Intro: "As the Supreme Court shows every sign of throwing out 'Obamacare' and leaving 30 million Americans without health insurance, another drama is being played out in the quiet corridors of the Federal Reserve system that may affect even more of us."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Break Up the Big Banks, Says the Dallas Fed
30 March 12
s the Supreme Court shows every sign of throwing out "Obamacare" and leaving 30 million Americans without health insurance, another drama is being played out in the quiet corridors of the Federal Reserve system that may affect even more of us.
Taxpayers will be on the hook for another giant Wall Street bailout, and the economy won't be mended, unless the nation's biggest banks are broken up.
That's not just me talking, or the Occupier movement, or that wayward executive who resigned from Goldman Sachs a few weeks ago. It's the conclusion of the Dallas Federal Reserve, one of the most conservative of the Fed's regional banks.
The lead essay in its just released annual report says a cartel of giant banks continues to hobble the recovery and poses an ongoing danger to the economy.
Wall Street's increasing power remains "difficult to control because they have the lawyers and the money to resist the pressures of federal regulation." The Dodd-Frank act that was supposed to control Wall Street "leaves TBTF [too big to fail] entrenched."
The Dallas Fed goes on to argue that the Fed's easy money policy can't be much help to the U.S. economy as long as Wall Street is "still clogged with toxic assets accumulated in the boom years."
So what's the answer, according to the Dallas Fed? It's "breaking up the nation's biggest banks into smaller units."
Thud. That's the sound the report hitting the desks of Wall Street executives. They and their Washington lobbyists are doing what they can to make sure this report is discredited and buried.
When I spoke with one of the Street's major defenders in the Capitol this morning he snorted "Dallas represents small regional banks that are jealous of Wall Street." When I reminded him the Dallas Fed was about the most conservative of the regional banks and knew first-hand about the dangers of under-regulated banks - the Savings and Loan crisis ripped through Texas like nowhere else - he said "Dallas doesn't know its [backside] from a prairie gopher hole."
So as Republicans make the repeal of "Obamacare" their primary objective (and Alito, Scalia, Thomas, Roberts, and perhaps Kennedy sharpen their knives) another drama is taking place at the Fed. The question is whether Bernanke and company in Washington will heed the warnings coming from its Dallas branch, and amplify the message.
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
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Comments
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Regarding The Supreme Court.......who says they're supreme, they look like a group of nine bright legal minds swayed by their own personal political agendas...guess I'm just a sorehead because I'm on the side of the four losers.
Your convoluted laissez faire assertions are not the friggin point. Who says that people with a public option won't take responsibility for their actions? An obvious part of this is people getting periodic checkups to monitor their health. And it simply isn't a matter of people paying for insurance. It's that insurance costs have spiraled out of control, thus millions who can't afford it in the first place. The current healthcare system is not only profit-driven rather than people-driven, it provides "choices" that come down to being similar if not the same. And it's a pain in the ass to go through these options that are written with the rosey, corporate jargon, and where services are still dominated with capitalist tinkering. And potentially, one is paying more and more for less and less or are denied coverage on corporate technicalities. And there isn't some private dependency going on where some are paying for others' care. A public option is a mater of everyone contributing to it in taxes, although, yes, the 1% would pay more because they can afford it. They're not going to go bankrupt and will still live comfortably.
Bright?
Just what I was going to say!
All this was forced down our throats for the benefit of the 1%. Apparently they won't be satisfied until they render the rest of us serfs right out of medieval times. Sick, sick, sick!
It is as if they have high-jacked our democracy at gunpoint--"they " being the NRA in legislative conspiracy with ALEC!
I wouldn't expect much from Bernanke based on his past record.
As for the "supreme" court (lawyers with robes); well I said my piece on other posts and don't want to harp on and be repetitive.
Corruption rules as never before.
Thanks Reagan and Bush for five of the dregs of the legal profession rising to the top like curdled cream.
heh-heh! I was trying to be "polite" for a change!
(The Fed only accounts for about 10% of money creation and this is not by accident.)
Then much of our problems come from the banks lending the pricipal but not the money that needs to be paid as interests, leading to mandated growth - whatever we had one year we need 2% more the next, whatever the cost in health, wars, inflammable water faucets etc.
And, Majorities of both The Senate and The House are entrenched with Banksta Buddies. The Supreme Court is Loaded with More Buddies.
Got the Picture?
What it all means to my way of thinking is that once again we have to reevaluate our banking system. It seems to occur periodically throughout US history.
All hail the Dallas Reserve. Years ago, asking the CIA to investigate JFK's assassination was like asking Al Capone to investigate Prohibition. Today, asking mafia mega-Banks to CORRECT the ongoing Great Recession & fragile banking system is about as smart. They take trillions in near 0% govt & Fed loans & use it to do everything but end the recession. We didn't GIVE Capone trillion$ to end his crime spree, why do we do it for Wall St.? Because Al Capone didn't own the Prez then?
What's the answer? Perhaps a third way which borrows the best ideas from either side: A tightly regulated form of capitalism with strict and transparent supervision, which allows individuals to do business and acquire fortunes but nationalizes certain key industries.
I'd like to see banking, insurance, health care and pharmaceuticals become government-run operations made free of profit to provide good service to the public.
I am still amazed at that the two are opposed - a country could be both capitalistic and communist.
China, Vietnam...
So breaking them up is absolutely necessary, but we have to ensure that they STAY broken up. BoA used to be just a local bank in NC, but by acquiring a bunch of local banks and paying off a bunch of lobbyists, they became the nightmare they are now. That growth has to be prevented.
I don't consider monopolies a "good idea" just that "breaking them up" is probably a waste of energy. It may be a better tactic to just say that when they become too large a monopoly they stand to be nationalized.
As a function of government, all their executives and employees have to work at civil service pay scales. Executive bonuses, aka a share in the profits, would go the government as corporate taxation.
This could generate massive funds to spend on infrastructure, on expanded Medicare, on early childhood educational facilities [for all pre-schoolers of working mothers] in addition to free public education from pre-K through college. Things that would benefit all the people. Build in an oversight function for privatized corporate prisons, for example, paid for out of their profits just like food inspectors of the USDA.
The idea is this: If you can't effectively beat them into competing with one another compromise them with creative incentives for doing good work for the country as a whole, voluntarily, or be nationalized.
I can see nationalized health insurance, banks, telecommunicati ons, and oil and gas (which are after all natural resources).
I'm tired of industries that are larger than the government. Government isn't too big. It is simply neglecting to think big enough.
I left the party after 5 generations, founders to mid 90s, about the time Elizabeth Warren did because a fund raiser told s we had to fight dirtier than Democrats. Now I'd say my old party puts at least 6 to 12 times the effort into fighting dirty, something I won't do.
The past is filled with the histories of complex civilizations that collapsed because they overextended themselves and didn't know how to downsize in time. Wall Street is on this course of self-destructio n.
Sustainable Systems are "self-regulatin g systems, i.e. that are self-correcting through feedback" (Wikipedia--Sys tems Theory)--when Wall Street passes the risks on to the backs of others they lose the feedback system that tells them of their limits.
The Wikipedia entry under Sustainability shows a diagram-- "indicating the relationship between the three pillars of sustainability- -the economy, society and the environment--su ggesting that both economy and society are constrained by environmental limits."
You cheat on your taxes in Oregon?
That's one.
You pollute a river in Ohio?
That's two.
You violate OSHA rules in Hawaii?
Your business is taken over by the government, wiping the shareholders clean.
It may sound harsh; it is, but no mare than capital punishment for walkign while black like Trayvon)
How would big companies protect against that?
One single possibility: break up the big companies into smaller entities that are isolated from the others' mistakes.
Multiple advantages for the public:
- Smaller entities competing for the business; that sounds more like the free market the republicans profess to support while helping the oligopolies (see below).
- Smaller entities have less clout to influence elections and we may be able to get a democracy where the deimos has more say in the cratein.
Free market?
We know since David Ricardo (early XIXth) that to obtain that, workers should be able to change country at will, no actor shall be big enough to influence the price of the product and there shall be no trade secret (read intellectual property).
Free market? My [backside]!
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