While the rank and file economists seem comfortable with the idea the worst is behind us, that we are in recovery, and that TBTF is not a problem, the top of the profession sees things differently.

And, they want the megabanks downsized.

Here is a short list:

• Nobel prize-winning economist, Joseph Stiglitz

• Chairman of the Commons Treasury, John McFall

• Nobel prize-winning economist, Ed Prescott

• Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard

• MIT economics professor and former IMF chief economist, Simon Johnson (and see this)

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout

• The head of the FDIC, Sheila Bair

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Former investment banker, Philip Augar

Source: WASHINGTON’S BLOG

Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Make Big Banks Smaller”

  1. call me ahab says:

    puhleease BR-

    who are these losers- what do they know-

    we have a crack team- Gheithner, Summers and Bernanke taking care of things-

    with those three minds at the helm- why slop it up with a bunch of nobodys

  2. “Mark Zandi – the highly influential economist, and chief economist of Moody’s Economy.com – recently told the Washington Post:
    There’s been a significant consolidation among the big banks, and it’s kind of hollowing out the banking system. You’ll be left with very large institutions and small ones that fill in the cracks. But it’ll be difficult for the mid-tier institutions to thrive.

    The oligopoly has tightened.

    “Oligopoly” is an economic term which means that a given market is controlled by a small group of firms. Think “monopoly” by a few companies.

    On the other hand, an “oligarchy” is a political term which means that a government is controlled by a small group. Think “monarchy” by a few rulers.

    But since the biggest banks and financial giants do control America, the two terms are arguably synonymous and interchangeable.

    As I have previously pointed out, two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy, and directly or indirectly said that the big banks and giant financial institutions are key players in that oligarchy.”
    http://georgewashington2.blogspot.com/2009/09/zandi-oligopoly-has-tightened.html
    http://georgewashington2.blogspot.com/2009/09/taleb-on-var.html

  3. jturner says:

    I think it’s very disconcerting that none of these people have much influence over the actions the govt takes. The Obama administration and the Fed have decided to have the some people who mismanaged things and contributed to the problems trying to fix them, as opposed to incorporating the ideas of the people who did try to address the problems in advance. I believe this is going to lead to further problems down the road.

    And it’s very disappointing that this has occurred, considering the size and scope of the problems, that the American people have not used their Constitutional rights to vote in people who are better suited to deal with the problems in an independent manner, without having Wall St.’s needs first, as Geithner and Bernanke have demonstrated.

    That is why I feel that for the minority of people who do understand the severity of the problems and are frustrated by the lack of proper judgment by the govt, one of the only ways to protect themselves from these problems is to invest in gold related assets, because I feel that gold will continue to benefit from the Keynesian policies being implemented. I recently read some good articles on the Fed’s efforts to fight deflation and the potential effects on the gold price at http://www.goldalert.com . They discuss the inflationary consequences of all the money printing and the potential impact on our currency, the gold, and gold mining companies that should benefit from a continued rise in the gold price.

  4. Pat G. says:

    The big banks arrived at their destination as a result of their insidious greed. Then, they were rewarded for their effort by becoming classified; TBTF. They are living the dream! With the full support of the USG (us), moral hazard is no longer an issue…full speed ahead. Yes, in addition to those you list, the average Joe wants them downsized too. If we truly live in a democratic country and the majority rules, then we should expect to see these monsters reigned in. My bet is that the old adage, “money talks and bullshit walks” will prevail.

  5. franklin411 says:

    This is a question I’ve been toying with for a while: Has Barry rethought his original position that there ever was a chance for the President to nationalize the banking system, even temporarily?

    Given the “Birthers,” the “Tenthers,” the town hall Astroturfers, the crazy old people, the renewed anti-government militia movement, and the nervous Nellies who know a lot of words that end in -ism but don’t know the difference between them…does anyone still think that we could have accomplished anything as radical as nationalization?

  6. Mannwich says:

    @f411: Your point is well taken. My answer? Probably not, although who cares what the crazies think? They’re going to mindlessly attack Obama for anything he does anyway (it’s all a game to the manipulators and the manipulatees are only too happy to be manipulated), so he might as well do the right thing in the end.

  7. wally says:

    Add my name to the list.

    Oh… did you just want prominent names?

  8. DeDude says:

    Mannwich; the problem is that the crazies are such a large minority (or maybe even a majority) in the Senate (and in the US population), that nothing can be done if the crazies don’t approve. Look at health insurance. The crazies are saying that they are afraid that the government may do it so well and so cheap that private industry cannot compete (that means even they, the crazies, will choose public option over private). If that happened the private options would disappear (like anything else that can’t compete in the market). So the crazies would rather pay more money to fund the huge bonuses of insurance company CEO’s, than risk being offered the option of better insurance for less money by their government. No matter how you look at that, it is absolutely INSANE. Yet a substantial minority of the people and their Senators are dead set against a public option (not just the lunatic woman standing up at a town hall meeting and crying about the destruction of her country, if cheaper health care is offered to others).

    The people would rather be ruled and exploided by Wall Street, than risk that “we the people” and our democratically elected government gets bigger and more powerfull (and horror of all horrors big perhaps big and stong enough to protect the people from that exploitation). For what it is worth Wall Street has used its ownership of the information and opinion creation machinery to get a huge proportion of the people to drop their pants and beg for another spanking.

  9. Mannwich says:

    @DeDude: Please stop being a devout apologist of the administration. Please read.

    http://www.nakedcapitalism.com/2009/09/guest-post-we-cant-break-up-the-giant-banks-can-we-yes-we-can.html

  10. DeDude says:

    I mean look at this sentence:

    “The House has logged the most progress. On July 31, it voted 237-185 for a bill that gives shareholders the chance to use nonbinding votes to speak their minds on executive pay”

    From here: http://money.cnn.com/2009/09/13/news/economy/Obama_regulatory_reform/index.htm?cnn=yes

    You had 185 house members voting against letting shareholders voice their (non-binding) OPINION on executive pay. And those 185 were almost all hard-core free-marketeers who will be re-elected in their safe districts because they will protect the people from big gobinment.

  11. sharkbait says:

    Excerpt of Oct. 2008 WSJ interview w/ Anna Schwartz:

    http://online.wsj.com/article/SB122428279231046053.html

    “Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.”
    “Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up.”

    Ms. Schwartz won’t say so, but this is the dirty little secret that led Secretary Paulson to shift from buying bank assets to recapitalizing them directly, as the Treasury did this week. But in doing so, he’s shifted from trying to save the banking system to trying to save banks. These are not, Ms. Schwartz argues, the same thing. In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. “They should not be recapitalizing firms that should be shut down.”
    Rather, “firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.” The trouble is, “that’s not the way the world has been going in recent years.”
    Instead, we’ve been hearing for most of the past year about “systemic risk” — the notion that allowing one firm to fail will cause a cascade that will take down otherwise healthy companies in its wake.
    Ms. Schwartz doesn’t buy it. “It’s very easy when you’re a market participant,” she notes with a smile, “to claim that you shouldn’t shut down a firm that’s in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that’s their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn’t have to save them, just as it didn’t save the stockholders and the employees of Bear Stearns.”

    ———————————————————-

    All banks were (still) essentially insolvent (did any not receive bailout $ due to over-leverage/derivatives/off-balance-sheet instruments ? – the why), so why aggregation? Much easier to deal with several smaller institutions, and better for customers to have more around when the dust settles. Who decided Lehman Bros. not TBTF, for example? (rhetorical).

  12. contrabandista13 says:

    The current zeitgeist, is clearly moving toward reform and that is a great improvement over indifference.

    There is a fine and very fuzzy line that separates government institutions from private institutions, it is a symbiotic relationship. So long as we remain under the illusion and are willing to believe that these private sector institutions represent “free market capitalism” and that government institutions represent the people as two opposing adversaries, when in fact, they are both parts of the same, we can continue to delude ourselves into thinking that there is a possibility for reform, however, there’s not….

    Best regards,

    Econolicious

  13. DeDude says:

    Mannwich; I am not apologizing for anybody. Just stating the fact that in order to make a real change in anything you have to have 60 votes in the Senate. I don’t disagree that the big institutions should be forced to prove they are solvent or be taken down if they are not. But that is not going to solve anything real. It will just allow some of the big sharks to swallow some of the other big sharks, and we will be left with even fewer and even bigger banks.

    Then we can all feel realy good that the bastards have had to pay for what they did (you know that teacher in rural Oregon who will get a smaller pension because the bonds are allowed to fail). Unless the people who are responsible have already harvested, and stashed away, their loot.

    The link you are giving is either naïve or stupid enough to think that ALL the big ones are insolvent and could be taken down via current law (without an immediate intervention from the supreme court). To take down all of the big banks you will have to make new law and that requires 60 votes in the Senate.

  14. DeDude,

    why isn’t “the teacher in rural Oregon” asking “Who was the Pension Fund Manager(PFM) that stuffed those dubius ‘Securities’ into the Portfolio?” and/or “How Was my PFM remunerated for buying those, saidsame, ‘Securities’?” “Gee, how many Free Trips w/ Hot and Cold running expense accounts did it take for him/her to decide to mortgage my future security?”

    or some sort..

    Not for lack of looking, though, I, still, haven’t seen any Inquiry into the ‘Buy Side’ of the “Pension Problem”, have you?

  15. Bob A says:

    Yes, let’s bring back some competition.
    What these guys have pulled of makes Bernie Madoff look like a little leageur.
    well said:
    http://www.huffingtonpost.com/2009/09/14/debtors-revolt-woman-refu_n_285394.html

  16. [...] Those in favor of reducing the size of too big to fail banks.  (Big Picture) [...]

  17. Onlooker from Troy says:

    MEH

    They’re all hiding under the same cover of the “education” they received. The portfolio management theory they all followed that led so many of us over the cliff. The lack of any critical thinking and independence that would question the value in what they were buying, and the risk taken in doing so. The rot goes all the way to the top, as does the lack of a backbone that would allow them to veer from the herd.

    And of course that fact that Jane and John the teacher (or another pension constituency, pick one) would be moaning and bitching about the underperformance of their funds if the managers didn’t chase higher returns and yield like everyone else. I’m really not sure what the answer to that mass delusion and greed is. I certainly don’t aim to let anybody off the hook, but the whole damned thing is rotten, no doubt.

  18. Mannwich says:

    @Onlooker: The answer to “mass delusion & greed” would be re-testing the March lows.

  19. Thatguy says:

    DeDude,

    This:
    “you know that teacher in rural Oregon who will get a smaller pension because the bonds are allowed to fail”
    Is such a load of crap.

    There’s a PBGC for her so don’t pretend that we’re saving some do gooders hide while we’re throwing money at the thieving incompetent liars. If we were really concerned for that poor teacher, we would save her pension and let the big banks drown. I’d much rather see my tax dollars going to support the PBGC rather than Blankfein’s bonus pool.

  20. Mannwich says:

    @Thatguy: Excellent point. But that’s the way our gov’t “works” today, isn’t it? Save their elite friends (and campaign donors) in high places but cloak it like their saving the little guy/gal in the process (“we had no choice”). Right. The SAME thing is playing out with the health care debate. It’s maddening. I, like CNBC Sucks, have pretty much thrown in the towel and am now focusing on being FASHION-FORWARD.

  21. constantnormal says:

    @wally 10:45 am

    “… did you just want prominent names?”

    Fear not — your name counts for just as much as any Nobel-prize-winning economist or acknowledged economic sage these days.

    But if you REALLY wanted to be heard, you need to sign up with one of the K-street lobbying firms and start carrying briefcases of cash …

  22. DeDude says:

    Mark; I think the teachers first order of business is “How the f*ck am I going to survive on THAT”. Maybe a decade or two later those other questions will be appearing up front. You have to remember that the wast majority of people are so busy making stuff and building our society (you know somebody have to create the GDP that Wall Street is sucking on), that they simply have no other choice than to put their money where it is “supposed” to be safe, and trust the competence of those professionals who are managing it. It is only Wall Streeters and retired people who can make it a half time job to follow and understand the intricate world of finance and act accordingly – everybody else have a real job and are busy working.

    Thatguy; I am with you on sorting out the good guys being hurt and compensating them, while letting those few remaining bad guys who have not yet bailed, take a 100% hit. However, I don’t see that legislation get through the Senate either. Look at the problems with helping the little guy with housing; same kind of bull crap about “personal responsibility” would kill any attempt. And Blanfein’s bonus pool would just exist in another company with another name if his current company was allowed to be swallowed by someone else. To get rid of those bonus pools you need serious legislation (like Europe is contemplating), and that takes 60 Senators.

  23. constantnormal says:

    It’s not just the banks, folks. Look at this sampling of major corporations’ performance and the performance of their CEO’s compensation over the 2007-2008 period:

    http://projects.nytimes.com/executive_compensation

    While one can make the argument that their compensation lags the corporation’s performance by a year, it still looks ugly as sin, and I’ll bet you dollars-to-donuts that most of them did not suffer a drop in compensation in 2009 in any way/shape/form similar to the fares of the corporations that they run, and that their corporations’ performance in 2009 vs 2008 was not a monument to divide CEO guidance. “Less bad” seems to have been the corporate catch-phrase.

    So how ya gonna stop THAT?

    The only way I can see is to enact legislation that places severe constraints on the compensation of senior management at ALL publicly-owned companies (perhaps making their compensation a function of revenues and profits) — an undertaking that would require an iron will on the part of both the Congress and the President, along with giant cojones of titanium steel and moral character the likes of which has not been seen since 1776.

    Of course, such an undertaking would provoke pained shrieks from the masses, as it would be (rightly) seen as a removal of their freedom to get rich on the backs of others — or at least the imposition of some rules as to how quickly they could get rich by plundering the stockholders’ money.

    Funny how those same outraged individuals seem not even to notice when they are asked to remove their shoes and present their travel documents … “Papers, please!”

    Let them eat cake.

  24. Mannwich says:

    @constant: It’s called a 90%+ tax on additional executive compensation beyond a certain number. We can then use that money to fund a single-payer health care plan for all that makes sense. Seems pretty straightforward to me.

  25. DeDude says:

    Mannwich@ 2:56;

    You got my vote for that ;-)
    Heck I’ll even march on Washington for that with you as soon as those tea-baggers get out of there.

  26. constantnormal says:

    And it worked well for Eisenhower and his predecessors …

  27. constantnormal says:

    But how will the most important constituency in Washington (the lobbyists) react to that?

    And who will draft the legislation, or sign it into law?

  28. DeDude,

    see: Carole Hall
    Benefit Coordinator
    610-250-2400, ext. 35070
    hallc@eastonsd.org
    https://www.capbluecross.com/EASD
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Easton+Area+School+District++Benefits+Manager+

    I could, almost, hear what you were laying out, though, funny enough, many of these vaunted ‘School Districts’ that, as you put it, “…are so busy making stuff and building our society (you know somebody have to create the GDP that Wall Street is sucking on), that they simply have no other choice than to put their money where it is “supposed” to be safe, and trust the competence of those professionals who are managing it.” have, actually, hired, in a Full Time position, someone to do That for them..

    Past that, We can keep pretending, predicated on disinfo, that we’ve no other choice than be a ‘snack’ for the Big Bad Wolf, or We can become, a little, at least, more Empirical and endeavor to, actually, keep some of our meat on our bones..

    IOW, be Vigilant, and expect same from those in positions we put them in to do likewise..

  29. DeDude says:

    Mark;

    With respect to Benefit Coordinators, most of us have no choice (even if we had the time to conduct a quality “second guessing” evaluation of them). The plans are determined by the employer so if you want another plan you have to change to another employer.

    I personally spend a fair amount of time trying to keep a little of the meat on my bones. However, I also realize that I have little chance against most of it, because there is not way that I can find time to keep a close eye on everything.

  30. DeDude,

    not, exactly, responsive to the 403(b) Q:, though, in a similiar neck of the Woods, see:

    “…Majewski, who said he has no other job lined up, acknowledged there have been rumors about him resigning or retiring for some time, but he declined to go into further detail about his decision.

    Majewski and Lewis, who is set to officially step down Jan. 2, 2010, have come under fire in recent months as the district’s complex interest rate swaps soured in the economy, costing taxpayers millions. The district used the financial instruments to help fund the district’s building projects in recent years.

    Majewski and Lewis contend before the economy tanked the deals actually saved taxpayers millions in debt costs. The skyrocketing costs of the deals are a major contributor to the district’s financial woes in the last two years.
    The district finished the year with about a $7.1 million deficit and recently slashed $2.8 million in programming and jobs.
    Majewski joined the district in November 1994 and has since overseen the district’s budgeting process, except for a brief departure to Northampton Community College. Majewski spent a month in 2004 as the college’s vice president of finance and operations before returning to the district. He said at the time that the district was “where his heart is.”
    Longtime board member Charlene Koch declined to comment on the reasons for Majewski’s departure.
    “As far as my personal opinion about Stan leaving, I will miss him,” Koch said. “I like him. We’ve worked together for almost 16 years.”
    Majewski’s salary is about $130,200 annually, he said. His contract with the district is set to expire June 30, 2010.
    Once Majewski submits a formal retirement letter and is approved by the Pennsylvania School Employees Retirement System, per his contract he is entitled to:

    • Medical benefits until he is eligible for Medicare
    • Reimbursement for unused sick leave at a rate specified in the Instructional Meet and Discuss agreement at the time of retirement
    • Reimbursement for unused vacation at the per diem rate at the time of his retirement

    The board also must continue the cost of a $350,000 split-dollar whole life insurance plan until it is paid in full.
    Majewski’s employment contract requires him to give at least 150 days notice if he chooses not to renew it.
    McKeon said he hopes Majewski plans to stay in his job long enough to wrap up this year’s budget process and get a new preliminary plan in place for his successor. The board has seen no retirement agreement, McKeon said, but will likely vote on one at a special board meeting Sept. 8…”
    http://www.lehighvalleylive.com/bethlehem/index.ssf/2009/08/bethlehem_area_school_district_25.html

    All verry Quiet, All verry ‘Down low’, All verry “Nothing to see here Folks, Move Along..”
    All very pathetic..
    ~
    as an aside, this: http://www.donpuff.com/ is, too, Classic~

  31. DeDude says:

    It sure sounds like that contract was a pathetic underpayment, compared to anything an investment adviser would get in the private sector. But maybe that is part of the problem, or maybe not. That little village in Norway hired the top-of-the-top for investment advice (Goldman Sachs, I think) and still got screwed to the wall. As long as swindling done by Wall Street is legal it probably does not matter that much who is doing the administration of investments, they win, every time.

  32. DeD,

    see: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Narvik+Norway+Terra+Investments+Citigroup

    just to clarify, there, in that instance, it Wasn’t Goldman Sachs..
    ~
    though, w/this: “As long as swindling done by Wall Street is legal it probably does not matter that much who is doing the administration of investments, they win, every time.” maybe part of the problem is that the ‘qualifying investments’ in those planz are all, seemingly, products of Wall Street??
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=403%28b%29+qualifying+investments
    maybe, you know, for a change, those finds could stay in their communities, instead of serving as fresh fodder for the ‘Vampire Squid’ (?) might be novel..

  33. Greg0658 says:

    to comment by sharkbait at 11:34 am
    how about
    “save the people / euthanize the firms”

    offtop .. to Kudlows final seg and the tire fight .. “won’t see growth till we get manufactuing back” ..
    I think all of America is to be the gated community for the elite .. stay in line .. green growth ie Country Clubs

    ps – pollute over there .. will get ya in the end