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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)
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)

Break Up the Big Banks, Says the Dallas Fed

By Robert Reich, Robert Reich's Blog

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 and iTunes. your social media marketing partner


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+59 # Gootarama 2012-03-30 09:53
It's not a question "if" there's going to be another financial market crash, it's a question of "when" and how cataclysmic. The banks are even larger than they were prior to the crash. Break them up like AT&T!!!!
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.
-96 # Robt Eagle 2012-03-30 10:52
Goot, ObamaCare is what lost, not the Supreme Court members. By the way Elena kagan should have recused herself as she was Obama's solicitor general for this crap piece of legislation, the like of Pelosi and Reid slithered through. Oh, I could go on, but what's the use...most on this site only want more and more for paying less and less or mostly nothing at all. How is it no one wants to take individual responsibility for their actions or inactions. Good health is a matter of doing the right things, and IF you get sick, then there is insurance that you pay for. Don't depend on others to provide the funding for other's lousy decisions.
+50 # Billsy 2012-03-30 12:21
And if no one will insure you? Happened to me because of a prior illness although i was currently in good health. Could happen to you as well but that was perhaps the sole advantage of the ACA. I agree it was dog legislation, thanks to corporate lobbyists and chair MAx Baucus as well as Reid's laissez faire approach to drafting the legislation. But the whole point is that EVERYONE would pay for it. No the best approach now is single payer, funded by all tax us tax payers and run by medical professionals.
+21 # Ilovethiscountry 2012-03-30 15:12
Really, then why isn't Scalia even reading the Affordable Health Care Act so he can understand it like any other Judge who needs to base his or hers opinion on facts not their political view?
+23 # David Starr 2012-03-30 15:19
From Robt Eagle: "How is it no one wants to take individual responsibility for their actions or inactions. Good health is a matter of doing the right things, and IF you get sick, then there is insurance that you pay for. Don't depend on others to provide the funding for other's lousy decisions."

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.
+27 # Gootarama 2012-03-30 20:04
Robert, FYI if Kagan were to recuse herself, how about Thomas doing the same thing since his wife is a paid (handsomly) lobbyist for the insurance industry. After the Gore vs Bush and Citizens United decisions this conservative court is probably going to dismantle the Affordable Care Act. If Kennedy or Roberts sees the light it could go 5 to 4 the other way. To quote Yogi, "It ain't over till it's over"...Even if ACA is rejected there will be a movement to a public option if not a single payer....Unfort unately, the USA is severely behind all other Western Nations when it comes to HealthCare.
+29 # BradFromSalem 2012-03-30 11:10
Quoting Gootarama:
a group of nine bright legal minds

+17 # reiverpacific 2012-03-30 12:31
Quoting LiberalLibertarian:
Quoting Gootarama:
a group of nine bright legal minds


Just what I was going to say!
+12 # BradFromSalem 2012-03-30 13:20
great minds?
+21 # balconesfalk 2012-03-30 11:11
How much political reassurance do they need--being appointed for life? It wouldn't be so egregiously unjust if the president who appointed them had won fair and square--without devious lengths including voter suppression and downright illegal hacking of the polling place results in key states to appoint these justices who then decided an election in his favor!
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!
-7 # balconesfalk 2012-03-30 10:31
Yeah, sure, break up the Big Four banks, as if they were in competition with one another. That reminds me of when they "broke up" Ma Bell--now we have dozens of cell phone companies and what amounts to price fixing. It is as if they want every man, woman and child paying them $50 a month, or more, in perpetuity.
+42 # reiverpacific 2012-03-30 10:42
Thank goodness that Dr. Reich is on top of this and able to pass it on to we on the street -survival level.
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.
+20 # Texas Aggie 2012-03-30 13:07
I don't think you meant "curdled cream." I think the word you were looking for was "pus."
+6 # reiverpacific 2012-03-30 13:48
Quoting Texas Aggie:
I don't think you meant "curdled cream." I think the word you were looking for was "pus."

heh-heh! I was trying to be "polite" for a change!
+27 # MainStreetMentor 2012-03-30 10:51
"Break up the banks" as suggested in the report - or - dissolve the "central" bank philosophy and go to individual state banks. JP Morgan Chase, BofA, Wells Fargo and Citigroup MUST be controlled and very, very strict regulations put in place in the meantime.
+10 # Granny Weatherwax 2012-03-30 16:08
Unfortunately 1500 chaarcters is waaaaay too short to develop here, but the real problem at the basis sis that fractional reserve banking allows banks to extend credit based on what they can claim as reserves, essentially getting paid interests on money they created in their own private pockets.
(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.
+15 # James Marcus 2012-03-30 10:51
Break The Federal Reserve, itself! The Large Banks, are their Minions.
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?
+14 # BradFromSalem 2012-03-30 11:25
Other way around. The Fed is controlled by the Big Banks. Which of course means they are in violation of the anti-trust laws. Even worse, the formation of the Fed itself may be in violation. (Does anyone know if that has gone before the Supremes?)

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.
+12 # dick 2012-03-30 11:10
AT LONG LAST, a "conservative" idea in the national dialogue: Businesses are supposed to COMPETE, even if they prefer monopoly, or oligopoly (shared monopoly, ex., oiligopoly).
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?
+17 # Citizen Mike 2012-03-30 12:28
A few decades back communism collapsed and now capitalism is destroying itself, too, torn apare by its own internal contradictions and the uncontrolled greed of the business community. Both economic systems began with idealistic principles but corrupted themselves through human weakness.

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.
+4 # Granny Weatherwax 2012-03-30 16:09
Let's just remember that communism is a political organization while capitalism is an economic one.
I am still amazed at that the two are opposed - a country could be both capitalistic and communist.
China, Vietnam...
+4 # amye 2012-03-30 12:30
Oh my! Could the Wall Street criminal defender get any more rude! Does no one but me remember when we broke up the telecom industry?? Yeah, Ma Bell, etc. The government did a grand job too! Why can't we do that again with these banksters??
+10 # Texas Aggie 2012-03-30 13:13
Breaking up the monopolies was obviously a good idea despite what one of the people posting seems to think. Ma Bell and ESSO were broken up and for a while, the country profited. Then they began to rebuild their monopolies and we are no longer in such a good position.

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.
+3 # balconesfalk 2012-04-01 01:29
"...Breaking up the monopolies was obviously a good idea despite what one of the people posting seems to think..."

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.
+6 # grouchy 2012-03-30 13:01
But the banks and corporations already own us! Besides, messing with them would mess up their profits.
+1 # jimyoung 2012-04-02 08:01
You're making me think the Banksters got the "Knew" deal (knew which politicians, opposition researcher/prop agandists, primary election provocateurs, and legislative exchange councils to get the best ROI from. We're getting the "RAW" deal (Republicans Always Win in rigged/fixed legislative, judicial, and executive shenanigans at every level possible).

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.
+6 # worldviewer 2012-03-30 14:21
CEOs of Wall Street and Banks claim a right to millions because they are "taking the risks." They aren't. With the FDIC and bailouts taxpayers pay.

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."
+4 # Ilovethiscountry 2012-03-30 15:09
I have been saying this for along time, not only the banks should be broken up, but the oil and health care companies also should go up. When Reagan and Clinton were Presidents, their was 15 or 20 oil companies. Chase was a big bank but not like today. Exxon and Mobil were 2 companies. I find it strange that while all these to big to fail companies weren't as big, the economy was good and jobs were plentiful, and Corporate America was doing fine. Now Corporate America is doing fine, but the economy isn't as great and Bohnier WHERE ARE THE JOBS?
+7 # Granny Weatherwax 2012-03-30 15:55
Diane Feinstein was right ten years ago when she pushed for the California "Three strikes you're out" law to be extended to businesses.

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]!
+5 # lcarrier 2012-03-30 21:32
Greedy banksters. In a just world they would be taken out and shot. In our world they get to spend a glorious holiday in Nice.
+1 # Vardoz 2012-04-02 11:39
Our nation could not endure another bailout. They have already cut services to the bone. It would devistate our economy. The reason we had regulations which Bush destroyed was preciesly for this reason. And believe me they would not make the richest corporations and people pay more and they know it.

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