let this happen? The panic stricken Fed and Paulson/Geithner when they bailed them out at the mark to market price to begin with.
So now what? The Moral Hazard Herd of Horses left the barn last September. The whole point was to make these guys whole, wasn’t it? Well, they succeeded. Perhaps it really was never as bad as “mark to market” indicated to begin with.
This time around we can let the guys who deserve to fail, actually fail. We created a self fulfilling prophecy. This concept that we need the Fed/Treasury to “carefully manage” the banks back to health is comical as the Goldman example illustrates. But trying to turn time back and say they cannot return their capital just compounds the original mistake.
This meme of banks being too large is another bit of mumbo jumbo. Perhaps if we required banks to be responsible for their own liabilties and make some small but meaningful changes in collateral requirements in OTC derivative regulation they will grow smaller naturally. But having the Government sit there and try to calibrate the process is absurd.
Many of us thought that Goldman’s equity raise was a good thing. Private capital investment in bank equity rather than government bailouts to shore up capital have got to happen before the crisis is over, and are a condition of its ending.
I would have liked to see Goldman surrender its banking charter along with the the TARP money. Submitting to bank regulation was a condition of getting into the TARP honeypot. Goldman is really not the kind of “bank” that can be regulated effectively, except by markets, in my opinion. This goes to a recognition of its purpose for being and its strength. Evidently, the markets like Goldman, $5 b worth in a day.
So, I don’t think Goldman’s move is only about protecting the compensation scheme at the top or for the traders. It’s about institutional culture and the culture of Wall Street. And internally, it is not a culture that simply promotes outsized risk-taking without downside exposure. It’s a competitive jungle, with penalties for being too conservative and penalties for failure, pitfalls, clawbacks, back-biting politics, and the daily scorecard from the market. In this context, good connections in Washington are nothing sinister, just part of the anything goes profit making ethos. Money can be made pushing the envelop of regulation, you understand?
Such outfits attract a certain type of personality. It is a type of personality that is completely different from the type that finds its way into the other kind of banking. One has its origins in a rough riding Wall Street partnership. The other comes from community-based fiduciary institution taking deposits and lending money.
Here’s a simple way to glimpse the different mentalities: Goldman orchestrated a capital raise on the strength of a positive earnings announcement that left some analysts questioning one of the most obvious of reporting ploys. Wells Fargo made a very positive earnings pre-announcement, also suspicious to many analysts for what it didn’t say, and it’s shares rose 35%. But Wells didn’t issue any stock, even though they could use more capital.
It is certainly true that concentration in banking has shown itself to be a problem as a result of the crisis and I agree that concentration in banking has played a role in bringing on the crisis. Anti-trust enforcement might be helpful, but it wont be fast enough to accomplish anything soon.
On the other hand, the government has been too fast on the trigger when it comes to aiding the banking system. The concern has been the threat to the system of inter-bank lending, which is what is reflected in the Credit Default Swaps market that Simon has discussed in other posts. That concern has swept all before it.
In contrast, the government has been able to take a different approach to the insolvency of the automakers in part because the automakers are not part of a web of instantaneous international exchanges of the sort that constitutes the banking system.
Had there not been an over-riding concern with the horrific consequences of a breakdown of the interbank system, we might well have seen the government acting more as Obama has acted recently a vis GM and Chrysler. I thought now there is the President acting like a lender–more accurately like a lender in a loan workout group addressing an insolvent company, using the promise of future investment to extract changes and guide outcomes, without exactly taking over or controlling the supplicant. You would think the bank executives would understand this language perfectly. The government as the lender of last resort has the upper hand. The banks have arguments about the greater damage that would be caused if . . . .
To raise capital these big financial conglomerates that are at the eye of storm should be spinning off divisions, disaggregating services and product lines, retreating from markets, selling their real-estate, closing operations, trimming executive compensation and selling shares. They should be willing to give up their jewels for the sake of survival, as Barclays has done with the sale of iShares. They would do so if there were no government subsidies available or being pushed at them. They ought to be required to downsize as a condition of more taxpayer subsidies.
The government, for its part, should be making the advantages of having a bank charter worth more rather than less. The moves to guaranty money market mutual funds and the opening of the Fed to all kinds of securities has devalued rather than enhanced a bank’s unique access to Federal deposit insurance and the Fed’s Discount Window. The government has shown a tendency to invent new programs and institutions where it could have used the still healthy, generally smaller banks as a way to deliver credit relief and at the same time enhancing the profit making opportunities of healthy banks, so as to make these banks attractive to private investment. This is a way to encourage less concentration in banking now.
Finally, the government has been promoting more consolidation, not less, in its responses to failing institutions. The leading idea has been to associate weak or failing operations with stronger ones. They were successful in putting Bear and WaMU with Chase. Wells took Wachovia, although it was intended by the regulators to shore up Citibank. Bank of America gladly took Countrywide in the early days and was intended by the government to absorb Lehman, except Merrill jumped in to sell itself before it became the next casualty. Lehman failed because there was no backup taker, which illustrates the critical shortcoming of responding to insolvency with only a strategy of aggregation instead of both aggregation and disaggregation.
And for those who believe nationalization is efficient based on FDIC successes, it is worth noting that the FDIC does best when the seizure of a failed institution occurs almost simultaneously with its absorption into a healthy bank. When that kind of arbitrage is not available, you have a slow and painful process of shrinkage by disaggregation and divestiture. So, an anti-trust program by other means would be pro-active in the crisis.
From a 2009 book co-authored by Clayton Christensen, a Harvard Business School professor who originated the canonical Model of Disruptive Innovation:
“Regulations ultimately change in reaction to the innovators’success in those markets.”
In the absence of evidence that refutes the above, then, (some) efforts to change how banks are regulated should center on helping banking entrepreneurs.
One way popular bloggers can help: urge President Obama and Congress to establish and fund a venture capital (VC) firm that will invest in innovative banks (e.g., start-ups).
The VC firm can be similar in form to In-Q-Tel, a VC firm that is funded solely by the CIA.
More details are available at http://www.LandofOpportuniTV.com.
Best,
Simon, I must say, all of your work is fantastic. Your ability to dissect matters in layman’s terms is something that is enjoyable to all. Keep up the great work.
Raising equity might be a good thing, but not if the goal is merely to avoid compliance with efforts to fix the problem. And quite frankly, I have to wonder where the money is coming from. It is always safe to assume that people who oppose transparency have a reason for doing so.
Hoarding is a mental illness. Tell me again why the same people who already raped the system need more huge bonuses?
“the banks are mostly looking out for their own executives”…..
I would point out — the banks ARE the executives. They are one and the same. These thieves are looking out for themselves.
How is Barack Obama the same as the Mississippi river flood plains? Both are a mile wide and about 2 feet deep.
I am deeply insulted by the Barack and Tim – ostrich impersonation act. We are witnessing a thin veneer applied to a massive structural problem. Like treating cancer with a band-aid. This financial disease if going to reappear and homefully wipe out even more of the multitudinious lemmings that are following Jim Cramer and Larry Kudlow down the yellow brick road.
Capture The Surplus
One of the benefits of being an anthropologist is being able to access the findings of both archaeology and cultural anthropology to gain a perspective on what people are doing in the present in one place that is more a less a repeat of what has taken place both across human history and across cultures.
What is happening now began a long time ago because of one human invention. That invention was food storage. Food storage began with digging pits into which people would put nuts, dried fish or other produce into pits to store them for later use. People learned that they could line the pits with clay, and then make clay vessels that could be buried that would keep the produce for longer a longer time. Food storage led to the production of food surpluses, the production of more food than could be consumed at one time.
People have done three things with food surpluses, traded them, made more people (more food, more people) and created social stratification through the capture of the surplus. The last activity is what interests us here. A surplus can be captured in different ways. It can be captured through force, just take it away, or through fear, give it up so we can have some warriors to keep others from taking it away. The most insidious way to capture a surplus, however, is through indebtedness. How to indebt everyone? Throw a feast. Come one come all, eat all you want. Just remember, you will owe me for what you have consumed. Don’t have the resources to throw your own feast? Well, I will settle for a bit of your surplus over a long period of time and I will let you know when the debt is settled.
Welcome to the Feast
It comes in the mail and over the phone (or at least it used to), “get the credit you deserve!” “0% interest on transfers” (but a very high rate on new purchases to which all payments will be applied until that is paid down) to keep the feast going. Invitations to the feast. It began in the 1950s and grew from there. The relentless push to capture the surplus of millions of little worker bees, lock in that asset stream of payments plus interest plus fees. There was an extra big push in the 1980s to capture the retirement surplus. Why should all the retirement money go to defined benefit programs and big institutional investors who were such an annoyance when it could be sucked directly from each little worker bee who didn’t have the time to read those proxy thingies and financial statements and just threw them away while putting more money into 401ks which flowed into mutual funds which flowed into stocks. Hey look at all those dot com millionaires! Oh, you left your money in because you were planning to retire in 2000. Uh, sorry about that. But thanks for all the support! The next thing in line was supposed to be all that social security money. Hey, an ownership society, right. Lets get that money hose hooked up to Wall Street. Oh, too bad. Didn’t work out. Hmmm. What next? That giant pool of money out there from global savings. Let’s see, what kind of feast to invite them too….. mortgages! Real estate, hey they ain’t making any more of it! And look at how all the fuzzy loans get bundled, securitized, sanitized, buried, hidden. Spread around a little geld to get some good ratings, and how can you lose. Just pony up the fees, and take your AAA rated MBSs to the….bank. Uh, oh. A little glitch. The asset stream is drying up into a trickle. Oh well we have a solution for that.
Washington, We Have a Problem
As every good big banker knows, capture the government and you capture the surplus. Time to put in the call. But not to strangers. After all we’ve got our guys in place. Hey, Paulson’s one of us! And we own the rest of them. Just use the right words, “systemic collapse” “too big to fail” “spreading from Wall Street to Main Street” and the apocalyptic narrative gets heard and responded to. Money is ponied up, lots of it. See. And people keep saying that bankers just don’t get it.
I agree with Simon Johnson and Krugman but they are whistling against a hurricane. The self aggrandizers are going to keep on doing what they have been doing for centuries. Asset and income inequality will continue increasing until there is another collapse, maybe the big one. But then it will all start again. It’s like watching frogs sit in increasingly hot water until they boil to death. When you’re in the middle of it there is all the angst but you can only see the real pattern when you look back. We’re frogs, the water is getting hotter and we’re asking the cooks to turn the heat down?
1. You help ALL the banks by guaranteeing deposits and debt and giving them fresh capital.
2. Some of these banks begin to perform better because they were better positioned to begin with, are better managed, or both.
3. Some of these banks begin to perform worse because they were not as well positioned to begin with, are better managed, or both.
4. You then penalize the better performing banks by refusing to allow them to pay you back. You do this so you can prevent markets from recognizing that the poorer banks are going to need large amounts of further assistance.
If you define RECOVERY as winners being permitted to actually win (which I do), how does this promote recovery?
Rfreud – I like your thought provoking post – and very much agree with your statement:
“It’s a competitive jungle, with penalties for being too conservative and penalties for failure, pitfalls, clawbacks, back-biting politics, and the daily scorecard from the market. In this context, good connections in Washington are nothing sinister, just part of the anything goes profit making ethos.”
It is a jungle – they definitely do things differently on Wall Street – it is not an environment I could thrive in but I understand there are those “rough riders” who love such a landscape.
However, I remain astounded by the fact that Wall Street’s “anything goes” mentality brought down the entire economy.
Crippled it completely.
Certainly there are those who blame the lack of federal regulation for this. But the idea that businesses will inevitably rush to the brink of collapse if not regulated takes power and accountability away from the businessmen running these companies.
The fact remains – the economy ground to a halt last fall. And maybe Paulson and Bush yelled “fire” and stepped in like hysterical teenagers instead of rational adults to solve the problem.
How the government responded doesn’t change the fact that there was indeed a fire that needed to be put out.
How could so many mortgages could be granted to so many people who could not afford them? How could investment banks develop and sell innovative “insurance” devices that did absolutely nothing to insure against the risks posed by the bad loans?
Apparently, there is so much debt on the books of these banks, so we’ve been told, that these toxic assets are “clogging the pipes” – and a “market for toxicity” needs to be created by the government in order to get the pipes of credit flowing again.
That leaves me incredulous.
How did the people who got paid tens of millions of dollars at these investment banks not see the smoldering embers when they could have been doused with maybe just a bucket of bucks – instead of the trillions we’re spending now to rescue the economy?
I don’t understand how a program that Paulson set up – ostensibly to get credit flowing again to help American business – is not working at all to get credit flowing – at least according to this story in the WSJ: http://online.wsj.com/article/0,,SB123981607918021761,00.html
But concurrently as small businesses struggle and consumers face rising credit card costs and unemployment rises in the rest of the country, some of the largest recipients of TARP are recording significant profits.
You say: “Goldman is really not the kind of “bank” that can be regulated effectively, except by markets, in my opinion. This goes to a recognition of its purpose for being and its strength. Evidently, the markets like Goldman, $5 b worth in a day.”
What would the market have said about Goldman if Paulson hadn’t funneled so much federal money into its coffers?
Goldman’s strength appears to be in its ability to get its people into powerful government posts – like Treasury Secretary.
I see no penalties for Goldman at all in this crisis – in fact the company’s stint in TARP’s welfare line has provided it with profit a-plenty – further separating it from those who don’t inhabit the wilderness of Wall Street.
Nemo,
You’ve misunderstood me. What I am trying to say is the following.
1. We cannot afford to take risk with the world’s economy on blind fate. Whoever thinks nationalization is the solution, please do a hard core analyze off it’s impact and let the result stand on it’s own.
2. Many people are just regurgitation the bias information they were fed. Nemo, did you seriously study all sides of this complex issue? I’ve provided links to great debates on this topic.
Nemo,
Thanks for your information, as well as your thinking. They both help me try to make sense of what’s happening.
Thanks for the links, silly things. As much as I disagree with many of your posts, I want to clearly understand a points of view different from my own.
History have shown the cheapest way to fill these holes is to help the banks to earn their way out.
The US has went through multiple banking crisis like this one before. Simon unfortunately cherry picked his support evidence to argue for his view. I’ve provided links to debates between Simon and his colleagues in posting below.
“The Administration seems to prefer ”forbearance”, meaning you just ignore the problem, hope the economy recovers anyway, and wait for time or global economic events to wash away banking insolvency concerns.”
I question this. The hesitation to adopt an adversarial and confrontational stance vis à vis the banks is, IMHO, intentional. They say, “Don’t go to court unless you’re going to win.” In this case winning means insuring our economy continues to function once we have too-big-to-fail banks down and pinned. Before we set the DOJ on big banks we should recognize that even with angels on our side a favorable outcome may take a decade or more. DOJ began collecting data on Microsoft in 1991. Suit was brought about 1998. Settlement, in the main, occurred in 2004.
Once litigation at this level begins outcomes, as Microsoft found, are not assured. Banks will certainly argue that the allegation of monopoly itself compromises the banks’ ability to raise capital. They will point to falling share prices, a failing financial sector and dropping economy to support their case. This will be self-fulfilling, of course, but it will make our case for us – You see? You see? they ARE too-big-to-fail! However, the worse things get the worse we (the anti-trusters) will look and political support will fall away with the economy. Meanwhile banks will argue that they have done nothing illegal, that regulatory agencies, the President and Congress have all pursued deregulation, that Treasury has supervised mergers, provided funds and is at least in part responsible for concentration within the sector. Overall, it will be difficult to prove that banks have been anything other than efficient within the regulatory environment they were handed. So, if an anti-trust assault on big banks is not managed very carefully we will end up with banks as victims and regulators as the destroyers of our economy and a huge, decade-long legal and political imbroglio.
A much subtler and less risky course is to change the regulatory environment going forward and deal with “legacy” assets as if they were toxic. The issues of liquidity & solvency have been thoroughly debated. There are indications that credit is beginning to flow. Solvency, however, cannot be established till real estate markets bottom out and we get the final bill for breaking our trading partners’ banking systems.
If solvency can’t be established insolvency cannot be proven. There is the suggestion that nationalization of insolvent financial institutions is an answer. In the absence of market values for assets who’s to say which institutions are solvent and which ones aren’t? Seizing assets could well prevent any market for those assets from forming (making valuation impossible.) Worse, it could threaten other critical markets as well. As the economy falters we (the nationalizers) will lose all political support and we will be left with the constitutional issue of “fair compensation” for assets seized, and another huge political imbroglio.
We have to be careful.
I want to emphasis the following.
If we want a honest technical discussion of the nationalization issue than everyone needs to first make a honest effort to understand all sides of the issue.
Otherwise any discussion base on emotional driven arguments is a waste of time.
As I’ve said before, Simon should roll up his sleeves and do a hard core analysis of what he is proposing. I stand to be corrected.
P.S. silly things, where is the transcript for Simon’s debate with Michael Mussa? I see papers written by each, but I don’t see a transcript of the debate. I’m asking because I can read many times faster than audio plays.
Thanks
Thank you Phil.
You are right, the Michael Mussa debate is audio only. I originally thought the pdf was the transcript.
The Tea Party phenomena is interesting but is a myopic populist half measure. By not critically examining the origin of income taxation, we are doomed by acceptance to arguing over degrees. The first stage in this cause and effect fiasco is simply the federal income tax was create in concert with the (unconstitutional)creation of the private credit cartel known as the Federal Reserve as a guaranteed means of paying the interest on money created from its audacious credit authority. Having accepted the travesty of this injustice, (allowing private bankers to charge interest on a priviledge reserved for, and duty constutionally assigned to, ‘our’ government of creating its own money), the second stage became the fractional reserve system born from the first injustice. Now banks could lend at interest over 90 cents of each dollar deposited less reserves repeatedly, creating loans/debt on those dollars that don’t actually exist, so the same private banking cartel who earns interest from the Federal Gov. via Fed. income taxes, earns additional interest on lending those same fractional reserve dollars again and again into perpetuity. This is not only compounding of interest, but ‘exponential’ compounding of interest. No wonder the central bankers want to expand credit, cui bono?: The Bankers via exponential compound interest.
And when ‘negative leverage'(a la deflation) sets in, the system comes under severe strain. One aim and result of this ‘reckless supply of credit’, i.e. easy money, is the mass confiscation of assets through foreclosure when inevitably, debtors cannot service the notes due to the creditors because of falling incomes. (Incomes do not compound.) Those assets return to guess who?: the private cartel of bankers. Surprise, surprise. Where is the redistribution of wealth argument now? Is it okay when wealth flows only to the bankers and crediors? Do we have a rigged one directional wealth system? This crisis was not caused by the ‘reckless demand for credit’, it was the ‘reckless supply of credit’ beset with interest traps to benefit the creditors, using foreclosure as an asset gathering tool.
Systolicsm, as in the systolic heart valve, opens and closes or starts or ends a ‘flow’ or a ‘wave’. In this case money is the ‘flow’ and the systolic valve is the Fed/bank cartel. That the valve was intentionally left open/on to increase the flow and flood the market was reckless and negligent. That those seeking to honestly improve their stations in life by using levergage, i.e. debtors, got into untenable debt positions, (although possibly reckless, but more probably blinded by the marketing of the easy money by creditors), is understandable if not excusable. Again, the cause was ‘reckless supply’ not ‘reckless demand’ for easy money. The creditors knew what they were doing. Having the tools of ‘exponential’ compounding of interest and foreclosure, the credit cartels are perfectly hedged in a game we allowed them to rig against us. The degree of income tax is not the issue. The issue is the reason we pay income tax in the first place, to guarantee that the bank cartel will be paid their interest on money we allow them to create. This is ultimately an ‘interest crisis’ designed by predatory creditors
Silly things says:
“History have shown the cheapest way to fill these holes is to help the banks to earn their way out.”
Check out Honohan and Klingebiel (2003) “The fiscal cost implications of an accommodating approach to banking crises” Journal of Banking and Finance, 27, 1539–1560. These World Bank economists, before there was any hint of a crisis in the US, looked at 40 modern banking crises and their costs. Conclusion?
“We find that accommodating policies such as blanket deposit guarantees, open-ended liquidity support, repeated partial recapitalizations, debtor bail-outs and regulatory forbearance all tend to add significantly and sizably to fiscal costs.”
Silly things, I’d be curious to know what studies you’re thinking of in making your claims. I’d also be curious to know whether you’re counting just direct costs to the government or costs to the public (i.e. through higher costs for banking services.)
I’ll let Simon debating with his colleague at the Petersen Inst. to make the case.
http://www.iie.com/events/event_detail.cfm?EventID=109
Here is another debate with a different colleague.
http://www.petersoninstitute.org/publications/pp/20090309johnsoncline.cfm
This is ridiculous. Half of these institutions would already have declared bankruptcy if not for taxpayer largesse. $700 billion in the TARP, $100+ billion via AIG, uncountable (but large) subsidies via FDIC-insured loans (TLGP), ultra-low-interest borrowing from the Fed (TAF, TSLF, etc.), and now a “Public-Private Investment Program” to subsidize private equity to overpay for the most toxic assets…
…and your solution is to “help the banks to earn their way out”? The only reason they even still exist, never mind have earnings, is that the Treasury and the Fed are risking the creditworthiness of the sovereign and the soundness of the currency, respectively, to keep them afloat. If this is truly the “cheapest way” out, then I do not want the cheapest way out.
Here is how this works. You run your business and get to keep (most of) the profits. If a day comes when you cannot pay your bills, you declare bankruptcy. If society cannot let you do that for systemic reasons — e.g., you are a bank — then congratulations, you are now wholly owned by the government. You do not get “capital injections”, you do not get “insurance”, you do not get “non-recourse loans” from the central bank, and most importantly, you do not get to keep your job. Before you receive one penny of my taxes, I insist that your board of directors and senior management be fired without severance, your shareholders fully wiped out, and your bondholders subject to some kind of loss. If that will create an unpleasant fallout, then let’s get on with it and clean up the mess afterward. If the system requires throwing hundreds of billions of dollars at the entities that created the crisis, then it is time to build a new system.
Oh, and yes, I read the debate with William Cline. If the banks were surviving right now without trillions of dollars of government-funded life support, he might be more convincing.
Just out of curiosity, Mr. Silly Things, do you happen to work for one of these institutions?
Well we still have the 10% deposit rule on the books, let’s lower it to 5% overtime and adopt other simple size measuremants that at least start to reign in the clout that many banks and financial instutions have. With the iformation and e-commerce systems that exist today the size, even for global reasons, is no longer valid..at least in this area size does not matter..
“Saving the banking” the banking system now don’t go all moralistic on me… there are far bigger sins in corporate life:
http://iloveclosing.com/2009/04/17/the-sin-of-selling/
Cheers
The Closer
Method,
I have said this before in here, but after your comment regarding “armed citizens”, I had to reiterate some previous comments i had made on this issue.
I don’t believe the US politicians, power brokers, bankers, and related criminals, fear anything other than the citizens literally revolting. And why should they? Do you really think these criminals CARE that people are talking and blogging and holding tea parties? “Words” never killed anyone, and I firmly believe the only thing these criminals in Washington fear would in fact be millions of armed citizens marching into Washington, out for blood.
Understand, I do not believe in violence in any form. But there are moments in life when good people are left with no alternative….and this is one of those moments.
What is happening here is, literally, the largest crime in the history of civilization. The unfortunate thing is that the people who could stop it, are watching it unfold before their eyes, and doing nothing to put a stop to it.
I do believe that when the Dow reaches 4000 next year, and the S&P is in the 500’s, but Washington is still funneling trillions of dollars of “the people’s” money to the criminals…..I do believe at that point they will revolt in the US. When the americans finally realize that they are, literally, about to be destitute, they will act. But then, it’s to late. The theft has happened, and those who stole will ride out the ensuing years of Depression, it relative comfort on their stolen fortunes.
I do believe thats their future in America…..so sad.
AA
Hey Nemo,
Well, I bring you great tiding! Your wish did come true for Lehman! Lehman is not surviving on government support at all! You should be pleased! No? Any clue how much that fiasco cost? Last I heard it was just one measly global recession! Doh!!! Now say it again with feelings!
Hahaha, “penny wise, pound foolish”, thy name is Nemo!!!
By the way, the idea of “help the banks earn their way out” is basically what the Obama teams has done and continue to do. It isn’t my idea. Nemo, do you think the Obama team and the bankers are in on this together? Hmmm, that must be it.
“…Treasury and the Fed are risking the creditworthiness of the sovereign and the soundness of the currency, respectively…” – Nemo
Nemo that is a really good point! What is our government doing? Hmm, wait just a minute, why is the USD increasing in value? Don’t the foreigner know better? Darn it, foil again by facts and logic!
Nemo, don’t feel bad! Everyone knows it is a lot easier to spew emotional none sense than to think clearly! It is an aptitude thing; no one will blame you! Nemo, you are a real bundle of laughs and quite useful when properly manipulated!
Just to satisfy your curiosity, I’ve never worked in a financial institution.
Bill, I agree with you. The problems are:
1. financial system regulation – Why derivatives are not properly regulated? Why AIG, an insurance company, can gamble in derivatives with no oversight?
2. monetary policy – Should the Fed prevent asset bubble?
The government has failed both of the above. Had our government handled just one of these 2 well, a very strong case can be made that the current financial crisis would not happen.
“To big to fail” is a red herring. The root of the problems that cause the current financial crisis are:
1. financial system regulation – Why derivatives are not properly regulated? Why AIG, an insurance company, can gamble in derivatives with no oversight?
2. monetary policy – Should the Fed actively prevent asset bubble? Greenspan didn’t think so but he is wrong.
The government has failed both of the above. Had our government handled just one of these 2 well, a very strong case can be made that the current financial crisis would not happen.
On the other hand, even if we had limit on bank size we still would not be able to make a strong argument that the current crisis would not happen. Historical there are various examples of large number of small banks getting into trouble. AIG isn’t even a bank!
The antitrust laws have been junked. By way of illustration w.r.t. commercial and investment banking in particular. Once upon a time, there were several very large competing institutions, all of which would be classified in the current sobriquet as TBTF: Manufacturers Hanover, Chemical Bank, Chase Bank, Washington Mutual, Bear Stearns, JP Morgan. These are all now JPM. Another set of competitors was Golden West, Wachovia, and Wells Fargo. All are now WFC.
Johnson’s observation that if you saw what has happened and continues to happen in the US banking system, but you didn’t know it was the US system, you would assume it was a developing country gone awry and come to the IMF reluctant “hat in hand.”
No one comes to the IMF willingly because they know the cure is going to be “harsh” on some institutions and people important in the country’s private and public hierarchies.
And that’s Johnson’s point. In the US, just as in all those other troubled countries, there’s been regulatory capture and cross pollination. To the level where, frankly, they are the same people.
The US has one big “advantage.” It can still get credit. And credit denominated in its own currency.
The question that needs asking publicly is: Do we fail to execute well known reformations, and therefore risk overturning our one big “advantage?” Or do we take the necessary steps, and not risk our one big advantage?
I’m in Johnson’s camp.
I was just wondering if we as consumers may have a general cause of action involving an antitrust violation?
“How about you and I go and start up an investment bank tomorrow.”
There are 8000 domestic banks. Thousands of them are in a position to grow rapidly if only the government stops propping up the Citibanks and the GMACs of this world.
The feds are trying to cartelize the banking system. Goldman Sachs won’t play ball. This is not an antitrust issue, unless you want to talk about arresting Geithner.
Although perhaps the parties involved may not have stated this explicitly(even privately, or even consciously), but it looks to me like Obama is making an agreement to make Goldman the “Benevolent Dictator” of our financial sector, in exchange for the support required to get his agenda passed.
I like Obama, but I’m also painfully cynical. Perhaps the decision to use kid gloves with the financial industry and to give Goldman the keys to the kingdom is Obama’s Deal With the Devil. It is no secret that the financial industry has been quite supportive of Democrats as of late, Dems could probably go even further with a little more support. The fact of the matter is that money buys formal political power and often the ability to rent the means of information distribution matters more than facts.
Anti-trust legislation can never, and will never, be effective in the current legal environment. Why? Because this environment is so grotesquely slanted in corporations’ favor (and by logical extension, in the favor of corporate executives) that no anti-trust law would ever get enforced. What’s the point in writing a tough law when the system will never actually prosecute it in a meaningful way?
The way corporations are treated under the law needs to be rolled back to the early 19th century, when natural persons were still considered superior to corporate persons, corporations were chartered for very specific purposes, and all corporate charters had explicit time limits (i.e. no perpetual corporate life was legally allowed).
Learn what a tiny fraction of the population knows: the “dead hand” of the corporation has crushed the life out of our society. Read “Gangs of America” by Ted Nace, you can either purchase it on Amazon or read it for free here: http://tinyurl.com/d32qej