Bernanke: “Too Big To Fail Was A Major Source of The Crisis, and We Will Not Have Successfully Responded To The Crisis If We Do Not Address That Successfully”

 

Current Fed chairman Ben Bernanke said yesterday:

“Too Big To Fail is not solved and gone,” he said during a press conference. “It’s still here.”

***

“I agree … 100 percent that it’s a real problem,” he said.

***

“Too Big To Fail was a major source of the crisis,” he added a little later, “and we will not have successfully responded to the crisis if we do not address that successfully.”

Bernanke joins the following top economists and financial experts who believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

  • Current Vice Chair and director of the Federal Deposit Insurance Corporation – and former 20-year President of the Federal Reserve Bank of Kansas City – Thomas Hoenig (and see this)
  • Former Federal Reserve Bank of New York economist and Salomon Brothers vice chairman, Henry Kaufman
  • 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
  • Former chief economist for the International Monetary Fund, Simon Johnson (and see this)
  • 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
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
  • The Director of Research at the Federal Reserve Bank of Dallas, Harvey Rosenblum
  • Director, Max Planck Institute for Research on Collective Goods, Bonn, and Professor of Economics, University of Bonn, Martin Hellwig

And the head of the New York Federal Reserve Bank – and former Goldman Sachs chief economist – William Dudley says that we should not tolerate a financial system in which certain financial institutions are deemed to be too big to fail.

Federal Reserve Board governor Daniel Tarullo also backs a cap on the size of banks, and Former Treasury secretary under Reagan and George H.W. Bush, Nicolas Brady, says that we need to put a cap on leverage.

Top Bankers Call for Big Banks to Be Broken Up

While you might assume that bankers themselves don’t want the giant banks to be broken up, many are in fact calling for a break up, including:

  • Former managing director of Goldman Sachs – and head of the international analytics group at Bear Stearns in London- Nomi Prins
  • Numerous other bankers within the mega-banks (see this, for example)
  • Founder and chairman of Signature Bank, Scott Shay
  • Former Natwest and Schroders investment banker, Philip Augar
  • The President of the Independent Community Bankers of America, Camden Fine

Indeed, a bipartisan consensus is forming regarding the need to break up the big banks. Click here for background on why so many top bankers, economists, financial experts and politicians say that the big banks should be broken up.

Category: Bailouts, Think Tank

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.

17 Responses to “Top Economists, Financial Experts and Bankers Say We Must Break Up the Giant Banks”

  1. mathdock says:

    Then there’s the little matter of registering and “marketizing” CDO, CDS, and whatever similar gambling instruments there are. Aren’t the these counterparty swaps in essence insurance?

  2. PeterR says:

    Great that you have kept posting on this issue and adding to the growing list of aligned voices. Hopefully the move to limit TBTF risks will reach critical mass and snowball into effective action.

    One sad observation is that the word “former” appears too often above IMO. Where were these people before they became “former,” and why did they not speak out vehemently during their tenures in office?

    Too risky to do so, because they “needed” their jobs?

    Our country needs more leaders who are willing to take more risks up-front, not just after the fact while looking in the rear-view mirror.

  3. constantnormal says:

    Who is this “we” that you and Chairman Bernanke speak of?

    Is it the voters? The same voters that voted in corrupt would-be felons who have rewritten the rules of our “representative democracy” so that it only represents special interests with boatloads of money, creating a system that defines corporations in the same manner as flesh-and-blood individuals?

    If so, “we” have constructed a venal entity that receives, year after year, outstandingly negative approval ratings from the “voters”, and still manages for 90+% re-election to office, year in and year out.

    The “voters” are no longer in control. They cannot act to change things, except by the same methods that the French people employed in the 1790s against their own immovable aristocracy, and I seriously doubt, in this day and age of near-perfect surveillance and drone weaponry, whether it is even possible to mount a successful revolt.

    Change will come, eventually. But not from the powerless voters. It will come from the banksters’ and the Congress’ own greed, playing into Mr Market’s and his partner Chaotic Reality’s capable hands, probably via the cloud of default swaps enshrouding this planet.

    When all economies have been reduced to cinders and ash, there will be a window of opportunity to build a New Society … I just hope that capable and visionary individuals seize it.

    This Gilded Age will end, someday, perhaps not in our lifetimes, but it will end.

    Nothing lasts forever.

    But when it does end, it does not have to have a good resolution … there are many possible paths forward, and happy endings are not required. All that is required is Change.

    • Doug Riemer says:

      I seriously doubt, in this day and age of near-perfect surveillance and drone weaponry, whether it is even possible to mount a successful revolt.”

      Let’s see the results of riots in the cities — as early as late this spring, and most certainly in August/September. After nearly 5 years after the Millennium Contraction began, things are no better, actually worse, for the vast majority. Unfortunately, the paranoid gun guys in the cities are all to ready to stop rioting with some good ole American vigilante law.

      Perhaps, though, it’s that combination that will wake up America.

  4. Moss says:

    It is interesting to see what is happening to the giant Swiss banks as their main business model of Tax avoidance for the rich erodes. UBS, Credit Suisse are shrinking precipitously as they are forced out of the tax avoidance game.

  5. ski3938 says:

    They are stealing hard working Americans blind and nothing happens to them. Why do we spend so much on regulators and courts and get nothing for it??? Answer this country has turned unto a financial monarchy where all the fat cats protect each other while we the people just do nothing about it.

    The smartest guys in the room do not make mistakes and they know
    everything that is going on. This is without a doubt a criminal case and
    plenty of jail time should be the outcome. These overpaid thieves know
    and take every advantage, but this time it exploded. If you are caught
    robbing a gas station everyone knows you go to jail and lose everything.
    On wall street nothing ever happens to these thieves that changes their
    lifestyle ,they retire leave the limelight and go about a new quite
    life. At the same time life long savings are lost , retirements are
    ruined and the public has every reason to lose trust. Both Levine &
    McCain asked tough questions and got lies as answers. Now lets see if
    they follow thru take back their earnings and give out jail time
    (including the so called regulators).

  6. phoneranger says:

    In the interests of balance could you make another list of the bankers, regulators and politicians who have come out in favor of preserving the TBTF system?

    • 873450 says:

      phonerager:

      1st Place – POTUS Barack “No New Deal” Obama

      President Obama’s record makes him a champion of TBTF and the staunchest defender of Wall Street malfeasance and criminality in U.S. history. More than anyone on earth he could have effected real change, yet notwithstanding all his populist rhetoric about restoring our nation’s hollowed out middle class and often-stated aspirations to level the playing field for future generations, Obama failed to seize those opportunities and consciously chose to maintain status quo.

      • Onemoretime says:

        “Obama failed to seize” You’re being too kind. Everything else was pretty much spot on.

  7. WFTA says:

    Clearly these esteemed academics, regulators and businesspeople are correct. Yet the current executives of the TBTFs are at this moment very visibly using shareholder dollars to prevent the implementation of already badly diluted legislation to curb their excesses and to insure that the wheels and tables of the Midnight Casino can be skimmed for another season.

    Reality, thou art perverse.

  8. Haigh says:

    What if the next time a TBTF blows up the reaction is to protect ONLY the insured depositors and let the rest of the entity get handled by the FDIC workout process? The FDIC may need to invent new processes given the complexity but all of that should come out of the hind of the TBTF.

    As a taxpayer I’m not sure spending 100′s of millions of dollars on new TBTF legislature is really necessary.
    I’d rather see a few million spent by the FDIC publicizing whats not going to be done the next time a TBTF blows up. Their risk managers, shareholders, bond holders and BODs need a good strong warning.

  9. Tim says:

    So how will/can it be accomplished?
    1) Reinstate Glass-Steagall and separate investment banking from commercial
    2) Rescind the Commodities Futures Modernization Act and limit/eliminate derivatives/swaps/
    ……what else? Sorry for being so dumb.

  10. romerjt says:

    Just wondering if the new level of interest in breaking up TBTF banks has anything to do with the fact that Geithner, “bailouter in chief” is no longer at Treasury. If you have a strong stomach, read Bair’s “Bull by the Horns” for a blow by blow of how Tim represented the big banks and not the American people. Bair’s book gains credibility with me b/c it is supported by Barofsky’s “Bailout” take on Geithner and this:

    As part of her support for the program to help homeowners take part in loan modification program she travels to California to actually see the program operate at street level, meet and speak with the potential clients. She describes her emotional reaction to seeing the pain and suffering of the hundreds of people who show up. Does anyone know of any principal in this matter who might have done something similar?

    ~~~

    BR: You must have missed the past 5 years worth of postings around here

  11. AtlasRocked says:

    Only the savers have a vested interest in cleaning up the banks. Those without money have a vested interest in keeping the banks crooked, confusing, and mis-regulated and decriminalized.

    Cyprus has showed us what the liberals (Europe is the liberal utopia, right?) plan to do with the banks:

    “Now, those same desposits (sic), if they are in one of the island’s two largest banks, stand have as much as 30pc to 40pc wiped off their value.”

    Meanwhile Dutch finance minister and Eurogroup head Jeroen Dijsselbloem has alarmed markets with comments that the Cyprus bail-out could act as a template for other rescues. In an interview with Reuters and the Financial Times, he said:

    “The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.”

    http://www.telegraph.co.uk/finance/debt-crisis-live/9951727/Cyprus-bailout-live.html

    Liberals hate bankers right? But they let Obama get away without prosecuting – we didn’t even see this mentioned in the debates. Few liberals I know of care about Obama not prosecuting, and if they did, they proclaim “Obama couldn’t prosecute, Congress cut the funding for prosecution” – seriously I heard this in debates multiple times.

    OBAMA WANTS CROOKED BANKS FOLKS – THE LIBERALS BENEFIT FROM CROOKED BANKS, NOT THE WEALTHY OR THE UPPER CLASS, NOT THE SAVERS.

    http://www.americanbanker.com/issues/178_45/how-holder-s-surprising-too-big-to-jail-admission-changes-debate-1057303-1.html?zkPrintable=1&nopagination=1

  12. socaljoe says:

    Seems to me the obvious solution is reinstatement of Glass Steagall… back account holders in the deposit banks and leave the investment banks to their own destiny.

  13. [...] Top Economists, Financial Experts and Bankers Say We Must Break Up the Giant Banks [...]

  14. [...] and former Fed officials and the former chief executives of some of Wall Street’s largest firms want the biggest banks broken up. The privileged status these banks receive distorts the financial system and the larger economy. In [...]