'Too Big To Fail' Banks: Bigger, Badder... and Here To Stay

[xchrom]

http://www.commondreams.org/news/2014/08/06/too-big-fail-banks-bigger-badder-and-here-stay


A hand painted sign on the pavement at Zuccotti Park in 2011 reads: "No such thing as too big to fail." (Photo: Stan Alcorn/Marketplace)

Nearly six years after the financial crisis of 2008 that helped spur a global economic meltdown, federal regulators in the U.S. on Tuesday declared that much-touted reforms designed to curb the threat of so-called 'Too Big To Fail' banks have done not nearly enough to end the prospect that taxpayers will be left holding the bag when the next bubble bursts or a new wave of Wall Street disasters strikes.

Presented in a joint review by the Governors of the Federal Reserve System and the Board of Directors of the Federal Deposit Insurance Corporation (FDIC), the two financial regulatory bodies say that resolution plans (so-called "living wills&quot submitted by eleven large banks—which included Wall Street titans Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp., and UBS—shared common flaws that make the institutions a continued threat to the overall economy.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, included provisions meant to avoid a repeat of what happened in 2008, when a collapse of the mortgage market sent a shockwave through the financial services industry and U.S. tax dollars were used to backstop the nation's largest banks from defaults that Wall Street claimed would cause even more severe damage to the economy. Portions of Dodd-Frank compelled these large institutions to create 'resolution plans' so that in the event of a similar crisis, the banks would be dismantled in a more orderly fashion and large-scale government intervention would not be necessary—nor in theory, allowed.

The problem, according to the Fed and the FDIC, is that the plans put together by the big banks simply won't work.

"Each plan being [put forth] is deficient and fails to convincingly demonstrate how, in failure, any one of these firms could overcome obstacles to entering bankruptcy without precipitating a financial crisis," said FDIC vice chairman Thomas Hoenig in a statement. "Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support."

[Laelth]

1. k&r for exposure. n/t

-Laelth

[sakabatou]

2. Very little if any prosecution came about because of the meltdown

[abelenkpe]

3. Not to late to nationalize the banks

Clearly would be in the best interests of the country since we'd all like to avoid another bailout.

[hughee99]

5. If we nationalize the banks, their losses become OUR losses, don't they? n/t

[abelenkpe]

6. You mean like last time?

Because taxpayers bailed out the banks and then paid again by losing jobs, homes, being denied loans, etc. Forcing cuts to social programs and bringing about austerity measures that punished the weakest among us. All while bankers were rewarded with bonuses and the opportunity to buy up assets at super low interest rates.

Here, this might help:

http://www.dailykos.com/story/2009/02/09/695269/-Krugman-Stiglitz-Roubini-Taleb-Baker-Agree-Nationalize#

There are several other articles if you google nationalize the banks that do a much better job of explaining things than I could or would.

[hughee99]

7. If I understand correctly, the banks still hold massive liabilities.

We didn't bail them out of all their debt, we just kept them afloat while their cash flow was down and supposedly, they paid that all back (yeah, I don't buy that either). If we nationalize them, we'll own ALL their risk, and you can certainly expect to see layoffs since you'll have a massive duplication of jobs.

I'm not a fan of the banks, in fact, I think they are an even bigger mess than we know, and I don't want to make ALL of their problems "our" problems.

[abelenkpe]

8. I understand your concern

Wouldn't want that either. Truly though this is over my head. I'm an artist. I do have great respect for Stiglitz and Dean though. Perhaps this question should be directed to them since they were advocating it back in 2009. It is a good question.

If there is another crash we'll probably all feel it anyway, with the average person suffering far more than those at the top because it's always been that way. (Secretly hoping the universe proves me wrong on that.)

[Initech]

4. Too big to fail - until we start breaking out the pitchforks and torches.