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EDITOR’S COMMENT: Simon Johnson and Paul Krugman have consistently been right, so there is no reason to suspect they are wrong this time. The big banks are too big to manage, too big to regulate and too big for people to do business with them on a level playing field. The only logical answer, as with antitrust, is to break them up into smaller pieces and allow the different regulatory agencies that have jurisdiction over their multifaceted operations the room and resources to monitor these Goliaths.

A good place to start is Citigroup, which Obama ordered nationalized back in 2009 and was IGNORED by his own Secretary of the Treasury, Geithner. Obama was right and he should pursue this demand along with throwing Geithner back into the sea of sharks from which he came. Ignoring the warnings of world famous economists who have been consistently correct in describing and predicting the results of government policy and economics is essentially giving up our sovereignty and we may as well change the name from United States of America to United Banks of America.

We are currently propping up these failed institutions whose assets, profits and reputation have been plundered by management, lone of whom appears to have been at any risk of loss of money or their jobs. The cost is nothing less than our future. We need to take a close look at Iceland, where, of all places, the people stuck tot heir guns (so to speak) and forced a change in government and finance. The result was the miracle we pray for here in the United States.

The Media doesn’t report it, but there is shining example in an unlikely place now designated as the number one place in the world to vacation, and where climate change is warming up the country so that it is quite comfortable. By staying with the truth (the banks are broke) and prosecuting those who plundered our nation and their own banks, the rule of law, the value of the currency, and the ability to provide financing for the core of our economy — small and medium sized business and innovation — can be restored. Iceland proved it.

They insisted on taking control over the banks, breaking up the banks’ political power oligopoly, and restored social gains. They are not done yet, but they are far ahead of European nations whose economies are a wreck because they insist on pursuing policies that assist Banks instead of people.

Why Not Break Up Citigroup?



Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Earlier this week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, captured the growing political mood with regard to very large banks, observing, “I believe that too-big-to-fail banks are too dangerous to permit.”

Perspectives from expert contributors.

Market forces don’t work with the biggest banks at their current sizes, because they have great political power and receive almost unlimited, implicit subsidies in the form of protection against downside risks — particularly in times like these, with Europe’s financial situation looking precarious. Mr. Fisher added:

Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy.

Mr. Fisher is a senior public official and also someone with a great deal of experience in financial markets, including running his own funds-management company. I increasingly meet leading figures in the financial sector who share Mr. Fisher’s views, at least in private.

What, then, is the case in favor of keeping mega-banks at their current scale? Vague assertions are sometimes made, but there is very little hard evidence and often a lack of candor on that side of the argument.

So it is refreshing to see Vikram Pandit, the chief executive of Citigroup, go on the record with The Banker magazine to at least explain how his bank will generate shareholder value. (Viewing the interview requires registration, however.)

Citi is one of the world’s largest banks. According to The Banker’s database, which includes data from the end of 2010, it had total assets of just under $2 trillion — putting it in the top 10 worldwide. Over all, The Banker places it as No. 4 in its “Top 1,000 World Ranking.” Citi is No. 39 on the Forbes list of the top 500 global companies, with total employment of 260,000.

Is there indication in Mr. Pandit’s vision that mega-banking will be good for the rest of us in the future? Don’t look for Citi to drive any kind of rethinking of the consumer market in the United States; Mr. Pandit just wants to downsize that part of his business.

The engines of growth, Mr. Pandit said, will be “the global transactions services business” and “emerging markets.”

Transaction services are important, but they do not require a very large balance sheet; these can equally well be performed by a network of small, nimble financial firms. Global commerce existed for centuries before banks built up risks that are large relative to their home economies.

And emerging markets are risky. Mr. Pandit is essentially betting that Citi can ride the cycle in those countries. Probably there will be relatively good profits for a number of years, and this will justify high compensation levels. But when the cycle turns against emerging markets, as it did in 1982, what happens?

In 1982, Citi had a large loan exposure in the emerging markets of the day — Latin America, and the Communist nations of Poland and Romania — and it was saved from insolvency by “regulatory forbearance,” meaning that the Federal Reserve and other regulators did not force it to recognize its losses. Citi was a relatively big bank at that time, but much smaller than it is today.

And its complex global operations are exactly what would make it very hard to put through orderly liquidation under Dodd-Frank. I argued here in March that there is no meaningful resolution authority for global banks; before and after that post I’ve taken this point up in private with senior officials in the United States and Europe responsible for handling the potential failure of such entities.

No one disagrees with my main point: we cannot handle the collapse of a bank like Citigroup in “orderly” fashion.

Jon Huntsman put mega-banks on the agenda for the Republican primaries, with a blistering commentary in The Wall Street Journal a few weeks ago: “Too Big to Fail Is Simply Too Big.”

Other contenders for the Republican nomination have followed his lead, including most recently Newt Gingrich. Whoever ends up going head to head with Mitt Romney is likely to make good use of this very theme — because Mr. Romney already has so much financial support from the top of Wall Street, it will be very hard for him to respond effectively.

Breaking up the biggest banks is not a fringe idea to be brushed off. Mr. Fisher is speaking for many people who work in financial services, who agree that the big banks are not good for the rest of us. Mr. Pandit’s interview just reinforces this point.

Any Republican candidates who say they are fiscally responsible must eventually confront this issue: What was the role of big banks in the enormous recession and consequent vast loss of tax revenue since 2008? Which sector poses clear and immediate danger to our fiscal accounts, looking forward — and in a way that is not yet scored properly in any budget assessment? As Mr. Fisher put it, rather graphically,

Perhaps the financial equivalent of irreversible lap-band or gastric bypass surgery is the only way to treat the pathology of financial obesity, contain the relentless expansion of these banks and downsize them to manageable proportions.

I suggest that Mr. Fisher could reasonably begin with Citigroup.


23 Responses

  1. @Nora,

    Remove money, hugh? Well, start with NOT paying your taxes next years (if you’re self employed. Otherwise it’s too late…). Do your tax return and pay $5, $10.00/mo to stay within legality. No one says you have to fork up the whole amount so that they have more to mismanage.

  2. Simon’s article does not properly address the banking scandal, or the fact that the Federal Reserve must be taken out of existence, itself. As long as the cartel can dominate the political system, laws are plainly meaningless and do not apply to those who’ve perpetrated this mega crime, those who pass in and out of the revolving door between the regulatory agencies and Goldman Sachs.

    We must become victory gardners, and pull out the root of the weed.

    As a former chief economist of the International Monetary Fund, Simon has a good grasp of world financial matters, but I hear the same old subtroversive spin underneath Fisher’s statements, which leaves me doubting that his loyalties lie with those of us who’ve lost our savings, pension funds and homes to these criminals.

    The most basic freedoms and liberties…the right to grow food, obtain medical care, speak our minds and assemble peacefully without fear, are being stolen away through the secretive enactment of laws that these criminal bankers and the ruling elites sneak into being, having bought those powers with campaign donations. This system is wrong. Until we break up the whole thing and remove money from our political equation, we will continue to have to do battle for what we already fought for and won. Dig out the roots of evil, don’t just prune it.

  3. The acctg rule 144 of which you speak allowed the off balance sheet migration of the supposed “covered bonds” using european terminolgy for the MBS/CDOs has been reversed——-the psuedo trusts are no longer allowed to stand outside the lender Balance sheet —–the lender must report the mortgage notes as its assets and the MBS created securities as obligations that are secured by the homeowner promissory notes.

    As I understand the new rule that you mentioned prohibits the old off balance sheet treatment which facilitated double inclusions of homeowner notes in multiple off balance sheet trusts and the free-wheeling by servicers that supposedly is being rectified by the OCC program.

    The issue as I see it is whether the servicer can simply make off with the proceeds collected after default on those old loans. 1st the loan number disappears from the trust once the servicer persuades the homeowner to default in order to pursue any modification–right down to easement adjustments—

    the loan number is replaced by a collection account # —and the dual track collection /modification began—and gives rise to a claim under the OCC -the million dollar question is which # the OCC stand in servicer front will recognize as the winning number to enable you to obtain a form to apply for relief

    the problem is intensified when the purported trusts’ sponsors, indenture trustees/investment bankers etc do not file the requisite loan schedules in the SEC filings for the supposed trust

    this can make association between trustee and note –and servicer and note a question of fact—-the trustee should prove its association with the note—-tough if no loan schedule filing—–
    and certainly the servicer should provide proff that it represents that trustee of that trust–or the servicer may simply have the collection acct # and lack any real association with the trustee—-the trustee is responsible for distributing collected money to investors holding the MBS—so where does the money go if the servicer is not a POA for the trustee? How can funds go to the investors if a servicer that seizes a home has no relationship with the trustee charged with distributing the proceeds to the investors. The investors most often are public employee unions etc—so the servicer diversion of the investor funds is in effect a “conversion” in civil terms or a theft in criminal terms.

    If the wrong servicer is persuasive enough to snatch the house or proceeds therof–the trustee owner–ignorant of the theft presumably can still pursue the hapless homeowner–make sure the authorities are on the record–it is not enough that the trustee have standing but also that the servicer have authority to represent the trustee–

    this site has overlooked this latter feature–focusing wholly on trustee standing–which a bogus servicer may be able to assert by reference to SEC filings and or presentation of a promissory note—but the authority of the servicer to collect remains unproven

    The Wall Street Pentagon Papers: Biggest Scam In World History Exposed: Are The Federal Reserve’s Crimes Too Big To Comprehend?

  5. The Law offices of Steven J Baum (NY Robosigners) closed last week with hardly a mention anywhere. The largest provider of lender foreclosure services gets shut due to massive fraud on NY Courts and nobody talks about it. Melvin would be turning in his grave.

    Mass Counter Claims for FDCPA Violations, Fraud and Violation of Consumer protection laws drove the CEO to run off with the assets, and try to shut off risk of giving it back due to personal lawsuits. Anyone that has been sued by this law firm should immediately file a claim with the NY Dept Disciplinary Committee / BAR.

    Sue this vulture personally, and be sure to the term. “he knew or should have known that Wells Fargo was committing a huge fraud”, as servicer for the GSE Certificates.

    To the kid who dressed up for the Baum Halloween party as a homeless borrower who had been foreclosed and lost their home. Although,you are an idiot;the Baum demise has nothing to do with you and it has been in the works for months to avoid civil suits. your boss is walking off with over 20 M and could care less about employees or borrowers.

  6. I agree fasb 140 & 166 are great reads. People should read it very well over. FASB 140 talks about fdic take overs and anyone with a fdic take over should read that part 5-10 times. 166 is why banks are running to and asking that they do not have to put anything on there books.

  7. U.S. Foreclosure Fraud in a Nutshell, How Average Joe’s Home Was Stolen

  8. The truth to this “smoke and mirrors” scheme lies in the accounting issues…..please read FASB 140 and 166, both are a very long read but it will open your eyes.

    Once a Mortgage has been “converted / securitized” into certificate trading…..there is NO means available for these same “certificates” to be “reconverted back into a Mortgage.

    Once an orange is turned into “juice”, how can a whole orange re-emerge after juicing / securitization…..IT CAN’T!!!

    The Trust is barred from Holding the Asset / Mortgage, otherwise it, the trust, would loose its IRS tax exempt status.

  9. great idea but how will it be accomplished with so many hands in the cookie jar. We first have to get the judges to up hold the law, especially contract law and not skirt the issues by making convoluted rulings like it is voidable but not void.

  10. OK the other shoe just dropped:

    On top of the mysterious discovery by IMF of about $500 Billion on top of the 300 they had—to bail out italy for a while—now newsprograms are announcing that FED RESERVE is “expected” to inject guess what about $545 billion by buying something. Curiouser and curiouser. So despite the near equivalent amounts revealed within hours of each other in advance of the 5-Euro nation bond auction this week —theres absolutely no possible connection between the US printing dollars overtime and the Italian bailout. Then there is the Belgium bailout then Greece again gets its 75% modification—then Ireland wants its fai treatment as long as Santa is drunk and dropping bales of cash from his overloaded sleigh as it passes over Portugal on its way to Hungary, Poland and Checkland. If only the great thinkers had earlier thought of using bales of dollars to build firewalls?? I guess the skeptics would observe that the problem with firewalls made of paper is that they are inclined to burn..

    And Enraged Im guessing your XMAS turkey’s price just went up to another record. Oh no everything is peachy keen–no global impact from global financial scheming—-and guess what there is REALLY a Santa Claus and this year if you were a good little boy –you get a brand new mega-yacht moored in Italy along with an island in the aegean. If you are naughty and missed 2 loan payments —your family is thrown in the street and better move fast or be run over by that fast moving bus on its way to the big casino on Wall street. And santa claus’ name is Tim Geithner—the real president—not that other clown that gets his picture taken while he reads the speaches hes told to deliver. no problem here–none at all.

    Merry XMAS

  11. @enraged
    You underestimate the depth of interdependence. It doesnt matter an iota the size of the population——-Iceland had 1000 times GDP in bank loans that went under——–still small in scheme of things but rocked them ——–

    Italy is a $3 trillion black-hole–and guess what–im seeing across the screen that US-backed IMF is going to bail out Italy. So while the Germans will not turn on the EUro printing presses—thankfully for the ultra wealthy yacht owners of Italy, you Enraged get to pay for it. Thats a win win right–italy’s rich win–Us banks get one more years’ bonus —-and the us consumer gets to pay a few more % for gasoline–food etc——everybody that is of imporatance wins. Yes for sure you are right and I have no idea what im talking about.

  12. @DCB,

    I don’t agree with your take. We represent less than 5% of the entire world population. Europe represents a little over 10%. I think it’s extremely arrogant to think that bankers and the elite (1% of 1.2 billions people) have destroyed the world and anhilated freedom. The western world? Not even. They gave it their best shot but the mere fact that people fight and more and more judges listen tells me that they haven’t won here. Let alone worldwide.

    I am much more concerned about Obama’s decision to set up camp in Australia and the tone he’s recently adopted toward China than I am about bankers. It’s true that people don’t “get it” but not for the reasons you outlined.


    This is good ole common sense!

  14. One by one, MERS members will be forced to fold. Remember? MERS can only exist so long as it has members…

    The clean-up continues. Slow but real…

  15. I dont think the readers here “get it” ———“the people” are already broken. The bankers make the rules. The bankers decide who has volated the rules they made. The bankers mete out punishment as the see fit. The article is absolutely correct that the banks are too big to regulate. They have consumed the US govt, most Euro-govts—and are getting ready to eat the last holdouts –the Germans. Then there will be true Western World unified govt—–maybe the Chinese will still be free so to speak?

    This is the only way that one can reconcile all that has happened.

  16. @Shelley,

    I don’t agree with spreading unnecessary fear and paranoia. Please put things into perspective.

    1) Bankers and republicans have systematically ruined every state by taking away most of the money and “investing” it in losing and frudulent propositions.
    2) As a result, most courts have absolutely no money to prosecute anyone. As an example, judges in my state sit on cases in which “debtors” fight for a very, very long time. The immediate order of business is: criminal cases and one-shot hearings where people don’t appear and lose by default. That is true for any debt, be it a JDB or mortgage servicer.
    3) There are not enough cops and law enforcement agencies to catch and arrest all of us. Not enough prisons to jail us. Further, most of them know personally someone who was foreclosed on and suffered a great deal. They will NOT comply even if congress were to pass that bill (which will be vetoed, I am sure), it will be uninforceable for lack of jails, lack of law enforcement and lack of court staff.
    4) Congress doesn’t know any longer its collective ass from its collective elbow. That would be the surest and quickest way to start violence in this country. I believe Biden and Obama are aware of it and are intent on avoiding it.
    5) Hence 3) above: such a stupid move will be vetoed.

    So let’s stop spreading nonsense and let’s focus on the success stories. People are depressed enough as it is. No need to add to it.

  17. THE RETURN OF DEBTORS PRISONS: Collection Agencies Now Want Deadbeats Arrested (VIDEO)
    by Foreclosure Fraud

  18. SE:Close
    [New post] ACLU | Senators Demand the Military Lock Up American Citizens in a “Battlefield” They Define as Being Right Outside Your Window

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  19. while we are celebrating the holidays the senate is trying to pass bills to put us in jail, for being debtors, caused by the banksters, and for assembling in peace. Write your senators, and all politicians. This is unconstitutional law. And outrageous.

  20. Does anyone happen to know the name and address of Obama’s favorite golf course?

  21. Listen to Mandelman’s interview of Atty Matt Weidner.

    I have said and repeated over and over that WE ALREADY PAID FORWARD the day of the bailouts with our money. Our government is the largest homeowner of the world and shows no leadership whatsoever on resolving this problem they caused!!!

    Sue your servicers in federal court. Demand attorney fees in your damages.

    SUE, SUE, SUE!!!!!!!!!!!!!!

  22. Nothing prevents anyone from sending this column to Obama. Regardless whether he gets re-elected or not, we must act and act now. Send this to your senator, your state rep, your president and demand action

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