It was never an expression that had any legitimacy. It was just a nice little way for the media to classify the banking industry in a ready-made slogan.
Guess what? Too Big To Fail isn’t a joke anymore. It’s actual policy towards our nation’s biggest financial institutions.
It was a nice early birthday present when I got home yesterday and read the report, written by the head of the Dallas Fed’s research department. Harvey Rosenblum.
When Greg Smith published his critique of Goldman Sachs, the aftershocks rang through the halls of every office on Wall Street.
After reading Rosenblum’s report, which was subtitled “Why We Must End Too Big To Fail — Now”, I can only imagine what will happen now.
It’s about time that someone on the government side validated the anger and anxiety shared by the Occupy and Tea Party movements. Right there in an official Fed paper!!
So what did I find so appealing about his critique? He spells it out, clear as day, what Too Big To Fail really is, and what’s it’s led to.
What It Is: In 1970 the top 5 banks possessed 17% of the nation’s banking assets. In 2010? 52 percent.
What It’s Led To: “An erosion of faith in American Capitalism”, as well as our faith in government, big banks and the Federal Reserve.
Capitalism has been warped into something that is anything but, where there are two sets of rules, one for you and I, and another for the TBTF banks.
As Rosenblum says, capitalism ‘requires the freedom succeed and the freedom to fail’.
By playing ball with the TBTF banks, the government went against everything capitalism is supposed to be!
The bailouts completely eroded the system that I once respected. Just as I said last year, it was “Privatizing gains, socializing losses, all in an effort to stimulate the economy”. And it got us absolutely nowhere. And now the Fed knows it. Too bad they didn’t listen to me back then!
The Emperor is walking down the street, and he has no clothes. He is stark naked. And everyone is looking at him.
There has been so much talk about the risk of ‘moral hazard’ if homeowners get assistance, but Rosenblum rightly points if you want to see the effects of moral hazard, look no further than the TBTF banks.
The 2008 bailouts didn’t revitalize the economy, all they did was take away the bank’s incentive to clean up their act. They got complacent, and no one, not the banks, not the government was willing to admit it.
No one asked tough questions, they just took their easy money and kept on going. Like the penguins in the Madagascar movie, all they did was smile and wave boys, smile and wave.
But Rosenblum realizes what I’ve been saying for years, that it is absolutely the role of government to break up businesses when they get too big and too powerful.
We did it with Ma Bell, we did it with oil companies and with big steel, now it’s time to do it to the banks
For the government to continue to support these TBTF banks would turn what was a tsunami into an all-time catastrophe.