DISMANTLE THE TBTF BANKS, AND GOVERNMENTS TOO
William Dunkelberg
July 7, 2012
If we ever needed a better reason to dismantle the TBTF banks, certainly “LIBOR-GATE” is it. Fraud, deceit, profiteering, greed all of which put millions of investors at risk to benefit a few, it is tragic. Not that smaller banks have no “crooks”, I am sure they do, but those crooks don’t have the leverage of the Diamonds and Corzines, the power in their greed and arrogance to damage millions of people and impair the operation of our financial system, to make bets with billions, trillions of dollars which can go wrong and do. Their behavior forces central banks to pursue policies (“rates too low for too long”) which set us up for problems in the future, it’s not a “one and done” deal, we have to unwind Diamond’s bets and the Fed’s!
Big government poses the same threats to us, often in league with the big financial institutions. History makes it pretty clear, the larger the share of resources the government controls, the worse off the citizens. More government spending and regulation does not create more wealth and output for citizens. Most of our Federal budget involves taking money from one citizen and giving it to another, not creating anything but political constituencies. It’s hard to find meaningful exceptions other than in a few countries that have “city size” populations. And there are plenty of “crooks” in the government where, once again, the leverage over the quality our future is immense. And it’s for sale. Politicians buy our votes with promises they cannot pay for and use that power to their benefit. It’s a fraud, just like the financial institution frauds.
Our strength lies in numbers – lots of competitors, none of which have the power to move or manipulate markets. Always has been the strength of our economy and will be if it is not crippled by taxes and regulations. And lots of voters to reign in the size of government and its intrusion into the private sector’s management of its resources, not just at the Federal level, but state and local as well.
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William C. Dunkelberg is co-founder and Chairman of the Board of Liberty Bell Bank, Cherry Hill, N.J., and Professor of Economics at Temple University
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.
Agreed but it’s not in the interest of those major interests to do so, therefore it will not happen… at least not peacefully.
Finally someone speaks out who gets it. Too bad most of this country is peopled with sheeple.
A worthy conclusion but bald statements uttered as if they were incontrovertible truth and then strung together as if they were whole cloth do not constitute a coherent argument, only non sequitur; e.g., the private sector is where the TBTF banks arose and not from too much regulation either while taxes and government’s role in redistributing wealth (in part to prevent great income disparity) are, depending upon your POV, either contradictory to the point being attempted or completely irrelevant to it.
I can’t wait to see the brave politician that leads the charge- needless to say, I won’t be holding my breath
We are left with having the Brits lead the US in dismantling the TBTF banks because there has been no will from the Obama administration to do anything.
What would Romney do? I don’t know, but he would score points if he took a stand and pointed out that Obama has not done much.
It really is getting hard to see much redeeming value in America as it exists today. Obama’s reelection may slow the decline into plutocracy/oligarchy/serfdom or whatever term you prefer to describe rule of the “people”, by the “people”, for the “people” (and I ain’t those people!) but it does seem that nothing short of unimaginable sacrifice will prevent it. Some hybrid of the Chinese / Russian economic model seems to be the likely outcome for America. I’ve pretty much given up caring what happens next – I can’t really affect it anyway. For the moment, I have a decent job, good prospects, and no kids. I’m just living for today and when the music stops, well, c’est la vie.
Bingo, Brent! Obama has restored the rule of law.
And for the very reason of the corruption in the system, the political classes will continue to serve their paymasters on Wall Street unless real change is finally demanded. Hopefully there will be clear evidence of involvement of the 3 US Banks in the LIBOR rigging scandasl which, on top of the JPM prop trading mess may create a critical mass of pressure which can no longer be ignored by the politicians.
The Volcker rule is still not in effect and the Banks continue to apply pressure to dilute it. A good start might be like in the UK where heavy windfall taxes are applied to Bankers bonuses and the retail banking operations have been “Ring-fenced such that future bailouts will no longer be funded by the taxpayer.
Perhaps Churchill was right when he said “The US will always do the right thing but only after all other possibilities have been exhausted”. Let’s hope so.
“the larger the share of resources the government controls, the worse off the citizens”
That’s demonstrably false. Citizens tend to do better in socialist countries than in the US, at least before “austerity” began whittling away at social benefits. The problem is that people like things like food, places to live, health care and retirement pensions, and the private sector cannot deliver these and frequently and forcefully argues that we shouldn’t expect it to do so.
The government actually tends to build and maintain things, but it does this by transferring money from one party to another. It builds roads by paying contractors. It builds a justice system by paying judges, bailiffs, prosecutors, jailers, policemen and so on. It builds an educated populace by paying school teachers. It builds businesses by paying researchers, start ups, and designers.
In contrast, the banks also work by transferring money from one party to another, but they build nothing, save a few private fortunes.
We’d be better off with a larger government sector and a much smaller financial sector.
Why are they called Too Big To Fail? Shouldn’t they be called Too Big To Succeed (without fraud, lobbying, and government subsidies and bailouts)?
Brent_in_Aurora: … Romney has said not to blame the banks, they’re innocent, and the government should leave them alone.
so far, less and less regulation has seemingly always lead to companies getting to big, in the past they also seem to get themselves into criminal ‘mischief’. go back to last century and you find that killing wasn’t unknown. all we can say now is that they seem to have lessened their crimes, now its just wholesale destruction of the economy. guess they figure they can make more money that way. and make it really hard to prosecute, consider, a few years ago, there was a military officer who killed a few folks at Fort Hood. they still haven’t completed the trial *and yes I know we need to make sure we have the right person, more than just the most likely culprit). and consider how long it took for the Feds to figure out Enron had rigged the electricity market in California. and how long it was before the culprits were convicted. and now we have the most complex scheme to defraud trillions from almost every one. even if the government figured it out, it will take a while before they can prosecute them . the last time we went through this, it was only because of one prosecutor that the banks didn’t get away with it
Those people, who failed to learn from history, are bound have to relive it.
William Dunkleberg says, “Most of our Federal budget involves taking money from one citizen and giving it to another, not creating anything but political constituencies.”
It’s a shame that such self-obviously false statements can make it into print, and this from someone who sits on a faculty. It speaks to how degraded our national capacity for thought has become.
Much of the federal budget, notably Medicare and Social Security, amounts to taking from one citizen and giving it to the same citizen. (The employer portion of the tax amounts to enforcing the ability of the worker to bargain for disability insurance and old age insurance, which historically proved impossible for workers to do on their own).
The defense budget involves taking money from one citizen (or corporation) and giving it mostly to corporations, specifically to create weapons.
Some of the federal budget involves taking from one citizen (or corporation) and giving it to, typically, corporations, to create things that would be impossible for anyone but the federal government to do (space shuttle, breakthrough medical inventions, highways).
Some of the federal budget involves taking from one citizen (or corporation) and giving it to other citizens for the purpose of providing us with a legal system.
On and on through the budget, it either involves giving to the same person who is being taxed, creating things, or doing something useful. Yes, there are plenty of special interest provisions, typically giveaways to corporations, and these should be done away with. But the implication that the federal budget is mostly waste, fraud, and abuse is demagoguery. It’s a lie.
I agree with the themes put forth by professor Dunkelberg article here. Of course Government has its place in a developed society such as ours but you dont want too much of a good thing either. The main damage from big Government comes from the damage caused by bad policies once they are implemented. Examples abound.
@kaleberg: “Citizens tend to do better in socialist countries than in the US”. I hear this confusing statement all the time. I hope you meant “in capitalist countries with democratically chosen elaborate social programs” such as Sweden. And NOT in truly socialist countries such as Cuba (socialismo o muerte anyone?), Venezuela (recently) or the defunct USSR (guess what the second “S” stands for?). Once and for all: Socialism, TRUE socialism is an economic AND political system meant to be the bridge from capitalism to…communism, see Marx/Engels/Lenin and until 1956 Stalin (demoted by Khrushchev).
The problem is that “too big to fail” will only be replaced by “too many to fail.” Unless we accept failure as an option, expectations of bailouts will condition behavior and result in recklessness. We need more failures more often. Bring back “creative destruction”.
Big government undoubtedly creates a situation where petitioning it for preference and special treatment becomes of paramount importance. This dynamic can be neutered only by changing the rules of campaign finance. The law makers, now totally beholden to party politics are themselves governed by non citizen constituencies.
Why is it that a private citizen can’t take a tax write-off when a house is sold?
Yes, in the absence of first taking money out of the political process, any ameliorative policy will primarily benefit the people who are likely causing the problems that are putatively being addressed.
History clearly shows that concentration of wealth is destructive, and leads to social unrest, if not invariably bloody revolution. It’s also pretty clear to the readers here, that our currant mess is not the result of regulation, but the absence of it. It is the sole legitimate purpose of government to restrain people who are harming the whole, and that includes taking from the very fortunate and giving to the very unfortunate. Not to do so is murder.
I agree with this commentator. MF Global was straight forward theft. The political, regulatory, and legal systems aren’t addressing this. They are broken, rigged, manipulated, derivative, imaginary and malfunctioning. Or maybe the powers that be are now brazen. Fight back, add physical gold in hand to your portfolio.
I debate the premise of “big” government, the issue is government that does not answer to it’s people, but instead answers to wealthy bribers & corporations.
The U.S. government wasn’t constructed for the purpose of Dave Koch, Rupert Murdoch or Sheldon Adelson’s personal benefit, the Constitution explicitly categorizes bribery as a high crime.
We have only begun to scratch the surface on the mountain of bones TBTF has built. If more citizens understood the operations the global central banking cartel, they would demand the end of this financial rape. Unfortunately, there are too many governments and ‘regulators’ in collusion and on the take, and too few committed regulators to track the intricate and elusive transactions…and the banks know it.
Ah “the good old days” of the early 19th century, when banking was anarchy, like the wild west [or like the Internet today]. No national currency, a Depression every generation…
“History makes it pretty clear, the larger the share of resources the government controls, the worse off the citizens. More government spending and regulation does not create more wealth and output for citizens. ”
This is a political assertion, not an academic one. Sorry, it’s a political talking point that sounds reasonable, not an academic assertion.
Look, I’m mad as hell about the the TBTF banks too. But this argument would have is dismantle government too. There’s an efficient size for government spending, and it’s somewhere between a John Galt fever dream and a communist distopia. The Scandinavian countries seem to have found that balance.
This is what government of the people, by the people, for the people looks like. We don’t have that in the U.S. right now.
http://www.nytimes.com/2012/07/08/world/europe/icelands-economy-is-mending-amid-europes-malaise.html?pagewanted=2&hp
A Bruised Iceland Heals Amid Europe’s Malaise
“… It has repaid, early, many of the international loans that kept it afloat. Unemployment is hovering around 6 percent, and falling. And while much of Europe is struggling to pull itself out of the recessionary swamp, Iceland’s economy is expected to grow by 2.8 percent this year. … Analysts attribute the surprising turn of events to a combination of fortuitous decisions and good luck, and caution that the lessons of Iceland’s turnaround are not readily applicable to the larger and more complex economies of Europe.
But during the crisis, the country did many things different from its European counterparts. It let its three largest banks fail, instead of bailing them out. It ensured that domestic depositors got their money back and gave debt relief to struggling homeowners and to businesses facing bankruptcy. …
… Iceland also had some advantages when it entered the crisis: relatively few government debts, a strong social safety net and a fluctuating currency whose rapid devaluation in 2008 caused pain for consumers but helped buoy the all-important export market. … Inflation, which reached nearly 20 percent during the crisis, is still running at 5.4 percent, and even with the government’s relief programs, most of the country’s homeowners remain awash in debt, weighed down by inflation-indexed mortgages in which the principal, disastrously, rises with the inflation rate. Taxes are high. And with the country’s currency, the krona, worth between about 40 and 75 percent of its pre-2008 value, imports are punishingly expensive. …
… “We went through this complicated and terrible experience and were in the center of world events,” said Kristrun Heimisdottir, a lecturer in law and jurisprudence at the University of Akureyri in northern Iceland. … “It might take 20 years to recover from the stress and humiliation of having their personal life paraded before the world,” she said. “But it turned out that what happened to us was a microcosm of the whole crisis.”
Some Icelanders say they have been soothed, too, by the country’s bold decision to initiate an extensive criminal investigation into the financial debacle. Many members of the old banking elite have been identified as possible suspects, and some of their cases are beginning to come to trial; several people were convicted of financial crimes last month.
People in Reykjavik say that while things are hardly perfect, they are certainly better.”
This should be called too crooked to live….Bring back public hangings…..I nominate Anthony Mazillo to throw out the first pitch, so to speak.
He had some good points, then deteriorated into pathetic Republican boilerplate in the last two paragraphs. The only thing missing was a call to put prayer back in schools.
@jelyon;
It is really not so much about the size of government as about what tasks/functions belongs to the free market, the regulated market or the government. All of the things making for happy people and a functioning society can be placed in either of those 3 “bins”, but for each thing there is usually one bin that will get the job done best and most efficiently. Most of the big problems and wastes that this country has experienced has been the result of placing things in the “free market” that simply do not belong there.
Yeah, TBTF Bank’s should go, but he makes a strange pivot from that to why big government need to be dismantled. Big Government, per se, is not the problem, BAD government is. If government shrinks, the who’s left to deal with Big Banks, Big Pharma, Big Oil, etc., etc.