Remember back in 2008 when the economy tripped over a pile of bad debts, complex derivatives, financial “products” and corporate-greed-driven risk taking with other people’s money? Banks found themselves holding paper for transactions that had no real value. The Federal Reserve, Congress and economists around the world pressed for a bail out for the largest of the banks because they were “too big to fail.” The rationale was that if these big banking corporations collapsed, their demise would result in collateral damage which could cause a worldwide economic crash. It reminds me of the mythical tales of giant dragons whose deaths cause fiery destruction of unfortunate nearby villages.
There were those who called for a break up of these “too big to fail” banks, or as the banking industry calls them “systemically important” banks, as part of the bailout. Somehow, that hasn’t happened. The same financial institutions that were perpetrators of the money shuffling that created much of our current economic problems have not been split up and shrunk to a size which can be controlled or allowed to suffer the consequences of their risky failures. Instead of being dismantled, they have consolidated and become even larger.
A recent report by the Dallas Federal Reserve, a regional devision of the national bankers’ bank, the Federal Reserve, calls for slaying the “too big to fail” dragons. According to the Dallas Federal Reserve’s report, in 1970 the top five largest banks in the US owned 17 percent of the banking industry’s assets. In 2010 the five largest banks in the country owned 52 percent of all banks’ assets. The Troubled Asset Relief Program (TARP) put some rules in place to try to keep the stumbling beasts under control. Rules were put in place to require more accurate and transparent accounting for bank transactions. Banks were required to have higher levels of capital to back their debt. Some of the new rules have been enforced. Some of the old rules like the Glass Steagal Act which kept banks from becoming dragons whose destruction takes down the world economy were rescinded during our economic good times. Efforts to reinstate these tested rules have not been successful. Many smaller banks, those not too big, were allowed to fail and their assets were consumed by the next bigger institutions in the food chain.
The Dallas Federal Reserve report calls the massive aid to these too big banks a “perversion of capitalism.” It cites four basic tenets of capitalism that were violated by bailing out these corporations:
- “Capitalism requires the freedom to succeed and the freedom to fail…bad decisions should lead to failure.
- Capitalism requires government to enforce the rule of law…The privatization of profits and socialization of losses is completely unacceptable.
- Capitalism requires businesses and individuals be held accountable for the consequences of their actions…nobody has been punished or held accountable for their roles in the financial crisis.
- The idea that some institutions are TBTF inexorably erodes the foundations of our market-based system of capitalism.”
This concentration of assets and the power to control or thwart the rules enacted to restrict these too-big-to-fail corporations is a threat to our country’s and the world’s economic system
Corporations, not just those involved in banking, have become so large that they are able to operate without consequences for their risky behavior and we all pay what amounts to protection money to keep them from failing. At the same time our Supreme Court has given them personhood and allowed even more power and influence in political processes.
It is time to slay the dragons.
Copyright © 2012 Janet Jacobson and Sustaining the Northern Plains