Too Big to Fail? Make ‘em Even Bigger!
Interesting discussion at the Washington Post about the downside of TBTF: As we Bailout more banks, we are creating more behemoths — reducing consumer choice, and feeding ever more Moral Hazard.
Here is David Cho:
When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation’s leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.
Today, the biggest of those banks are even bigger.
Well, that’s only if you go by asset size, fees, depositor base. If we were to go by market cap, well then, the whole group got considerably smaller. But based on every other measure of bank size, the big got much bigger.
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Back to Cho:
The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.
Good stuff . . .
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Source:
Banks ‘Too Big to Fail’ Have Grown Even Bigger
David Cho
Washington Post, August 28, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html
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August 30th, 2009 at 2:15 pm
Banking oligarchy. Period.
And this is an improvement?
And their contribution to FDIC insurance is?
Simon Johnson spoke the truth.
Welcome to BananAmerica.
August 30th, 2009 at 2:20 pm
Not to worry – they are all divisions of Goldman Sachs.
August 30th, 2009 at 2:34 pm
I’m curious, with all of the government sponsored consolidation, has there been a regulatory blind eye (or eyes) turned towards the topic of financial monopolies?
Are we creating a new problem that we will have to deal with a decade from now?
August 30th, 2009 at 2:47 pm
this is about 9 months late to the party, as soon as they got tarp they went on a buying spree, duh, no kidding they are bigger, alot, values down, they all diluted like it was a party
August 30th, 2009 at 2:47 pm
We are going to get our student loans from the Federal Direct Loan program from now on, thank God. =)
August 30th, 2009 at 3:09 pm
so the gist of this is- even more powerful entities operating- now knowing they have the implicit guarantee of the federal government- will act even more recklessly to generate larger bonuses-
what do they have to lose?
when i die i want to come back as a TBTF bank
August 30th, 2009 at 3:10 pm
from a related vein–
http://www.nothirdsolution.com/2009/08/17/the-fdic-does-not-protect-you/
“…You may hear more about recent bank failures, looming bank failures, and the FDIC in the coming days or weeks. I’ve seen predictions for “bank holidays” as early as Monday, August 24. Although I do not take such predictions seriously, I do not believe that everything is AOK. In my estimation, the best-case scenario is that the FDIC is dangerously overextended.
Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.
And a number of sources are reporting that the FDIC is bankrupt. But the spokesmouth for the FDIC, one Sheilar Bair, says there’s nothing to worry about.
The FDIC continues to stand by the nation’s insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits
Although the plain facts may be in accord with Ms. Bair’s claim that “The FDIC continues to stand by the nation’s insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits,” the truth of the matter is somewhat more complicated.
If losses exceed the amount of reserves held by the FDIC, the FDIC will simply ask the Treasury to print some new currency in order to satisfy insured depositors during a bank failure. Whatever amount of money is created out of thin air in order to satisfy the “insurance” obligations of the FDIC is “lawful money” according to legal tender laws which require private citizens to honor such fraudulent notes for “all debts, public and private.” A more accurate statement from Ms. Bair would say something like: “The FDIC ‘insures’ the nation’s deposits with the full force and violence of the U.S. government.”…”
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past that, Financial Sector consolidation has been the visible target, on the Horizon, from Years ago..
August 30th, 2009 at 3:39 pm
MEH says-
“If losses exceed the amount of reserves held by the FDIC, the FDIC will simply ask the Treasury to print some new currency in order to satisfy insured depositors during a bank failure. ”
that’s exactly what would happen- ’tis only paper after all- and the more paper the country has- the richer the country is- right?
August 30th, 2009 at 3:53 pm
BOYCOTT THEM! Starve the beasts. Why the people of this country don’t yank their business from these thieves and give that business to a credit union or smaller bank is beyond me. (I do realize there are probably some special circumstances, but in the aggregate…)
August 30th, 2009 at 4:07 pm
ahab,
just a minor point of correction, I was quoting the Author of that piece, found thru the link posted.
though, I do underwrite the Idea(s) expressed within.
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OfT,
similiarly, “Defund to Defend.”
also, We should reflect on the Construct that only ‘Consumers’ have a great Need of Currency, ‘Producers’, already, have stores to Trade (and deeper relationship webs through which to accomplish/facilitate it).
tangentially, JIT makes, even, most, ‘Producers’ >> more like ‘Consumers’ , thus its popularity in BizSkools/Banker Training farms..
and, next door, recall the British pronunciation of ‘Inventory’ — “In-VENT-ory” — stores from which Invention is possible..
August 30th, 2009 at 4:14 pm
OT: I blogged about an American Banker article about how the banks aren’t foreclosing to delay the recognition of losses.
http://effectivedemand.blogspot.com/2009/08/postponing-day-of-reckoning.html
I’d highly recommend the original article for inclusion in your 10 links tmw as it explains a lot about where the housing market is right now.
August 30th, 2009 at 4:47 pm
@ED: THanks for the link.
Have also noted locally that foreclosed properties have not been brought to market. Lest true market value whomps them.
Those distressed properties that have been brought to market have been a catastrophe for the banks.
There are still flippers but they’re very aggressive in demanding bank concessions.
August 30th, 2009 at 5:24 pm
BR, do you really expect the government to be consistent? Btw, speaking of “too big to fail”, what about our national government?
August 30th, 2009 at 5:48 pm
having faith in our gov to do the right thing is preposterous and braindead. having faith in keynesian economics is equally preposterous and braindead . the economy remains on complete life support. one thing that you can do to protect yourselves is try and get dual citizenship. as one can tell i am extremely bearish on this country as a whole. i see problems continuing to be pushed a few years out and cowards that do not have the balls to stand up and take the current system apart. i envision a potential collapse of the economy and gov of the US. prepare for hard times
August 30th, 2009 at 6:02 pm
@harold hecuba
“i envision a potential collapse of the economy and gov of the US. prepare for hard times”
I was prepared for hard times starting about 4 years ago because I thought the country and the economy had been sucked dry…
But then, GS came along and figured they could usher in a new set of stooges into political office last fall…
So even though we were already sucked dry, the miracle they are pulling is to magically extend credit and suck 20 more years of wealth out the country over the period of just 2 fiscal quarters…
It’s a hell of an act, with a hell of a big cast of supporting characters!
August 30th, 2009 at 6:09 pm
hh,
along the vein you’ve opened up, this: http://www.econlib.org/library/Mises/HmA/msHmA17.html
is key to anyone’s understanding of the Issues We confront.
“…4.XVII.2A medium of exchange which is commonly used as such is called money. The notion of money is vague, as its definition refers to the vague term “commonly used.” There are borderline cases in which it cannot be decided whether a medium of exchange is or is not “commonly” used and should be called money. But this vagueness in the denotation of money in no way affects the exactitude and precision required by praxeological theory. For all that is to be predicated of money is valid for every medium of exchange. It is therefore immaterial whether one preserves the traditional term theory of money or substitutes for it another term. The theory of money was and is always the theory of indirect exchange and of the media of exchange.*71
2. Observations on Some Widespread Errors
4.XVII.3The fateful errors of popular monetary doctrines which have led astray the monetary policies of almost all governments would hardly have come into existence if many economists had not themselves committed blunders in dealing with monetary issues and did not stubbornly cling to them.
4.XVII.4There is first of all the spurious idea of the supposed neutrality of money.*72 …”
August 30th, 2009 at 6:24 pm
the FOUR things Mainstream Media need to explore
you cover 2 of these finally this week, Barry!
1. ONLY a few stocks still “trade” these are the financial junk and fed propped companies
a. and you need HFT & COLOCATION to game the market
2. The whole result of money infusion has been more of same only bigger institutions, more
“moral haxard”
3. The OPPOSITE of the intended: Spur banks to loan indeed!
UNTIL all institutions are on an even keel (that is everyone receives the same–no favored bailouts)
This cannot change.
4. NO REGULATION has changed measurably. So Banks cannot forclose (the unwritten story of milions
living in houses thst banks won’t foreclose on and just tread water wainting for recovery is a coverup)
Also this causes the original reason for Systemic crisis to still exist..All those leveraged assets hidden now
from sight by a regulation change in the wrong direction in APRIL after he crisis started!
GO FIGGURE?
August 30th, 2009 at 6:42 pm
When the USG stepped in to prevent TBTF banks from creating systemic risk by failing, we all knew that was a ruse. It is all about consolidating the wealth in this nation into a few hands because it’s quicker to grab that way when you’re fleeing. Apparently, the plan is working.
August 30th, 2009 at 11:08 pm
Basically, we have 2 economies…one for the bailed out companies, and one for the debt free ones. Everyone else is caught in the middle. Either you are extremely cash rich or you are bailoutable. Seems like many sites were picking up on the Dickens-like theme this weekend.
http://contraryriches.blogspot.com/2009/08/dickens-tale-2-economies-1-country.html
August 31st, 2009 at 12:27 pm
Just have to believe that the multiples on these behemoths will have to shrink. The last few days is only an anomalous short squeeze. Great post regarding recent psychology at: http://psychologyofthecall.blogspot.com/
Adam