Why Do Senators Corker And Dodd Really Think We Need Big Banks?

 By Simon Johnson

On Friday, Senator Bob Corker (R, TN) took to the Senate floor to rebut critics of big banks.  His language was not entirely senatorial: “I hope we’ll all come to our senses”, while listing the reasons we need big banks.  And Senator Chris Dodd (D, CT) rose to agree that (in Corker’s words) reducing the size of our largest banks would be “cutting our nose off to spite our face” and that by taking on Wall Street, “we may be taking on the heartland.”

Unfortunately, all of their arguments in favor of our largest banks remaining at or near (or above) their current scale are completely at odds with the facts (e.g., as documented in our book, 13 Bankers).

The senators led with the idea that our nonfinancial sector needs huge, complex, global banks in order to remain competitive internationally.  But this is completely untrue – in fact, Senator Dodd conceded as much to Ezra Klein recently when he said that he had heard the arguments of 13 Bankers against big banks also from “CEOs” (presumably of nonfinancial companies).

Even the biggest nonfinancial companies do not, under any circumstances, want to buy all their financial services from one megabank.  They like to spread the business around, to use different banks that are good at different things in different places – in part to prevent any one bank from having a hold over them.  Playing your suppliers off against each other to some degree is always a good idea.

Senator Corker also argued that entrepreneurs need today’s megabanks.  Please find me a single entrepreneur who would agree with that statement – keeping in mind that I work with a lot of entrepreneurs in my day job (professor of entrepreneurship, among other things, at MIT, with a particular focus on entrepreneurs working globally).  Of course entrepreneurs need access to capital and they need investors who are willing to back risk-takers in the nonfinancial sector, but if you can find a link between that productive activity and what Goldman Sachs is accused of doing by the SEC, write it up.

Senator Corker also stressed that businesses need to be able to hedge risks, e.g., regarding their input prices.  This is a fair point but it is completely unrelated to how large our biggest banks should be.  This is instead an argument for allowing the existence of derivatives market – like Gary Gensler of the CFTC, we take the view that requiring all derivatives to be traded on exchanges would not only reduce system risk, it would also be completely consistent with all legitimate and productive derivative-related transactions, and it would reduce the size of the largest broker-dealers (who currently have a great deal of market power when so much of derivatives trading is over-the-counter).

Both Senator Corker and Senator Dodd stressed that the biggest US banks are not the biggest banks in the world.  But what does that have to do with anything?  The largest European banks are again in seriously trouble this weekend – because they piled on exposure to the eurozone periphery in an irresponsible and frankly dumb manner.  The largest Chinese banks are a complete mess in terms of governance and ability to make a sensible loan.  And the biggest Canadian banks are underwritten by government guarantees of a nature and scale that make Fannie Mae and Freddie Mac look respectable during the go-go years (which they were not) – we have taken these points up at the highest levels within the Bank of Canada and they get this.  So why would anyone think that any of these global banks is an appealing model for the United States to follow?

Senator Corker is opposed to any “arbitrary limit” on bank size.  Senator Dodd’s support for Senator Corker on Friday is striking and surprising because, at least nominally, the Dodd financial reform bill as it came out of committee does cap bank size – see Section 620, “Concentration Limits on Large Financial Firms”:

“Subject to recommendations from the Financial Stability Oversight Council, a financial company may not merge or consolidate with, acquire all or substantially all of the assets of, or otherwise acquire control of, another company, if the total consolidated liabilities of the acquiring financial company upon consummation of the transaction would exceed 10 percent of the aggregate consolidated liabilities of all financial companies at the end of the calendar year preceding the transaction.  The Council recommendations will be included in a study of the extent to which the concentration limit under section 620 would affect financial stability, moral hazard in the financial system, the efficiency and competitiveness of United States financial firms and financial markets, and the cost and availability of credit and other financial services to households and businesses in the United States. The intent is to have the Council determine how to effectively implement the concentration limit, and not whether to do so.  The Council will have six months to write the study, and the Board of Governors of the Federal Reserve will have nine months in which to issue regulations that reflect the recommendations and modifications of the Council.

This is obviously very weak, in part because at best it only applies to acquisitions. This is a significant watering down of the Second Volcker Rule, which read in January:

“2. Limit the Size- The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.”

Unfortunately, for whatever reason, the White House appears to have completely folded on the substance.  Larry Summers now claims (inaccurately) “most observers” think breaking up big banks would be a bad idea because, 

“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.”

The Brown-Kaufman SAFE banking act would cap banks, as a practical matter, between about $100 billion and $450 billion in total assets – depending on their exact risk profile.  What exactly is the diversification that you can do at $2 trillion that cannot be done at $100 billion?

The Corker-Dodd-Summers view follows closely the line from Hal Scott, a Harvard law school professor (and a director of Lazard) who strongly favors the big banks  – for example, he testified against any form of the Volcker Rules when we both appeared before the Senate Banking Committee in February.  Scott runs the Committee on Capital Markets Regulation, which recently stated,

“As with the Volcker Rules, the Committee does not believe that size limitations will reduce systemic risk. An institution does not pose systemic risk because of its absolute size, but rather because of its debt, its derivatives positions, and the scope and complexity of its other financial relationships. Because the problem is not size but interconnectedness, reform should focus on reducing the interconnections so that firms can fail safely. Furthermore, even if size were the right issue, the Senate Banking bill would not require any existing bank to shrink; it would only prevent further growth by consolidation or acquisition. Assuming size is the source of systemic risk, we should presumably be concerned about it whether it is the result of acquisition or organic growth.”

Of course the issue is about system risk.  Risk is about many things, including the ability of banks (at any size) to circumvent regulation.  But risk is also partly a function of bank size – smaller banks are not too big to fail and this affects the incentives of management and directors (as well as traders, depending on the compensation system).

And if you don’t think our largest banks have completely captured the hearts and minds of their regulators – both prior to September 2008 and perhaps even more subsequently – read 13 Bankers and tell us where we got that part of the story wrong.

If you still really don’t want to cap bank size, take a long hard look at the UK, where RBS had a balance sheet of roughly 1.5 times the UK economy when it failed.  When it failed in fall 2008, Citigroup had total liabilities around $2.5 trillion.  Would our problems now be better or worse if Citi had had $5 trillion in assets – or if it had been the size of RBS relative to the UK economy, i.e., roughly $20 trillion?

As for why exactly Senators Corker and Dodd really support big banks, it seems increasingly likely that this is all about campaign contributions.

116 thoughts on “Why Do Senators Corker And Dodd Really Think We Need Big Banks?

  1. It may be largely influenced by large campaign contributions as in your last sentence, but might I suggest another reason as well. Outright fear and awe of the monstrous financial system that has been created.

    The political class are overwhelmed by the complexity and fragility of the financial system. A Frankenstein financial/conceptual architecture has emerged, thanks to the efforts of a lot of clever mathematicians who designed instruments (not necessarily with malign intentions) that have made the financial system dependent upon a single point of failure i.e. no specifiable or transparent relationship to underlying valuations in the “real economy”

    To change the metaphor slightly, policy makers in the Washington establishment (or for that matter those in London as well) are paralyzed by the fear of tackling the creatures roaming around the Jurassic Park of modern financial capitalism.

  2. “Why Do Senators Corker And Dodd Really Think We Need Big Banks?” you ask? That would be because they are scum sucking pigs. They like the majority of their peers are not interested in anything other than getting re-elected or in Dodd’s case, getting a fat paycheck from the FIRE sector after they “retire”. Why isn’t Dodd running for re-election? Is it because he would lose by 40-50%? The citizens of Conn. who know Dodd better than any of us first elected Dodd to office 36 years ago. After 36 years the citizens of Conn. have grown disguisted with Dodd’s money grubbing tactics and would defeat him soundly at the polls, R and D’s alike.

    What’s up with Corker? Is Corker a RINO? The right wing “Tea Party” thinks so as they refer to Corker as “Bailout Bob”. The Tea Party agrees with Simon when they write “This bill, written by Chris “Countrywide” Dodd, is a permanent bail out of the financial sector. It provides for advance funding for government take overs of banks.

    Although Corker denies this, it is a permanent bailout.” http://tpmdc.talkingpointsmemo.com/2010/04/tea-party-targets-bailout-bob-corker.php

    So here you have the 2 lead senators hated and distrusted by their own party supporters and yet they continue to go against the will of the people to protect the banks, their campaign donations and their future prospects of getting a fat paycheck from the blood sucking parasitic leeches aka the FIRE sector.

    Both parties continue to act against the will, desires of the people. This will not end well, nor should it. We’ve had neo-conservatives, neo-liberals, now is the time for neo-patriots, however they manifest themselves, whatever nation they’re from and whatever god they support.

  3. We can take this further. Not only have the bank rackets been conclusively proven to be both worthless and highly destructive, but globalization itself, for the sake of which all these fraudulent justifications of the big banks are mustered, has been proven an absolute disaster for the American people (as opposed to the rootless alien global corporatists themselves).

    So every justification is doubly a lie, both on its own merits and because it implicitly repeats the lie that globalization will, someday, decades from now, be beneficial to the American non-rich, as long as we continue to sacrifice and suffer today.

    It’s the same as every other totalitarian utopian Big Lie. Utopia tomorrow; for today, the whip.

  4. As always the seantors need some made up excuse that allows them to vaote with big corporations. you just through them out until one gets to sound reasonable then you can vote with the lobby money.

    It gets so frustrating that ou senators can say foolish things regsrdless of truth. I think you should look into who helped write the speech.

    what disgusts me more is that dodd won’t retire with a hint of honor. Look the guy is getting his kmartching orders from the white house. Obama may talk game, but he’s doesn’t want real. remember he put the aig bonus stuff back in the bill becuae geithner wanted it there and geithner still has a job. As always this administration talks the talk, but when you look at what is really happening it is all smoke and mirrors. (just like health care)

  5. I think your final conclusion is the correct one…campaign contributions.

    It’s almost like one-stop shopping. It’s much easier to fill the coffers with contributions from a small number of mega-banks. Think of how many visits they’d need to make to get a similar amount of cash from smaller banks.

  6. “Both Senator Corker and Senator Dodd stressed that the biggest US banks are not the biggest banks in the world. But what does that have to do with anything?”

    Hmm… maybe its a global market??

  7. While I cannot add anything to the discussion on the merits of big vs. small in terms of banking efficiency I favor breaking up the mega banks for a more practical and selfish reason. It would be good for commercial real estate.

    Every major bank needs a HQ. Preferably a trophy building to assert its status as a big player in a cities economic life. As a boy I admired skyscrapers
    and living in Washington, D.C. I had none to stare up at, just the Washington Monument. However, at age
    14 my family moved to San Francisco. It was 1968 and to my delight the three big banks in the City were all building new headquarter towers and their height reflected their asset ranking in Fortune magazine. At a majestic 52 stories was Bank of America’s edifice. Wells Fargo was topping out their shiny 43 story tower and Crocker a smaller but still impressive to me 38 floors.

    Breaking up Bank of America, Wells Fargo etc into SunTrust sized regional banks would be a boon for commercial real estate as the several dozen new entities would, of course, have to establish their brand and massage the egos of their management with their own HQ office towers. Think of it! Two or three dozen new 40 to 60 storey buildings rising up in America’s second tier cities. We’d have a Dubai sized building boom.

  8. I retract…. inartful as it may have came across. There are aspects to the argument from the right that are more compelling (perhaps more articulate) but the reasoning in arriving to that conclusion may not be exact in fact and history. Balancing that against the notion of painting a broad brush across any group of people isn’t exactly a bright idea either: I was very surprised to see this included in a craiglist’s posting (second paragraph) – “please, no united kingdom, canadaians, or any other europian people ask for the room. i now know that people from these countries are phony and crooks so don’t write or i will turn you over to craigslist and to nfcc”.

  9. We need huge, complex, global banks like we need tools like Corker and Dodd in the Senate.

  10. Q: Why Do Senators Corker And Dodd Really Think We Need Big Banks?

    A: $$$ ka-ching* $$$

  11. Folks, you must remember that we are a commodity and as such we are constantly being sold by the banks to the highest taker of campaign money

    Note that none of this stuff ever comes to the people for a vote.

  12. “what disgusts me more is that dodd won’t retire with a hint of honor”

    Dodd’s father “retired” with more honor than his son could ever muster

  13. U.S. Role in Mortgage Market Grows Even Larger

    APRIL 30, 2010 – Wall Street Journal – excerpt

    “The U.S. government’s massive share of the nation’s mortgage market grew even larger during the first quarter.

    Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants.

    By providing a steady source of liquidity to the mortgage market, the government has helped housing markets to stabilize. However, “Fannie and Freddie have to get smaller and less relevant in order to revamp them, and instead, every day they’re getting bigger and bigger and bigger,” said Paul Bossidy, chief executive of Clayton Holdings LLC, a mortgage analytics firm.”


  14. I guess as the corporations outsource the jobs to cheaper workforces, we will all become citizens in a nation’s shadow economy, with co-op credit unions, co-op farmers’ markets, co-op enterprises, right along with the hustlers, the drug dealers and prostitutes, anything to escape the corporate (big-bank) grip.
    Listening to Blankfein on Charlie Rose, he likened his enterprise, Goldman Sachs, to the Dow Jones, a market maker, which enables growth and investment by guaranteeing liquidity. One May Trade. He then said, “which didn’t turn out to be so illiquid,” close to those exact words. (Oh, the derivatives. Oh, the lack of transparency. Oh, the deal upon deal upon deal, stacked like a house of cards, upon the little homeowner, liable to be RIF’d in favor of an Indian worker, or to have a sickness wipe him off his health plan and job. Oh, this market.) Charlie Rose asked him what would be the loss of GS if they had to forgo proprietary trading (in which they, the “Dow Jones” of their own market-made market, buy or sell their own products? or is that different). Blankfein said that was 10 percent of his business, or his profit, I forget which, and that he/GS works very hard for that 10 percent. He allowed that GS has changed radically in the last few years, and reflects the way business is done in the financial sector.
    To me, large banks need to function like public utilities when they are too big to fail, no profit, total transparency. If we need such an institution, let it be part of the government. Blankfein used the analogy of the water spigot, which he only considers when there is no water. If every community had their own well, then no one well is too big to fail, and bigger risks can be taken. A dead cow in one doesn’t bring down the entire community.
    So we need smaller wells — more wells, in case of the dead cow scenario. In order to be more immune to risk.
    Sorry for the layperson’s thoughts. We are voters, you know.

  15. “Nooses” has a lovely ring to it.

    H Paulson
    J Paulson

    These people are traitors to the U.S. Plain and simple.



  16. Mr. Johnson should also take into account the WTO and G20 trade agreements on financial reforms when he writes about reforming the system. Glass Stegal, for example, would likely break those trade agreements and is probably off the bargaining table.

    In fact, why do none of the people talking about reform ever discuss that our financial oversight policies are not really determined by our government in any transparent way, but by a handful of international corporations behind closed doors? Dodd is not only paid off (why not face that he and the others are completely corrupt—puppets—when it’s so patent?), but the various finance committees are carrying on like this knowing that there is a huge elephant in the room: the WTO and G20 agreements. Neither they or the media ever bring it up publicly.

    Here’s a link to a discussion of the last G20 on Democracynow, with Lori Wallach from Public Citizen:


    I really think that people should face up to the fact that their government IS Wall Street, is OWNED by and represents ONLY Wall Street and large corporate interests. People are merely an annoyance. This is clearly not a democracy because our government makes secret deals that involve our livelihoods, health and safety with disinterested international corporations. For example, the outsourcing of jobs, which will continue, won’t be counteracted by some ineffectual “jobs” bill. Another 20% of U.S. jobs are to be outsourced in the next 10 years. And the very idea of outsourcing jobs is to bring down wages and flatten them worldwide, not to create some “global village.” More appropriately, a global work camp.

    Any fool could see this is not a government by or for the people at this point. In denial, people still try to reason with and cajole the state within this dead ideological framework. Why would you ask reform from a corporate kleptocracy that has looted and perverted the economic system worldwide? Shouldn’t people be rethinking things in a more realistic way?

    At the very least, people should DEMAND things from the government, not make sensible suggestions to officials who are so obviously corrupt and uninterested. The prisons need to be filled with these people and that is one thing we will have to demand to restore the rule of law. At least, taking that tone might get their attention.

    In the S&L scandal 20 years ago, over a thousand people went to jail. So far, only Bernie Madoff has been sent up. There is a clear lesson in that as to who’s in charge now. And political leaders who make secret deals offshore to robber barons should join them. —People like Bill Clinton, who consigned thousands of North Americans to poverty with the WTO and NAFTA agreements. His wife, who, as secretary of state, legitimizes the tyranny in Hondouras and threatens a pointless war with Iran should join him, along with the host of other rats who have betrayed the public for the last 30 years—the whole lot of globalists who wreak havoc on the populace daily.

    Start writing THAT every day and you may have some real talking points. Otherwise, you’re just whistling past the graveyard in a banana republic.

  17. Simon still does not get it. Obama and his shill Dodd are in the pockets of the banksters. Remember: Obama’s “savvy business men”. He admires these people. It is a pity that he himself was not smart enough to join their club. It would have been better for the country.

  18. Having been a CEO for 16 years, my first concern about large banks is that they can only be managed too poorly to serve the needs of a healthy market. It’s a matter of scale. Size allows dominance by otherwise feeble management, which is just what is happening.

    Let me cite some structural issues:
    1. A top executive can only make so many executive level decisions in a year. (At least half dealing with internal issues) The larger the institution the more complex the decisions and the more time and accurate information it takes to make good ones. The larger the institution the lower the percentage of well thought out decisions; more and more get made on a handful of myths and personal relationships with loyal lieutenants. (Big government has the same limitations for Executive or Congressional decisions)

    2. Leaders of large organizations tend to deal with comparably large consequences… you don’t manage a $100 billion corporation making $50 million decisions. (However, they also tend to spend more time making trivial decsions because these are the only ones with immediate, self gratifying outcomes) Thus, management looks for huge pools to muck around in… like housing pools, government debt (Goldman Sachs in Greece), etc. The little guy isn’t dealt with as an individual, merely part of some large pool. But note, you have less competent people dealing with much larger and more complicated pools… thus the recipe for disaster.

    3. Leadership of large public organizations is chosen by others on the basis of loyalty, loyalty, loyalty and reputation, not competence. Robert Rubin and Larry Summers are examples example of this reputation and loyalty principle. Entrepreneurs who lead small organizations and who grow large successful organizations self select and are pruned by market forces. In a sense, leaders of large organizations inherit their jobs by being loyal followers for decades. Hardly the best screen for creative and intelligent leadership.

    4. An industry dominated by a few large organizations hasn’t the structural surpluses to develop and screen out the next generation of competent leaders. Metaphorically, it lacks a farm system in which to develop and screen outstanding future talent. This is also the failing of dictatorships, the next generation of leaders tends to be toadies who were loyal within the system.

    5. No industry should have insitutions that are too large to fail in the marketplace in a way that allows for orderly distribution of their assets. For financial institutions this size is about 3% of the overall national financial market (due to interlocking activities and the critical role of money and credit to the economy)…. to allow for a healthy apoptosis process (as in FDIC distribution of failed institutions’ resources) as opposed to a necrosis process in which one institution’s failure cascades throughout the system.

    Given the 3% upper limit, growth through mergers and acquisitions should be prohibited when an institution reaches 1% of the national market.

    I have posted more on breaking up the behemoths on my own blog. What is blantantly obvious to someone who has led a business in a highly dynamic marketplace of hi-tech seems to escape Corker, Dodd and most economists.

  19. Also, Mr, Johnson, William Black, the former bank regulator who helped prosecute the S&L scandal, has repeatedly said that there is a law on the books ordering that banks which are insolvent are to be taken into receivership and broken up. All of the large banks are probably still insolvent, since their total debt has been estimated by the U.S. government to be over 100 trillion.

    Both the Obama administration, the Bush administration and congress have flouted this law.

    Why not demand that they be taken into receivership as the law proscribes?

  20. A good argument for State’s rights… a more robust system less prone to single point of failure cascades.

  21. It isn’t exclusively about campaign contributions. Dodd doesn’t need campaign contributions anymore. He needs a job. This is also about getting positions for staffers, supporters, family and themselves. This is also about taking a position at these banks, lobby firms, law firms or at hedge funds that want a profitable environment. The goal is to follow in the footsteps of the greatest financial criminal – Phil

  22. Everything you say is true, Simon. We will only know who’s interest Dodd and Summers are serving after both leave public service later this year. Then we’ll be able to tell who they were protecting, and whose interests they were advancing. As it stands, they appear to be carrying the water of the TBTF banks, who lose everything if the status quo is re-ordered.

    It will be interesting to see if their line of reasoning and legislation can survive whatever is brought forth in investigations into the AIG bailout, which was alluded to in the hearings held by Sen. Levin this past week. While alluded to, it was never pursued; most likely because the Senators, other than Levin, and their staffs did not have the intellectual wherewithall to pursue this line of inquiry. Someone has to, though.

    If the non-reform of the financial system being promoted by the Dodd-Summer axis prevails, Democrats will be, in all essential respects, indistinguishable from the fat-cat Republicans they love to rail against but, de facto, are in perfect alignment with. The result of the Dodd-Summers point of view prevailing inevitably will be further consolidation of and control over the financial markets by the TBTF banks. The only beneficiaries of this will be the senior-most employees of these banks and their favored few advisors, insiders and allies in government. Should that occur, the only real alternative then will be either a third-party alternative (not the Tea Party, but something that actually has intellectual heft), or hitting the re-set button. Systems like ours — a market-based Constitutional government — are not consistent with such massive concentrations of power and centralized control of the levers of the economy. Post WWI France and Germany are appropriate analogs as to how such concentrations of power exhaust themselves. As is post-Republic Rome. What comes out of such conflagrations is not pretty. Or sustainable.

  23. The question of the safety of being bought by campaign contributions will start being put to the acid test next Tuesday when four states start the primary season. One month later, ten states hold their primaries on Super Tuesday.

    Republicans have chance to toss out their incumbent in states where party declaration is in force. Similarly, for Democrats. They are not voting against their party only the incumbent they agree is a bought dog.

    Gerrymandered districts have made it very difficult to unseat the dominant party in the district.

    The main political question answered this year will be if those that vote in primaries care very much about politically purchased elected members of Congress. This is a primary election settled issue. The howling angst of the citizenry means nothing unless they vote in the primary.

    DO American voters who scream and ,moan about banksters and values and bought elections care enough to kick out the incumbent of their own party. Achieving a turn out of the incumbent is a very small voter turnout subset of the total electorate in any district.

    If a turnout during the first two primary season months does not achive an incumbent turnout it means the electorate negatively agrees with the idea of big banks and cares little to nil about campaign contribution fraud as well. Reasons do not matter. The electorate cares to exercise it’s only methodology of incumbent correction or it does not.

    We will have a solid indication of voter angst by next Wednesday. THis indication will be made by a very few voter’s of the party in power in most districts. All it well take is a few thousand anti incumbent party voters who are sufficiently ticked off to vote next Tuesday in each district.

    The anti bankster angst will be a lot of political hot air by the non voting citizen or it will demonstate to the incumbents a very salient fact. It does no good to curry favors for campaign contributions if your voters turn you out.

  24. Apparently, Corker and Dodd represent the pinnacle of American politicians and our broken free market in action:

    They are the cheapest Senators available.

  25. So, what the senators are saying is

    “‘Too big to fail’ is now ‘Big enough to bail'”

    Congratulations Mr. Taxpayer, you have been swindled (again).

  26. If the colony continues increasing, it will become necessary to augment the number of the representatives, and that the interest of every part of the colony may be attended to, it will be found best to divide the whole into convenient parts, each part sending its proper number; and that the ELECTED might never form to themselves an interest separate from the ELECTORS, prudence will point out the propriety of having elections often; because as the ELECTED might by that means return and mix again with the general body of the ELECTORS in a few months, their fidelity to the public will be secured by the prudent reflection of not making a rod for themselves.

  27. Re: @ Edwin Lee_____Ref: “The Solow-Swan Growth Model” ,a neo-classical business model. Cautions about “Top Heavy Corp’s”
    where they collapse upon themselves,…ie)the law of large numbers.

  28. That’s another thing the media and voters need to keep a close eye on. These big bankers and derivatives dealers are bribing some members of the Senate Agriculture Committee (headed by Blanche Lincoln) to change the legislation. They know people are keeping a close watch on the banking committee, so they are trying to do an “end around” or “slight of hand” trick, by changing the legislation in the Agriculture Committee so no one notices what is happening. Bloomberg had the original story, but Mike Konczal is the one who drew my attention to it. You can see Konczal’s superb post, with copies of the changed legislation here:

  29. I would read your book if it wasn’t priced so poorly for the Kindle.

  30. By the way, all Republican Senator Bob Corker is–is just a Richard “Dick” Shelby dressed in sheep’s clothing. And the sheep’s clothing is not very convincing. Nothing more, nothing less.

  31. What I mean to say is, Republican Bob Corker has sold his soul to the large banks the same way Republican Dick Shelby has sold his soul to the banks. Corker has just chosen to be less obvious and blatant about it than Dick has.

  32. The USA would better off if we turned all the criminals loose and locked up the walk street, rating agencies and bank executives.

    Surely they should be tried for treason, or murder in the second degree if someone committed suicide because of their actions.

  33. Perhaps these two senators believe it is their duty to protect their friends on Wall Street, or there may be other reasons that delve deeper into the human psyche. Whatever the reason they seem to believe we need big banks, the masses are pushing back and for good reason.

    As these banks operate across international boarders, shouldn’t we come to an international consensus as to the size and scope of these institutions? Yes many Americans are fed up and disgusted with where we have been taken by these banks and I imagine that people in England, Greece, Spain and many other countries are equally ticked of at their financial state of affairs.

    What we should be asking here is why this question which seems to require an international response is being addressed in a unilateral fashion in our senate when a larger venue is required?

  34. I was going to say something, but it’s too easy to shoot that one down…. ok I can’t resist…. I wouldn’t be investing in that Kindle 2.0 if I was you (hahaha)

  35. Agree that between problems of poor information wreak silent havoc within large institutions.

    But as we all know, in most cases the organization seeks to perpetuate itself against all rational, reasoned efforts to help it clean up its act.

    Corker and Dodd should stop acting like syncophants.
    It’s embarrassing to watch.

  36. Prof. Johnson is perplexed as to what reasoning could justify economic giantism, and so he defaults to a conjecture regarding (legalized) corruption: “As for why exactly Senators Corker and Dodd really support big banks, it seems increasingly likely that this is all about campaign contributions.” –This neatly begs the question by assuming that somebody else (presumably the giant or would-be giant institutions) want giantism, hence corrupt their politicians accordingly.

    If Johnson would rephrase his question–to, say, ‘As to why exactly Senator X really support oligopolistic capitalism . . .’–it would become obvious that the Senators are responding to the profit imperatives of their biggest patrons, who in fact reap greater profitability from oligopoly. Recognition of this would compel Prof. Johnson to come out of the closet, as it were, regarding his attitude toward capitalism as a system. Either he supports the system of profit maximization, which naturally engenders oligopoly, or he does not. Confessing that he is an enemy of maximum profits would then put the onus upon Johnson to explain why he “really” supports a profit-challenged capitalism; i.e., why he “really” wants to have his capitalist cake (the capitalist system) and eat it too (limit the realization of the system’s prime directive, maximum profit).

  37. Re: @ Ted K____Sen. Blanche Lincoln must think the public is brain dead. We all know how valuable,and necessary the commodities dirivative market is for america’s farmers,and agriculture,never mind the myriad of other industries dependent upon insurance. Her crying wolf…that an open,and transparent clearing house will be “the baby thrown out with the bath water” is nonsense! She’s dillusional,period! Dear Blanch…your state gets more federal subsidies,and free-lunch “No Grow Crops” $$$checks than the entire congress,and K-Street combined.. Now,lets get back to Dodd & Coker Inc., (sounds like a good name for a Wall Street Investment Bank) realizing that Sen. Dodd has been writing favorable legislation for the Insurance,Banking ,and even Housing Industry for “18”Plus Years is no suprise to me. Lastly, moving onto Sen.Coker as Dodd’s up,and coming prote’ge (just a couple of cross-dresser’s) the dynamic duel, twist-o-flex vulpines have layered their den with the people’s hard earned saving,only too strike again. Please note,…if Sen.Coker or others find themselves in a fix,they hop,or better said, slither under the fence too the welcoming arms of their co-conspirators. Ref: Lieberman,Reagan,Crist,and that Sen from Pennsylvania? PS. These spoiled carnivore’s love their carrion fresh? Thanks Simon,and James – please keep-up the, “Good Digging for America’s Sake”

  38. Re: @ soloduff____Somestimes you let your own virtues take the objective shape of the liaison concerned,…perhaps hoping,or praying they side on reason? PS. Don’t be so hard on Simon,and James. :^)

  39. Trevor, you forgot to mention the executive branch. We all know the President didn’t get to Pennsylvania Avenue without being indebted to his ‘supporters.’ As for Professor Johnson somehow needing to preface his critique by declaring himself anti-capitalist. The point is not well taken unless you believe that capitalism is inherently corrupt. We are glad that Professor Johnson has been in the forefront of criticism of the banking system, but he should be mindful of the limits of intellectual freedom. Let me just mention one name to illustrate the caution:
    norman g finkelstein

  40. I’m guessing Dodd has a mortgage application on somebody’s desk.

  41. Professor Johnson, – to what extent would limitations on bank size put the US financial system at risk of significant foriegn acquisition? Thx.

  42. Mr. Lee,

    Thank you for your post; I could not agree more with your analysis.

    I worked for 16 years in the 4th or 5th (depending on the balance sheet) largest commercial bank in America in a middle management position, (i.e. I was nominally a V.P, in the international division, but on a S.V.P. wage level). That bank became one of the constituents of what is now JP Morgan Chase.

    I fully subscribe to your comment that, “size allows dominance by otherwise feeble management, which is just what is happening.”

    I also fully subscribe to your to your comment that, “ the larger the institution the lower the percentage of well thought out decisions”. That was my experience.

    To big to fail is too big.

  43. Do you have a new book out? Could you please mention more often? I don’t think once per post is probably enough. Why not mention it every sentence?

  44. I don’t know why he shouldn’t want to promote his thoughts or writings. Especially regarding a book that stands to make him money. Is there a point to the feeble attempt at insult? I don’t get the conflict of interest hint that is being insinuated.

  45. The “need” for big banks is just Wall Street “spin” to justify the obscene salaries that have come with the territory at the big banks. And, of course, when one receives an “obscene salary,” they are predisposed to donate generously to the campaigns of those who will help perpetuate their way of life.

  46. “It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they here gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom, and that government of the people, by the people, for the people, shall not perish from the earth.

    ~ last sentence of Lincoln’s Gettysburg Address

    Note, it does not say “and that government of the banksters, by the banksters, for the banksters..” Yet, that is exactly what we now have. Lucky us. The government was stolen from us as “we” were lost in the stupor of materialism.

  47. Lee – I agree and would like to add another negative aspect of leadership in gigantic institutions. Those “leaders” are so far removed from their customers that making sweeping product or pricing decisions are with little regard to the client. Comparatively, leaders of “manageable” institutions have occassion to actually connect with a customer, which I believe is necessary for making sustainable and responsible product and pricing calls. You don’t have to look further than the credit card oligopoly. Do you think if those card company “leaders” knew the parents of the kids to whom they weekly sent credit card offers, they’d still bombarb them? If they knew the people using their cards when they came up with fee schemes like having a different payment due date each month to trip people into late fees it would make a difference? If all TBTF companies, whether financial, auto, or insurance, would be busted up to a size that would require that they compete to stay in business, instead of “bully”, I doubt we would need a whole new consumer protection agency. My bet is that consumer complaints would drop drastically.

  48. Anyone, Simon, who actually thought that the plutocrats might give financial reform a pass were dead wrong. It will be virtually identical to health care reform, in that it will make a couple of steps forward, and then make some minor, meaningless modifications (in 2000 pages of gobbledygook which no one can make good sense of, except attorneys), so that both sides can tout it as progress (since this one will be supported by both sides [politically advisable]). Another charade, full of loopholes and red herrings, lots of sound and fury signifiying nothing. Ever the cynic, I knew that Dodd and cohorts would collapse under the pressure of the administration on one side the the filibuster on the other. But with each side gaining a proportional split of the $117 million given by Wall Street in the last election cycle, is anyone truly surprised that we will end up with very little, and almost nothing of true import?

    As you have so accurately and forthrightly stated on more than one occasion, our political scene bears striking resemblance to that of the third world country. I believe that this is more true each day that passes. As a candidate, President Obama posed as a progressive, as a President, he is proving to be a supporter of the rich and powerful, with the health care and financial oligarchs being threated, then admonished (for the cameras) and then supported (by his actions). But, then, as soon as he appointed/named the Summers/Geithner WallStreeters as primary figures in his administration, we knew that it was trouble, and, even more when he nominated Bernanke for another term.

    We are all waiting to see what happens to folks like Blanche Lincoln and Ted Kaufman on Tuesday when the vaunted “debate” begins in earnest. They don’t stand a chance in this election year of being heard or accepted. I so wish that C-Span would run a “fact checker” subline during the debates!!!!!

  49. It may be important to maintaining the rigor of this blog for Johnson and Kwak to point out frequently the sort of centerpiece, which though popular is rooted in an academic discipline. I always feel I’m dragging the level of discourse way down, and yet their intentions are to make a difference, and as such, those outside the academic discipline are properly part of the dialogue. One cannot persuade without understanding what is heard, grasped, and how.
    To my mind, economists and business leaders might find a special place for focused conversations hers, and I don’t want to get in the way, but I do think they can get a little parochial in their own way. Sometimes the conversation is more about clarification and politics, more for outsiders, sometimes not so much. But to forget the book is to hijack the blog. In a manner of speaking.

  50. State’s rights? How so? If each state had an entirely different regulatory regime, this would simply exacerbate regulatory arbitrage: financial institutions would simply seek out the laxest regime and, unless there’s state’s rights somehow in your mind includes the proscription of interstate capital flows, the same mess ensues.

  51. simon needs to kick up his attack some here
    flying right at dodd for his gruesome fan dancing

    and of course larry ziffle
    the genius “counting ” hog of harvard yard
    he needs to be hung
    by his soft pink hands
    from a high hook
    and flayed like a bachelor’s rug

  52. What I had in mind is more of a redundant system with more variety of rules and regulations, in evolutionary terms it would provide more possibilities of survival, in ubiquity/avalanche terms it might stop cascades at smaller levels.

    Clive Corcoran was talking about “A Frankenstein financial/conceptual architecture… single point of failure” which got me thinking about how our financial innovations were spread around the globe and how a single point of failure (subprime) was able to take out the whole world. How the US govt took away the States’ ability to regulate the large banks, etc.

    If the States took back those rights it would give us 50 different entities evolving in the predator/prey evolution of the citizens vs the bankers, and it would increase the amount of politicians the bankers would have to bribe, by a tremendous amount.

  53. Re: @ Chomen___Dear sir – I picture your level of perception too that of a pre-historical…or more aptly said, to a Darwinism caricature of a pre-ordained nihilistic neophyte?

  54. Re: @ paine____Harvard,and Princeton have been for a century or so,been well endowed by the “Rothschild Family”! PS. Take note of names that graduate into the business,economic ,and political world?

  55. Hal Scott: “An institution does not pose systemic risk because of its absolute size, but rather because of its debt, its derivatives positions, and the scope and complexity of its other financial relationships. Because the problem is not size but interconnectedness, reform should focus on reducing the interconnections so that firms can fail safely.”

    I have a hunch that if you asked him his position on re-instating an updated Glass-Steagall, which would absolutely reduce interconnectedness, he would staunchly oppose it.

    At the end of the day, Wall Street’s goal is to maintain status quo ante and shoot down ANY attempt at reform, no matter how weak.

  56. are you referring to ‘honest’ Tom Dodd he of ‘evil’ Hollywood and “what briefcase” fame? I gather your statement is meant to be ironic at best

  57. Re: @ Bayard____You’ve got to shame these guys. How do we do this? Simply by showing the blatant diviation from their most resent statements. The factual Q&A’s today, don’t square with yesterdays. Just how do we achieve this? The element of surprise,framed by armour piercing (air-tight) questions! Suggestion,…should be tomorrow’s topic.

  58. I agree that smaller means actually competing versus bullying. But I think the difference goes beyond “consumer complaints would drop drastically.” Currently, if you feel you’ve been mistreated by a large corporation, what do you think it would cost you to find and retain a team of lawyers able to take the time and use equivalent expertise to achieve justice. And beyond that, the size of damages sought (and attorney’s fees, or extent of hush money in settlement, end up being astronomical. In other words, if a complaint is serious (I’m thinking of the lady burned by spilled coffee at a restaurant), it begins to be ridiculous. I haven’t noticed a lot of class action suits against the banksters, and I’m thinking I have a hunch why. Lawyers would rather be retained BY the banks, not against the banks, so they are keeping their powder dry. Some analogy might be made to campaign contributions. Money talks. Without equivalent money, one can’t really talk back.

  59. perhaps a reading of the Constitution would give us all pause for reflection (hopefully we dont confuse it with the Bill of Rights as an overweight talk-show gasbag did key-word data base must have been down) See who is given the vote and then guess why electors are the ones who really choose the president (hint: electors can vote for anyone) Over time entities are always trying to gather more power be they governments,religions,corporations(created to absolve personal responsibilty),groups,individuals history is simply the story of the interaction of the above as the pendulum of time slowly swings back and forth with history being written (or rewritten) by the victors micro is no different than macro as corruption in any of the ‘leaders’ will sooner or later lead to corruption of the particular institution what better way to seize or increase power then by doing it ‘in the open’ (read in front of government ‘watchdogs’) using instuments (derivatives) that only a handful of individuals,if that many, truly understand hence government of the fine print,by the fine print,for the fine print

  60. form follows function. It is not just a matter of size because investment banking cannibalizes the very resources it is intended to facilitate. Maximizing gains always exceeds the optimum peak levels (by definition) and seeks not only competivie exclusion but eventual burnout. Scale minimizes cost but also reduces the value of less prioritized levels of value in favor of greater scope. Externalization costs are incidental if considered relevant at all. Critical judgement is distorted and perspective becomes circular and rationalistic relative to the bottom line.

    Investment banking requires a public option utility (co-op) between mid range banks that has an alternative direct access to the money supply. Competitive checks and balances would keep things more honest and provide competitive capital to infrastructural priorities in the basic domestic production chain. Unlike the SEC the mid range banks would have a stake in exposing unfair practices that tip the scales unjustly towards distortions and perverse incentives. No one would deny that we require a public health system for medical realities, so why are people so brainwashed about financials. The real question is not why too dumb to feel politicians are mesmerized by big investment bank money power…geeze…it’s that the vast majority of people don’t see when they are getting fleeced by a system that is too big to operate without corruption, secrecy and collusion.

  61. Remember when all the business media was pissing in their pants when the Japanese banks were getting large??? That was around 1996–97 if I remember correctly. Maybe before. Don’t here anything about that now do we?? Amazing how supposedly great publications like Forbes and the Financial Times blogs get those convenient gaps in their memory. Maybe the blogger from Trinidad is getting early Alzheimer’s????

  62. @ markets.aurelius

    “A little revolution, now and then, is a healthy thing, don’t you think?”

    – Sean Connery as the Russian sub commander, in “The Hunt for Red October” (1990)

  63. From Wikipedia; Political views

    ‘Shelby took a leading role in the resistance to bailing out the banks and other corporations (such as AIG), both under the Bush Administration, in 2008, and the Obama Administration, beginning in 2009.’

    Does somebody need to update Wikipedia? Or is this correct?

  64. With the notion that taking on the big banks is taking on the ‘heartland’ (does that include the northeast and California … or Nebraska?), Dodd and Corker have gone from “What’s good for General Motors is good for America” to “Wall Street is America.” Whether they believe that or not, they and many other members of Congress certainly know that Wall Street campaign dollars are good for them.

    This fits with my own that the US is not just becoming an all-but-constitutionally-enshrined oligarchy, but is in fact moving toward a new Feudalism. How many members of Congress ‘inherited’ seats from family — the number is growing. They serve Wall Street and a handful of other massive corporate interests (health insurers, big pharma, agrichem — industries that do, comparatively, remain markedly American, as opposed to, say, auto manufacturers).

    The only group that has little or no say is that constitutionally given a say — the People.

    The Oligarchs are further served by institutions of opinion and thought manipulation — chiefly the ‘news’ organizations and universities.

    We the People lose what little grip we had on a decent standard of living under the constant aegis of a new security state emboldened by laws ostensibly designed for terrorism but largely used for purely domestic purposes.

    Far-fetched? Watch and wonder.

  65. Too big to fail means too big.

    Separate high risk and low risk, everyday financial services from weakly leveraged high risk gambling

  66. via Jefferson, who also noted: “Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs.” (Letter to Thomas Cooper, 1814)

  67. Re: @ EllenD____Money does talk – until the fulcrum of equillibrium shifts,and the equalizer finds its fundamental base awash in feces. Tipping,and crashing the scale of overburdening corruption as unnecessary laws must be purged – realigning its moral gyroscopic-compass within this failed-draconian system. This is the counter weight,via fail-safe that the founders instilled methodically with great foresight,into the original models machanism, called the constitution! This weighted lax money, has a stench that must be scrubed,sanitized,and shredded. These false cassandra’s pretentious claims of fait’accompli, are feral assaults on america’s commoners!

  68. Of course the issue is about system risk.

    This is untrue. If you look under the hood, you’ll find that the real concern is about maintaining American dominance in the global economy. The code for this is the word “competitiveness,” and it informs all support for megabanks in the US:

    “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.”

    I note the “Most observers” statement, semantically identical to, “They say . . .”

    Don’t be mislead. It’s not an economic argument per se. It’s not about managing risk, future taxpayer bailouts, or even free markets, but a geopolitical power argument and a way to gin up domestic political support. If the size and dynamic US economy isn’t our real strength, then this argument might have some validity. If the economy isn’t the largest or dynamic enough, then there lies the real problem.

    Prevailing attitudes toward labor in the US is another underlying and essentially political problem. I commend readers to the National Labor Committee website to view concrete examples of management’s view of labor for real.

  69. Another wave of looking at things…

    “Plutocracy is rule by the wealthy, or power provided by wealth. The combination of both plutocracy and oligarchy is called plutarchy.

    In a plutocracy, the degree of economic inequality is high while the level of social mobility is low. This can apply to a multitude of government systems, as the key elements of plutocracy transcend and often occur concurrently with the features of those systems.

    Athenian techniques to prevent the rise of oligarchy

    Especially during the Fourth Century BC, after the restoration of democracy from oligarchical coups, the Athenians used the drawing of lots for selecting government officers in order to counteract what the Athenians acutely saw as a tendency toward oligarchy in government if a professional governing class were allowed to use their skills for their own benefit.”


  70. Re: @ Hugh Sansom____We as a collective, have become – better said ,evolved into the very monster we once slayed. How ironic are life’s genetic idiosyncrasies?

  71. A fundamental problem with pushing regulatory authorities to the states is that their regulatory bodies have a long and notorious history of capture by the interests they were supposed to regulate (utilities commissions, banking commissions, insurance commissions, land use/real estate development/building codes and practices and sale, water rights, resource conservation, etc.). The cost of influence at the state and local level is very small, comparatively, and the ROI on such investments is very high (in FL, $15k in contributions can get you a $1M exit to your development from the turnpike or Interstate).

    One way to interpret the growth of the regulatory scope of the federal government is that the citizenry has repeatedly requested/demanded it to replace weak or corrupt local and state regulators or to fill gaps that are inherent when regulations are localized and unable to monitor interstate, intercounty or intercity congress.

    Examples abound: the FDA, FCC, the National Parks, Monuments and Forests, FTC and DOT, ICC, etc. How does State A regulate chemical dumping in upriver State B? How does State A regulate the processing of meats made in State B? Consider your own state government. One primary obstacle to citizen activism is gerrymandering, which in my state of Florida, seems to have created an immovable obstacle to changes in governance that are needed urgently. Political unit districting is a crucial tool of vested interests and is practiced ruthlessly by the states. Seriously, is your state legislature any less corrupt than the U. S. Congress? Would you trust them to regulate banks effectively and well?

  72. Straight-out mobility is compromised where homeownership is worshipped, so to speak. I’m thinking of millions of houses along the Gulf of Mexico that might be REALLY cheap in a few months, as a whole lot of people fan out in search of new jobs. Social mobility is comprimised when actual mobility is compromised.
    This reminds me of liquidity of assets, which the market-makers say they enable, and which the Dow Jones for instance does provide to the economy. But which, once all the derivatives have been compounded and dispersed, turn out not to be liquid at all. You’d have to have a daily Abbatoir Average for every mortgage, its prospects and so on, and all the interests short and long, and when they got in, when they expect to be out, who each action might be supervised by, owned by. Abacus Average, that is. Given the human capital (energy, health, family…) in any home purchase, one cannot evaluate a large number of those with a computer, nor quickly, certainly not in a room from 2:00 to 3:00 in the afternoon. But the fact of the housing market having gotten so constipated, so to speak, means a person seeking a job is now also seeking to sell a house. In short, low mobility is hampering recovery, I suspect.

  73. Re: @ earle,florida: The only “objective . . . liason” that concerns my post is the “liason” embodied in the bourgeois reformism exemplified by Johnson, Kwak, Stiglitz, et al. My claim is that, by fronting for a New and Improved capitalism–capitalism without the evils of capitalism–the bourgeois reformists are in fact part of the problem (capitalism as a system) and not, as they claim, part of the solution (a system not based upon private aggrandizement ad infinitum). –This is indeed a “hard” criticism, but it is no more than the traditional Left criticism of bourgeois reformism. All of my life I have heard the reformists promise This Time Is Different (per their reforms), and all of my life I have witnessed the abomination that is capitalism enforce a violent and corrupt world of egoism alloyed only by deceit. And I have attended seminar after seminar, class after class, wherein the professors of bourgeois reformism solemnly prove that they are smarter than the capitalists, whose system the professors intend to save (a la Keynes) from the capitalists. Alas, “somehow” the capitalist system always wins out in the long run, but this never fazes the professors, who are ready with their fire hoses the next time capitalism flares into one of its inevitable crises. I see fraud and mummery where you see naught but good intentions. Instead of defending Johnson et al. personally–my criticism was politico-economic, not personal–you could benefit all of us if you’d take seriously the criticism of bourgeois reformism conveyed by my post. Historically speaking, do you think that bourgeois reformism, by facilitating capitalism as a system, has been a good thing for humanity?

  74. Just like Yertle (the turtle), there is something in the mind of businessman and banker that wants to lord over a bigger kingdom.

  75. Chris Dodd’s father was a political scumbag, plain and simple. I don’t know if he was a good father, that’s between Chris and his Dad. But one way Chris could honor his father is to pass real legislation that protects the American consumer, protects the American depositor, and protects the PRE-Gramm-Leach-Bliley competitive system which built our great American lifestyle. If he can’t do that Chris Dodd should retire Monday and stick his head a briefcase of manure.

  76. Rene, Shelby’s a real American hero. Every year Alabama has a great football team don’t they??? What else do you need to know?? Go back to watching Oprah, would you???

  77. I hope Uncle Warren and Blankfein don’t bump halos. We might keep in mind that the man is invested in the company and according to recent reports in the Wall Street Journal (and we have no reason to doubt things in WSJ that are outside of the editorial section, <i)do we??) Uncle Warren with his cute little Uncle Warren Cherry “sodie pop” are making $900 dollars per minute.

    So of course our hard-digging business media like CNBC must jump to Warren and ask what is his opinion on the matter. It’s CNBC’s duty to the people who pay their cable bill to Time Warner every month.

  78. I should have specified $900 per minute on the GS investment specifically. I don’t want to know how much he makes on the other stuff, I’ll get nauseated.

  79. What is too big in 3, 5, 10+ years from now? Size is not the issue. AIG, Lehman, Bear Stearns, etc. were also-rans compared to the other financial institutions, yet they generated most of the systemic risk. The real issue is managing the catastophic tail risk. Capital requirements, transparency, a systemic regulatory oversight committee, etc. is what is needed. Beyond the tail you want capitalism to be dynamic for economic growth. It would certainly also help if pragmatism and reasonable compromise would return.

  80. Charles B,
    I can’t disagree with anything you’ve said. The damage that has been done and is yet to be done with the current system of corruption, may not have run so far and/or so deep with a more varied and disbursed system of corruption, possibly.
    And I can always dream that one state might get it right eventually and I could move there.

  81. Simon,

    I guarantee you that Senator Dodd will add to his resume of bribe-taking by accepting a revolving door position with the financial industry upon retiring, most likely lobbying on their behalf.

    Elliot Spitzer is available to serve his country. He did it before and forced the federal government’s hand. You want reform? You need a pugnacious intelligent Attorney General with experience to boot. President Obama should direct Eric Holder to hire Mr. Spitzer and set him loose investigating fraud and other illegal activities by Wall Street that led to the recent collapse. And Mr. Obama should ask William Black to assist Mr. Spitzer on the technical financial aspects to point Mr. Spitzer in the right direction. What are you afraid Mr. Obama? A flurry of indictments and convictions?

  82. Cuomo is doing a good job in New York, but he is probably going for Governor of New York. Richard Blumenthal is another good one, but ironically he is taking Dodd’s seat. I give Blumenthal about 2 years before the system twists him and he starts showing up for American Banker’s Association conferences rubbing elbows with Dick Shelby.

  83. What could flawed capitalism be replaced by? Another relatively flawed system? Anarchy? That road is too abstract for most, even Chomsky.

  84. Re: @ soloduff____Capitalism adapts,reinvents itself every countless generation on an endless quest refining its imperfections,as in a parallel universe of political extremities ridding itself of junk DNA to evolve unimpeded. Too swim in a pool of genetic mutation’s is folly,when the probability is prejudiced on the thesis of a refined,and grand evolution. Think of reformism (any mind you) as a dysfuctional symbiotic metamorphosis inflated,and deflating, fusing,and defusing but eventually flaring up as is often every century into a massive solar flare,eventually compressing equillibrium into rational building blocks of logic,thus grounding once again mankinds endless journey towards equality. So yes,indeed – Capitalism is a necessary evil,…but remember these wise words,”The road to Hell was paved by,”Good Intentions”,and the act of mankind too stand still idly by are the, “Devil’s Tool’s”,thus leaving Satan’s workshop controlling our future? PS. Mankinds fortune is in his ability to except commonality,and fate as one,and never,never,ever mentioned as coincident – for everything is fixed? I hope I answered your query,…

  85. The actual size of a banking institution has absolutely everything to do with it’s impact on domestic and global markets when it fails. A bank failure,depending how well it’s liabilities are positioned with it’s assets and the resulting systemic failure has everything to do with it’s size. But what is frightening is the bundling of debt, in tiers no less, then collateralizing this debt w/ 100% collateral based upon a loan default-swap and then selling these securities as assets to a Hedge Fund which is buy

  86. BING!

    Except you missed the Republican half of the money party.

    Track US government debt v. party control of the branches of government, and you’d find that the Nationl debt and deficit is very close to a co-creation.

    And then just subtract the “Defence” department’s excesses (say, anything greater than China and Russia’s expenses, combined) and see what the numbers tell you.

  87. I am very close to abandoning your website permanently. I went back over your past 17 posts, and found 38!! links to 13 Bankers.

    While I generally read your posts because they are informative, and you were, at one time, at the forefront of a positive movement, the constant commercialization pumping your books is setting my teeth on edge! I bought the book months ago and read it. Now leave me alone about it–or better yet, write another. You are very close to turning this entire, previously valuable site, into a glorified advertisement.

  88. “It’s hard for me to get terribly sympathetic when a bank makes a dumb credit bet.”

    Yeah? Well what about when the rest of us are forced to pay for their bad bet and they get to pocket a bonus? What then? I don’t care how much he’s worth, he needs a harsh dose of reality.

  89. Hey Mr. Cohen, have some faith in humanity. Look at the last name, similar to you he has good family genes (and that’s not sarcasm). I hope you post more often here Mr. Cohen we can’t have enough clever commenters here. You’re also welcome to visit my own deranged and lackadaisical blog.

  90. A lawyer incensed about self-promotion and commercialization–LOL


    “The Truth About Lawyers
    Welcome to the only (and best) web page of lawyer jokes NOT sponsored by a lawyer trying to suck you in as a client. And NO annoying ads. Enjoy it!
    Here you’ll find jokes and cartoons about greedy lawyers, crooked judges, shameless shysters, ambulance chasers,…”

  91. SJ says

    “And the biggest Canadian banks are underwritten by government guarantees of a nature and scale that make Fannie Mae and Freddie Mac look respectable during the go-go years (which they were not) – we have taken these points up at the highest levels within the Bank of Canada and they get this. ”

    Then, please take another shot at explaining this to the rest of us. Your previous post on the subject was , to say the least, unconvincing.

  92. Re: @ Tax Lawyer_____Your arbitrary argument is exactly why we must clean up the lawmakers in congress,and herd them over the nearest cliff! Don’t let the door hit ya,on your way out partner. PS. “13 Bankers” is starting to resonate throughout the mainstream media outlets. If you have a product (you seem all too willing to categorize Simon,and James as perfidious profiteer’s) you simply sell it…with any means possible. The pure essence of raw capitalism!

  93. SJ says

    “And the biggest Canadian banks are underwritten by government guarantees of a nature and scale that make Fannie Mae and Freddie Mac look respectable during the go-go years (which they were not) – we have taken these points up at the highest levels within the Bank of Canada and they get this. ”

    This is a bit misleading – in Canada depositors’ money is guaranteed by the government up to $100,000 per depositor through CDIC insurance – this provides no help to the banks if they go broke. Regarding loans, the federal government through CMHC (and other private mortgage insurance companies) insure banks against loss for certain mortgages but only if they meet strict credit guidelines – primarily proof of down payment (which addmitedly can be as low as 5% of purchase price)good credit history and proof of ability to service debt. If any of these requirements are mis-represented by the banks the insurance will be null and void. If a borrower can put together 25% of the purchase price as a down payment the banks have more latitude in their lending criteria.

    The big deal to remember in Canada is that the regulator – OSFI – is very powerful and governs activity in all provinces for all financial institutions.

  94. Why Do Senators Corker And Dodd Really Think We Need Big Banks?
    Simply out- Big Banks are needed to finance the endowment fund for the Congress who need the their money to provide for their honey -now isn’t that funny?

    Michael LittleBig
    Know it- I am a poet.

  95. The Canadian Banking system for the second consecutive year was voted the safest banking system in the world by the World Economic Forum.
    Conversely as I understand the largest Canadian Banks although government owned sell shares to the public.

    Based on the lack of regulation of US Banks maybe
    one should rely on a well run banking system like the Canadians than a banking system dependent ruled by the wealthy and powerful that bought the US economy to its knees and that severely affected US Banks.

    Michael LittleBig
    Cleveland Ohio

  96. I once againt call on Simon if he has real courage to get in “real” fight and take on Stephen Harper and his gang of pitbulls instead of fighting with “wimps” like Dodd and Corker.

    Good preview below of Harper’s number two pitbull John Baird after number one pitbull Jim Flaherty.

  97. Michael LittleBig says Canadian Banks are government owned?!! I don’t think so. They are publicly traded independant corporations just like Goldman and Citi – actually not like Citi which does have a large Amercican government ownership. The Canadian Government owns no stock in any bank. On the contrary – Canadian Banks own billions of dollars in government issued T-Bills as a method to park and manage liquidity.

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