Should Megabanks Be Broken Apart?



EDITOR’S NOTE: It doesn’t really matter who you ask. Whether they are from one political ideology or another. The answer is obvious: The mega banks are too big to govern themselves, they are too big to regulate, and so they are the only sector of the economy that is completely above the law. They operate in a risk-free environment. If you knew you could kill someone and that you would definitely get away with it, there would be more murder. Moral hazard is contained by two things — fear of discovery and consequences. In a risk-free environment, and the risk free context in which the managers of these megabanks operate, answering to nobody, it is hard to imagine that they wouldn’t rob, steal, lie and cheat.

So that is exactly what they did. Our wimpy government is too timid and too enmeshed with them to do anything about it. So it is either going to happen in the courts or in the streets. I prefer the courts because I am 63 years old and I don’t want to live through riots and chaos. But I know that people are only going to stand for this so long before the people themselves do something about the coup d’etat of their government — something we thought was not possible with all the checks and balances built into the our system of government.

Through FICO scores and other numeric indexes we have replaced common sense with computer algorithms. Loans are “approved” 3,000 miles away by anonymous computer consoles instead of a relationship between a banker and a customer looking at each other eye to eye. The deposits you make in Wichita is used somewhere in Thailand. The loan you want for your business is disapproved because it doesn’t fit with the policy and business model of a megabank whose criteria are not even vaguely linked anymore to the needs of the community from which they seek deposits and loan business.

We need massive decentralization of banks. Even the multistage branching was a mistake, let alone repeal of the Glass-Steagal Act. We learned these lesson in 1929 and now, as the pendulum swings we forgot all those lessons and the consequences are already here and building. Speaking in historical terms, we are in the later part of 1928. The hole is deepening by the day and somehow everyone except a few hard realists are expecting a result different than 1929. Why?



big banksEd Nacional and E. Marinovich

The economic crisis in Ireland has shown that “too big to fail” can quickly turn into “too big to save” as the Irish government tried to shore up faltering private banks, with catastrophic results for the entire economy. In a recent Op-Ed article, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, wrote that despite financial reform legislation, the biggest banks still control our economy and pose a serious threat. After the last round of bailouts, the five largest financial institutions are 20 percent larger now than they were in 2008.

If large American banks run into trouble, would they ever be allowed to go bankrupt? If not, what can be done if they start to fail? As global financial institutions grow in size, how perilous is this condition for the U.S.?

6 Responses

  1. The 1920’s was a decade of fraud and decadence which finally led to the 1930’s and the
    1940’s. Sin was paid for with suffering and bloodshed.
    I hope we can learn from the past and not repeat the past. But as in the Great Gatsby, Nick told Gatsby “you can’t repeat the past”. Gatsby replied,
    “Sure you can!’
    I sure hope Gatsby was wrong!

  2. As Janet Tavakoli told congress, “The banks want to do very little work for high fees!”

    Pretty much says it all.

  3. I don’t see any other solution at the moment than to break up the mega banks. Not just because they are big, but because they cost the public too much in terms of their self-serving agenda. It is one thing to be big and to still honor the laws. Like bullies, though, they use their size against us. Now we equate size to complication. It appears they are so darn big and complicated now that they can’t even regulate themselves or monitor their own business !! At least, that is their latest excuse.

    The public is constantly at risk because we are not able to hold banks accountable for their behavior. If we want any justice we are forced to sue and take our chances in a crap shoot court system. Whoever posts the biggest bond, wins, right?? Moreover, banks KNOW that size matters and use that to their advantage. They are completely out of touch with the reality of the average person, yet they continue to advertise as if they are the local friendly resource for all of our banking AND life’s needs.

    They have spent zillions on building up their reputations as the ones we can trust, meddling in every facet of our lives nowadays, controlling our spending habits, monitoring our deposits and withdrawals, and our credit reports. They act like IRS agents…every transaction based on your SS number. The banks I went to the other day would not allow me to open just a checking account without a savings account, too. That is so you have to agree to a 1099… “for your own protection against terrorism.”
    The banks are big brothers now.

    They suck us in, then spit us out. Double standards. They don’t have to honor the laws, but we do. In fact, they act as if the laws are made for them. Hey, maybe they are?

    If the courts keep condoning these illegal activities by the banks they are as guilty of the systemic fraud. We may have to break up the courts, too, if they don’t start honoring our laws and enforcing them.

    Then again, maybe “we the people” have been fooled all along into believing that we really have a stake in the due process of this nation.

  4. Gwen I get that feeling too. On a gut level

  5. Hoening is from Kanss City where I live. I read his comments in our paper and sent them to Neil a week or so ago because in my opinion this guy is always “ahead of the pack”. He’s a bit of a renegade but he has good thoughts. As I told Neil in my email, I think his comments are meant to solicit reaction from the community at large as to how the big guys and senators etc think about breaking up the banks. He had another post this morning in our paper after addressing a local Chamber. He is urging patience and thinks that Bernake’s actions will only create inflation. Again, he generally votes against the “pact” at Governor’s meetings and more often than not he is ahead of the pact. Watch this guy’s comments. He is letting us know its coming. Finally, today he urged “patience”–part of the problem he is saying is that Americans have no patience–AMEN to that.

  6. Nothing is going to be done about the mega banks if Congress does not pull its head out of the sand and look around. We need much more transparency in Congress as well. We don’t get any laws passed that help the consumer, because Congress is in the pockets of the banks. Why is this still going on? What do we need to do to get rid of the mega banks (break them up) and make Congress get honest. Perhaps, the answer is in the past. The mega banks have been broken up before. I think the most alarming thing about the information coming out about the Federal Reserve is that the mega banks across the planet are in cahoots with each other at the expense of the entire planet. Human beings are going to blow themselves up AGAIN. If you think that has not happened before, you would be mistaken.

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