Bipartisan Consensus Formed: We Must Break Up the Giant Banks
Liberal congressman Sherrod Brown and conservative congressman David Vitter are pushing to break up the big banks:
Sen. Sherrod Brown (D-Ohio), along with unlikely ally Sen. David Vitter (R-La.), is launching an effort to break up the taxpayer-funded party on Wall Street.
“The best example is that 18 years ago, the largest six banks’ combined assets were 16 percent of GDP. Today they’re 64-65 percent of GDP,” Brown said. “So the large banks are getting bigger and bigger, partly because of the financial crisis, partly because of the advantages they have.” [Indeed, they’re 30% bigger than they were when the big “financial” reform bill was passed.]
“The system is such that the big banks have far too many advantages, bestowed in part by the marketplace, because investors understand and the market understands that government might in fact bail them out, so there is lower risk for investors, and that means that they can borrow money at a lower cost than anybody else can,” Brown said, explaining why small- and mid-sized banks are at a disadvantage.
Brown and Vitter announced on Thursday that they were working together on bipartisan legislation to address this problem.
“I think the fact that Sen. Brown and I are both here on the floor echoing each other’s concerns, virtually repeating each other’s arguments, is pretty significant,” Vitter said Thursday in his Senate floor remarks. “I don’t know if we quite define the political spectrum of the United States Senate, but we come pretty darned close. And yet, we absolutely agree about this threat.”
In his floor remarks, Brown underscored the urgency — and the challenge — in breaking up the biggest banks.
“Just about the only people who will not benefit from reining in the megabanks are a few Wall Street executives,” he said.
Brown’s push received a conservative boost this month from pundit George Will, who wrote that the senator’s efforts deserve support from the right.
“By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together,” he wrote. “Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail.”
“When the Will column came out, it was pretty interesting,” said Brown. “People I’ve known over the years who have my email address — I got several emails from people who kind of surprised me that they supported the idea.”
Conservative Wall Street Journal columnist Peggy Noonan has urged Republicans to break up the big banks, as has former GOP presidential candidate Jon Huntsman. [So hasJames Pethokoukis, a columnist for the American Enterprise Institute, who writes in the pages of the Weekly Standard.]
In 2010, Brown and then-Sen. Ted Kaufman (D-Del.) also offered an amendment to break up the big banks.
“I’m not going to mention names, but some who voted [against the 2010 amendment] have come up and said they’re going to vote for it. And we just have a different Senate now from 2010,” he said, adding, “More and more senators have come to me and said they are looking at this differently now.”
Raw Story notes:
“Today, our economy is being threatened by multi-trillion dollar financial institutions,” Brown said on the Senate floor. “Wall Street megabanks that are so large that, should they fail, they would take the rest of the economy with them. Instead of failure, however, taxpayers are likely to be asked to cover their losses, to bail them out as we did five years ago.”
“This is a disastrous outcome because it transfers wealth from the rest of the economy into these megabanks and it suspends the rules of capitalism, perpetuating the moral hazard that comes from saving risk-takers from the consequences of their behavior,” the progressive Democrat added.
They are totally correct.
And they understand that – while liberals and conservatives might have different starting places – they both reach the same conclusion.
Huffington Post writes:
Brown noted that conservatives and progressives use slightly different arguments and talking points to get to the same conclusion, with conservatives condemning “crony capitalism” and progressives worrying about the corrupting influence of major financial institutions.
We’ve pointed out:
Conservatives hate big unfettered government and liberals hate big unchecked corporations, so both hate legislation which encourages the federal government to reward big corporations at the expense of small businesses.
Both liberals and conservatives are angry that the feds are propping up the giant banks – while letting small banks fail by the hundreds – even though that is horrible for the economy and Main Street.
The Dodd-Frank financial legislation wasn’t a compromise where things landed somewhere in the middle between liberal and conservatives ideas. Instead, it enshrines big government propping up the big banks … more or less permanently.
Many liberals and conservatives look at the government’s approach to the financial crisis as socialism for the rich and free market capitalism for the little guy. No wonder both liberals and conservatives hate it.
The corrupt, giant banks would never have gotten so big and powerful on their own. In a free market, the leaner banks with sounder business models would be growing, while the giants who made reckless speculative gambles would have gone bust. See this, this andthis.
It is the Federal Reserve, Treasury and Congress who have repeatedly bailed out the big banks, ensured they make money at taxpayer expense, exempted them from standard accounting practices and the criminal and fraud laws which govern the little guy,encouraged insane amounts of leverage, and enabled the too big to fail banks – through “moral hazard” – to become even more reckless.
Indeed, the government made them big in the first place. A
As MIT economics professor and former IMF chief economist Simon Johnson points out… the official White House position is that:
(1) The government created the mega-giants, and they are not the product of free market competition
(3) Giant banks are good for the economy
And given that the 12 Federal Reserve banks are private – see this, this, this and this– the giant banks have a huge amount of influence on what the Fed does. Indeed, the money-center banks in New York control the New York Fed, the most powerful Fed bank. Indeed, Jamie Dimon – the head of JP Morgan Chase – is a Director of the New York Fed.
Any attempt by the left to say that the free market is all bad and the government is all good is naive and counter-productive.
And any attempt by the right to say that we should leave the giant banks alone because that’s the free market are wrong.
The [corrupt, captured government “regulators”] and the giant banks are part of a single malignant, symbiotic relationship.
Members of the both parties in the house of representatives have also questioned the wisdom of propping up the giant banks.
And top bankers, economists and financial experts have also said we must break up the big banks.