www.zerohedge.com/article/...nsolvent-banks-arent-being-broken
.......The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:
* Nobel prize-winning economist, Joseph Stiglitz
money.cnn.com/2009/04/21/news/...ex.htm?postversion=2009042112
* Nobel prize-winning economist, Ed Prescott
www.businessweek.com/the_thread/...009/03/harsh_predictio.html
* 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
online.wsj.com/article/SB124157669428590515.html
* MIT economics professor and former IMF chief economist, Simon Johnson (and see this)
money.cnn.com/2009/04/21/news/...ex.htm?postversion=2009042112
* 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
www.bloomberg.com/apps/...&sid=aJJ_MkIv9VvA&refer=home
* The head of the FDIC, Sheila Bair
www.cnbc.com/id/29774555
* 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
* Chairman of the Commons Treasury, John McFall
Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.
In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer - who was Ben Bernanke’s thesis adviser at MIT - say that - at the very least - the size of the financial giants should be limited.
Even the Bank of International Settlements - the "Central Banks' Central Bank" - has slammed too big to fail. As summarized by the Financial Times:www.ft.com/cms/s/0/...de-a13f-00144feabdc0.html?nclick_check=1
Do we need to keep the TBTFs to make sure that loans are made?
Nope.
Fortune pointed out in February that smaller banks are stepping in to fill the lending void left by the giant banks' current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven't been able to expand and thrive is that the too-big-to-fails have decreased competition:....
...Indeed, some very smart people say that the big banks aren't really focusing as much on the lending business as smaller banks.
Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks' own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.
Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don't really need credit in the first place. See this and this.
So we don't really need these giant gamblers. We don't really need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.
The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:
The largest banks often don't show the greatest efficiency. This now seems unsurprising given the deep problems that the biggest institutions have faced over the past year.
"They actually experience diseconomies of scale," Narter wrote of the biggest banks. "There are so many large autonomous divisions of the bank that the complexity of connecting them overwhelms the advantage of size."
It is simply not true that we need the mega-banks. In fact, as many top economists and financial analysts have said, the "too big to fails" are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.
The Giant Banks Have Recovered, And Are No Longer Insolvent?
Have the TBTFs recovered, so that they are no longer insolvent?
Negatory.
The giant banks have still not put the toxic assets hidden in their SIVs back on their books.
The tsunamis of commercial real estate, Alt-A, option arm and other loan defaults have not yet hit.
The overhang of derivatives is still looming out there, and still dwarfs the size of the rest of the global economy. Credit default swaps have arguably still not been tamed
www.washingtonsblog.com/2009/09/...waps-love-em-ban-em-or.html
Some very smart people say that the big banks - even after many billions in bailouts and other government help - have still not repaired their balance sheets. Tyler Durden, Reggie Middleton, Mish and others have looked at the balance sheets of the big boys much more recently than I have, and have more details than I do.
But the bottom line is this: If the banks are no longer insolvent, they should prove it. If they can't prove they are solvent, they should be broken up.
The Government Lacks the Power to Break Them Up?
Does the government lack the power to break up the TBTFs?
Wrong.
One of the world's leading economic historians - Niall Ferguson - argues in a current article in Newsweek:
www.newsweek.com/id/215178
..there should be a new "resolution authority" for the swift closing down of big banks that fail. But such an authority already exists and was used when Continental Illinois failed in 1984.
Indeed, even the FDIC mentions Continental Illinois in the same breadth as "too big to fail" banks.
Geithner and Bernanke have been using one loophole and "creative" legal interpretation after another to rationalize their various multi-trillion dollar programs in the face of opposition from the public and Congress (see this, for example).
And the government could use 100-year old antitrust laws to break them up.
So don't give me any of this "our hands are tied" malarkey. The Obama administration could break the "too bigs" up in a heartbeat if it wanted to, and then justify it after the fact using PCA or another legal argument.
....So what is the real reason that the TBTFs aren't being broken up?
Certainly, there is regulatory capture, cowardice and corruption:
* Joseph Stiglitz (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action
* Economic historian Niall Ferguson asks:
Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs[too big to fails]....
Investment analyst and financial writer Yves Smith says:
Major financial players [have gained] control over the all-important over-the-counter debt markets...
It is pretty hard to regulate someone who has a knife at your throat.
..William K. Black says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.
But there is an even more interesting reason . . .
The number one reason the TBTF's aren't being broken up is [drumroll] . . . the 'ole 80's playbook is being used.
As the New York Times wrote in February:
In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.
In other words, the nine biggest banks were all insolvent in the 1980s...
So the government's failure to break up the insolvent giants - even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up - is nothing new.
William K. Black's statement that the government's entire strategy now - as in the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts") makes a lot more sense.
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