The Economy Cannot Recover Until the Big Banks Are Broken Up

[Joanne98]

→ Washington’s Blog

A lot of people still haven't heard that the economy cannot recover until the big banks are broken up.

But as everyone from Paul Krugman to Simon Johnson has noted, the banks are so big and politically powerful that they have bought the politicians and captured the regulators.

In addition, as Fortune pointed out last February that the only reason that smaller banks haven't been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation's smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under...

As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

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Read more at: http://www.huffingtonpost.com/2009/05/11/justice-department-plans-_n_201409.htmlSo the very size of the giants squashes competition.

Small banks have been lending much more than the big boys. And the giant banks which received taxpayer bailouts actually slashed lending more, gave higher bonuses, and reduced costs less than banks which didn't get bailed out.

JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country's derivatives risk, and 96% of the exposure to credit derivatives. Experts say that derivatives will never be reined in until the mega-banks are broken up.

As I pointed out in December 2008:

http://www.zerohedge.com/article/economy-cannot-recover-until-big-banks-are-broken

[no_hypocrisy]

1. And reinstate Glass-Steagall to separate investment banks from commercial banks.

[still_one]

2. Elizabeth Warren has said as much. If it didn't happen when Democrats had the majority it sure

won't happen now

[yurbud]

3. corporate Dems must have been in panic when they have both chambers and 60 votes in Senate

they had no excuse for siding with the GOP, which they were going to do in any case.

[Hawkowl]

4. This is essential!

Not only will our economy not recover, our democracy won't recover. Concentrate all the money in the hands of a few and we have a defacto plutocracy by the criminally wealthy.

[bhikkhu]

5. Its worth reading what was done in the 2010 reform bill

http://www.savingtoinvest.com/2010/06/financial-reform-approved-what-it-means-to-your-financial-future-free-credit-score-bank-stocks-and-consumer-protection-measures.html

Above is a brief summary. I agree that smaller and more local or regional banks would provide much better service than the giants we have now. Notably, however, some of the biggest problems left are with Fannie Mae and Freddie Mac, which were pretty much left out of the reform bill as too sticky to address immediately.

Still plenty of reform left to do, but the type of deal that seems to come out of congress lately isn't encouraging. When the government side of things is crippled-up with divisions and cross-purposes, the corporate side tends toward opportunistic profit-hungry giants.

[GeorgeGist]

6. The World cannot recover until the big countries ...

are broken up.