AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (16 comments)

  1. I just read an article today about the Post Office going BACK to providing banking services. THAT would probably be a good idea!

  2. Too many conservatives agree with Bob Stein’s thinking:
    “The problem with this approach is that it eliminates the efficiencies provided by large banks and assumes there is no possible beneficial tradeoff for bank size above a certain level.”

    What efficiencies are provided by very large banks? I haven’t seen much. Mostly, they provide the vast shareholders’ (and public) capital to fund multi-billion dollar bets on proprietary trading desks (c.f., JP Morgan’s “hedge”), and to allow issuers to have capital issues sold before they come on the market, transferring all the risk from the borrower (who has control over what is being done with the money) to the lender (who doesn’t, but who has an implicit backstop from the rest of the financial system, and ultimately the taxpayer.) So we get: Facebook—grossly overpriced, giving shareholders almost no rights, and paying the founders back many times over for a business that was already doing well and making them a lot of money. They make even more money, and someone else bears the risk. DO WE REALLY NEED TO ENCOURAGE THIS?

    I would like to see any serious academic demonstrate what the benefits are of our super-sized banks, and which of those benefits could not be provided by a system of somewhat smaller, more competitive, and more specialized financial institutions. Everyone just assumes that you’ve got to be bigger without ever proving why. Now, even Sandy Weill thinks it was a mistake!

    1. Not Easily Fooled

      Sandy Weill thinks breaking up the banks is a good idea so he can swoop in, buy these smaller banks, and form a TBTF bank of his own.

  3. Would he break up the big banks and bank cabals? I would HOPE so! The rich,the big banks,the federal res and the CFR are the root to the disease in America. Fiat money,money that is created out of nothing, without an asset to back it has become the poison that rots the soul and creates the greed.
    The banks and the fiat money system HAVE to end in the forms that they are and be recreated based on a sound,asset backed currency that is issued ONLY by the govt and NOT a private entity that is the fed res. That day in 1913 when the govt turned the control and printing of our currency over to the fed res was the very first day that the poison entered and infected America.

    To restore America,the elites,the CFR and the bank cabals MUST be ended.

  4. I’ve been saying for a while that Romney would be wise to campaign on breaking up the banks. Not only is it good policy (read David Skeel’s “The New Financial Deal” for a discussion of just how badly Dodd-Frank fails to solve the problem), but it has broad support from all parts of the political spectrum, and Obama would have to either oppose breaking up the banks or admit that his Dodd-Frank bill doesn’t get the job done.

    This might just be the rare case when good politics is also good policy.

  5. Hypernonpartisan

    Breaking up the banks is “at odds with the idea of deregulation and less government intervention”, of course. But the real, practical counter-argument is this: How else do we eliminate on-going public risk/private profit? The re-cap idea is fine for the long run — we set rules for those who would become “too big” again in the future. But I say the need to eliminate the public risk is immediate. So call this die-hard libertarian a BUBBA – Break Up the Big Banks Advocate! Plenty of libertarians and conservatives have come to the same conclusion.

    “But if there were some secret plan to bust up the banks or dramatically raise capital levels, why not announce it now?”

    Indeed, why not? He risks letting Obama beat him to the punch…

    “A lot there for Romney-Ryan to capitalize on if they want.”

    …and neutralizing this vulnerability!

    I firmly believe that the 1st candidate to become a BUBBA wins!

  6. Tom Feral

    Corrupt Obama is absolutely refusing to allow even Corzine to be prosecuted. Obama says he is the defender of Medicare but steals over 700 billion from it and says he is for the people against the greedy wall street yet doesn’t prosecute a single one of them versus Clinton and Bush both going after thousands of them. Obama is the most two-faced man to ever walk the planet.

    Who really unchained Wall Street?

  7. Foxhuntingman

    I would go beyond Andrew Clearfield and say that even if there are efficiencies provided by large banks, the problems created by their tbtf status almost certainly outweigh the value of those efficiencies.

  8. Paul Wilson

    I agree with Mr. Clearfield. Any gains shareholders or consumers have seen in big bank efficiencies are surely offset the costs of our prolonged recession and mortgage crisis meltdown. It smacks of crony capitalism — I feel that there were several big bank cooks (or crooks) in the kitchen which left small banks out. I’ll gladly pay a few bucks per year service fee for my inefficient DDA account at a local bank and avoid the next junk-bond/derivative soup that no one can understand, let alone assess risk.

  9. The problem with BUBB is defining the meaning of “big” – there is no relevant meaning of “big”, just like there was no solid definition of “too-big-to-fail” – it just becomes something to be gamed – to bribe the right regulator. Banks weren’t bailed out because they WERE too-big-to-fail, but because someone said they were, and noone challenged it well enough. Basically the regulators said “We don’t know how to wind them down”. If they don’t know how to wind them down, it is not simply a matter of size but of the complexity of instruments. The problem with BUBB is that the instruments will still be there, and the regulators still won’t understand how to deal with them. Banks will be smaller, but still “systemically important” and will still get bailed out. The answer is capital requirements to insure that complex instruments can be unwound – which should be draconian for overly complicated instruments. If there’s a reason for the complexity it will be worth it. If there isn’t a reason for the complexity, it shouldn’t be worth the cost to complicate the system. That is the path toward effective regulation.

  10. Charles Beichman

    Bring back Glass-Stegall and make banking (not investing) boring. Leverage limited to <x10. Let the gamblers use their money not taxpayer money

  11. Thinkster

    Look, the problem is that these folks in the big banks are very well connected politically and have lots of campaign and other funds to throw around. They went for Obama big time in 2008 and now they may be slightly favoring Romney. These politicians get heartburn when they think about biting the hand that feeds them. Many of these folks are their Harvard buds also. Don’t count on Romney to do much in this department. At the very least there needs to be a reintroduction of the separation between commercial and investment banking á la Glass-Stegall Act.

  12. “Breaking up the banks” is a full stupid narrative when it includes preserving the Federal Reserve system and fiat money at the same time. There is in fact only one real bank (Federal Reserve) regulating and controlling banking prices and supply, everyone else is a branch or special interest relating to the overall financial system. The left focuses on the private counter party corruption results and the right on the government excess which is supported by the government subside and corruption of the current fiat system. Obviously both are true but most politics is a statist orthodox and neither party really would want reform. Large government would have trouble with the limits of real and private money, which is why it was abolished in the first place. So the hypocrisy of the “on wall street crowd” especially is on full display, they are pinheads who still believe in ‘better regulation” as a solution rather than face their own corruption and dependency on the wealth redistribution currency devaluation provides for political insiders which in fact they are. The sloth lobby.

  13. The government is to big to fail. Maybe we should break up the government? The government was more responsible than the banks for the financial crisis.

  14. Obama is the biggest friend that the Banksters ever had. And they know it. The will not let him lose.

  15. One problem with the Bigger Regulation approach is that only the largest banks can afford the attorneys and compliance experts. Small and mid-sized banks are at a tremendous disadvantage in terms of the cost of compliance. (This is why some of the biggest are actually in favor of more regulation.)

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