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EDITOR’S COMMENT:  Amongst many other respected and experienced economists, Simon Johnson has been vocal in his basic premise: The bank oligopoly must be destroyed if we are to see any real possibility of recovery that will positively impact the average citizen. Destroying the oligopoly simply means breaking up the banks that are so large that they have developed a myth: there are too many people in government and  in the streets who think that breaking up these banks will destroy America. In a word, they are scared. And as long as the banks control that narrative, the situation will remain the same.

Then there are those who, fearing the exercise of too much government power, say that there must be another way. We can’t just willy-nilly break up private companies because we don’t like their success or power. That also comes from the banks controlling the narrative. Look at where their reported “profits” came from: (1) marking down their own debt to market value because the market has decided that their chances of surviving are diminishing and (2) sale of assets. They are not really making money.

They are playing accounting tricks. Take away the tricks and they are broke. They are holding “assets” on their books that never were owned by them, were never paid for, and frankly don’t exist. They are getting a pass from government regulators because those who control the levers of power are too afraid of what might happen. Any other bank would, as hundreds have already been, “resolved” — i.e., broken up and sold to one or more parties who know how to practice banking. So breaking them up is simply execution of a long-standing policy of taking insolvent banks and transferring the assets to banks that are solvent.

They use core banking services at teaser or no cost to attract customers and then bang them over the head with over-priced add-ons that people don’t even need. I remember when Banks were profitable by taking in deposits and making loans, if they were any good at it. In fact, there are 7,000 smaller institutions that do exactly that, and which all have access to the same electronic backbone for funds transfer and other services that are widely believed to be the exclusive province of the big Banks.

A change in the internal rules of the networks, which are no more than utilities for electronic funds transfer, and ALL banks would be able to offer the same services without a dollar more in capital — at a fraction of the cost of banking with the big banks, whose hidden charges are pushing the cost of maintaining a bank account toward $400 per year.

Lately there have been numerous clashes in rhetoric as to whether the Tea Party and the Occupyers speak with the same voice on the same topic. Since both are composed of numerous factions and groups with their own agendas, it seems unlikely that there would be uniformity of opinion. But both seem to be in agreement about financial policy and control. The distinction being made by Tea Party advocates is that they speak against the government whereas the Occupyers are speaking against the Banks. I’ll ignore the slurs that come from heated argument.

The key word absent from the rhetoric is “oligopoly” probably because few people understand what it means. An oligopoly is a group of special interests that control the marketplace to an extent that free market forces are barred from operating. Oligopolies control government. That is what we have. The Banks and some other large corporations are controlling the marketplace — and with it, the government.

So the so-called difference between being against the government or being against the banks’ control of government is actually creating unnecessary confusion. In many ways, the Banks ARE the government. They have more to say about the accounting rules, regulatory rules and laws than anyone else and they own lobbyists — something that regular people don’t have in Washington and State Capitals.

I’m not opposed to banking, investment banking, commercial banking or any other kind of finance that lies at the foundation of our capitalist system. I am opposed to those who have gamed the system such that the system doesn’t work the way it was meant to operate. We have a few Banks and a few individuals with out-sized power to control all three branches of government. It is a form of fascism, which is no better than communism. I think the Tea Party advocates and the Occupyers would agree that what they all seek is a return to capitalism from fascism, and a return of freedoms for individuals that have been whittled away by the greed and ambition of an extremely small number of individuals at great cost to all of us.

Take for example the foreclosure mess. Reverse the players. Now tell me that you think it is a good idea for borrowers to be able to send in shills to sign the documents so that they could later say that some other borrower was the real borrower and that they themselves never owed the money. Take it a step further. Tell me that it is a good idea, for the borrowers, knowing that they were actually not in the loop, were going to accept borrowed money on the same loan several times over and that when the loan failed, they would all fail, which was good because the borrower, controlling the payments, had placed bets all over Wall Street that the loans would fail. So by borrowing $200,000, for example, the Borrower would be making several times that and never pay back the money. Still think we are talking technicality?

Most people would agree that the Borrower in that transaction was no Borrower and the Lender, may have thought it was in a loan transaction but in reality it was investing into a Ponzi scheme. The Borrower who appeared on the documents was a con man with no intent to pay back the loan and was taking orders from the real people who were in charge of organized financial crimes. To treat such a Borrower as though they had the rights and protections of conventional borrowers would be absurd, most would agree.

So most people would agree that the Borrower in our example had to give back all the money and by the way, go to jail for 30 years, if the crime was big enough. This crime is big enough. And any attempt at stonewalling requests or demands from litigant innocent Lenders who were seeking to recover as much of their money as possible would be met with fierce orders from the bench commanding compliance or risk jail.

[You can use the same example with student loans: there the shills (pretender lenders) get a government guarantee and a promise that the debt can’t be discharged in bankruptcy. But the lender was a shill (straw-man) and the organizers already made their election on how to deal with risk — they wouldn’t take any. All the risk was shifted to investors in “securitization” which never was perfected. So the guarantee doesn’t apply to them and neither does the exemption from discharge in bankruptcy.]

That foreclosure example, one of many, is no fairy tail. The example above is exactly what the titans of Wall Street did to investors. Now if you don’t think it is fair that Wall Street should be able to do that, then you shouldn’t think that the Borrower in our example should be able to do it either.

But then you would be saying that the use of shills at the lending table is a bad thing. Same for denying responsibility (bankruptcy remote vehicles) for deceptive and fraudulent lending. And the same for tricking the other party into thinking it was one kind of transaction when in fact it was another. Same for going to court posing as one party when in fact you are using the layer of attorneys, substitute trustees, and foreclosure companies to protect yourself against charges of fraud when it is discovered that you were simply dipping at the trough again, not collecting on a debt.

Banks get away with it because they have the word “bank” in their name. Occupyers and Tea Party advocates would agree, I hope, that is a bad thing and that it should be corrected without delay.


By Simon Johnson

The idea that big banks damage the broader economy has considerable resonance on the intellectual right.  Tom Hoenig, recently retired president of the Kansas City Fed, has been our clearest official voice on this topic.  And Gene Fama, father of the efficient markets view of finance, said on CNBC last year, that having banks that are too big to fail is “perverting activities and incentives” in financial markets – giving big financial firms, “a license to increase risk; where the taxpayers will bear the downside and firms will bear the upside.”

The mainstream political right, however, has been reluctant to take on the issue. This changed on Wednesday, with a very clear statement by Jon Huntsman in the Wall Street Journal on regulatory capture and its consequences.  Before the 2008 financial crisis: “The largest banks were pushing hard to take more risk at taxpayers’ expense.”  And now,

“More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. These banks now have assets worth over 66% of gross domestic product—at least $9.4 trillion, up from 20% of GDP in the 1990s. There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose.”

This message could work politically, for five reasons. Read the rest of this entry »

12 Responses

  1. Comparison between what TBTF and Credit Unions offer. Including a good incentive to switch. No brainer…


  2. Here is my humble take on the following: as long as banks have any money, whether real or only on paper, they will keep on “raking up” more, regardless how many lawsuits they are facing. Why is this so difficult to understand and why are people still banking there?

    According to this article, they settled a $410 accusing them of charging excessive fees. They settled with our money a federal lawsuit accusing them of stealing… our money. And we keep on watching them and allowing it.

    Who’s really stupid there?


  3. Neil Banks don’t make loans from their deposits. They make credit available and create check money. It is agains all banks charters to lend out deposit or lend their credit but they do. The note wich is placed on the banks balance sheet as an asset (account recievable) and thereby allowing them to “lend”. In reality the banks has lent nothing and has nothing at risk it created money by special previlage from the Federal reserve and the Fed Reserve act. While the creation of this check money may not be illegal it circumvents a true lending situation where only the consumer is at risk along with what ever collateral the consumer may have pledged. So the situation is much worse then even your site indicates. Under the best scenario the Bank takes Note (asset) creates credit and allows consumer to create check money. [Some time using magnifying glass look at the signature line of Bank check.
    See, monetary.org
    Fred Montano

  4. A good explanation of the difference between Capitalism and Fascism, and the word ‘Oligopoly’ itself, thanks Neil.

    Here’s a good idea since we don’t have lobbyists in Washington and the Capital, why don’t we create our own? Every corp. and bank, and special interest group have them tugging on the politicians sleeves to do their bids. We need to have our own, after all it’s our money they are playing with, so let’s have a group of good samaritans to hang out there and speak on our behave.

    If it’s good for the gees it’s good for the gender, and the only thing that may be too big to fail is us, the people. We will never have any shortage of us at any time, we will never run out of ideas or human resources, and heck, we are getting bigger all the time, no offense here.

    Banks have become too big, by eating up smaller banks and cutting down on the competition; for sure, that’s not Capitalism. Phone companies are doing it, grocery stores are doing it, etc. This country was based on free trade and it should be allowed to function that way always. This idea of having a one world government or order is not going to work not economically and not socially.

    I say break them down, I started last year as soon as Chase refused to modify my so called loan, immediately I went in and closed my account, my daughter’s my son’s and my grand children’s, and I made my stand by telling them to go you know where. Everyone in my family and group of friends are banking with local union banks!

    We are supporting our local grocery stores and farmers, we cut out the cable service, who needs it, there are other ways. There’s much we can do to show our discontent. Fighting back is the only option, bringing them down to earth because the more money they make, the more power they have. We save our money we too can have some power, why are we giving them all our money by supporting their products and listening to their lies. we keep buying the crab that they are trying to feed us for decades, enough is enough.

  5. http://www.huffingtonpost.com/2011/10/21/thomas-hoenig-fdic-board-of-directors_n_1023655.html

    President Barack Obama on Thursday nominated a prominent critic of large banks for a key banking industry regulatory post.

    The White House said Obama tapped former Kansas City Federal Reserve Bank President Thomas Hoenig to be vice chairman of the board of directors of the Federal Deposit Insurance Corporation, a regulator that insures individual bank accounts up to $250,000.

    Hoenig has been a critic of large banks, arguing they still pose a threat to the financial system and that the 2010 Dodd-Frank financial oversight law did not do enough to address the issue.

    “We must make sure that large financial organizations are not in position to hold the U.S. economy hostage,” Hoenig told a meeting of the Women in Housing and Finance in February. “We must break up the largest banks.”

    Hoenig served as head of the Kansas City Fed from 1991 until October 1, 2011.

    If confirmed by the Senate, he would replace Martin Gruenberg as vice chairman of the FDIC board. Gruenberg has been nominated to be chairman. Former Chair Sheila Bair stepped down in July.

    Another current FDIC board member, Thomas Curry, has been nominated to be head of the Office of the Comptroller of the Currency.

    The full Senate has yet to vote on either the Gruenberg or Curry nomination.

    (Reporting by JoAnne Allen; Editing by Peter Cooney)

    Copyright 2011 Thomson Reuters.

  6. @lies,

    Why wait so long? I’ve been advocating that for a year and people are still hanging to their Chase bank account for dear life or, better yet, getting the $200 bribe to open a new one.

    I guess people haven’t lost enough yet to really want this situation resolved once and for all.

  7. OK –front page NYT today——some supposed Tea Party Txs Senate Candidate [I read shill–not Tea Party] says that the anti-Wall Street movement [read generally] is a bunch of unemployed indolent ANTI-SEMITIC crowd. I wondered when they pull out the race card—and assert that to deplore criminal banking enterprise is “anti-semitic”

    So now you all here know what you are —-in the view of the poor besmirched wall street crowd.

  8. please november 5th moving day. move your money from the big banks to local credit unions.. join your local occupy movement. it is up to us to get involved. no one is going to do this for us. it is us that has to take control and stop the foreclosures. there was a time and place for repossessing homes. that time has passed. we are underwater and no jobs??? please get involved research and learn

  9. With so many people “getting it”, there is no way we won’t prevail. Just a question of time and a few additional casualties. Note what I keep saying: it all has to do with… SEX! Ask Limbaugh…


  10. That would explain why Huntsman, whom I personally view as the best candidate for the republican side, based on the few statements he has made so far… is nowhere to be seen on those polls.

    The guy is not interested enough in our panties and our beds to make the list. That’ll teach him to tell the truth and to talk about important issues!

    America has gone brain dead. Must be Monsanto’s GMOs…

  11. To Big to Fail “MAKE THEM SMALLER” do not do business with big banks use small and regional banks. It costs us nothing but closing an account and opening another in its place.

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