Friday, September 11, 2009

"Too Big To Fail" and D.C.-Think

Interesting article from Bloomberg. Is "Too Big to Fail" an allegory for "Washington, D.C."?

Less than 24 hours after his swearing-in ceremony, U.S. Treasury Secretary Timothy F. Geithner surprised Camden R. Fine with an invitation to a one- on-one meeting about the financial crisis.

“I about fell out of my chair,” said Fine, president of the
Independent Community Bankers of America, a Washington-based trade group with about 5,000 members. He was in a corner office overlooking the White House at the Treasury Department the next morning, telling Geithner that behemoths such as Citigroup Inc. and Bank of America Corp. were a menace, he said.

They should be broken up and sold off,” Fine, 58, said he declared, as Geithner scribbled notes before thanking him for his time and ushering him out into the January chill.

The Treasury secretary didn’t follow through on Fine’s suggestion, just as he didn’t act on the advice of former Federal Reserve Chairman
Paul A. Volcker, or Federal Deposit Insurance Corp. head Sheila C. Bair, or the dozens of economists and politicians who pressed the White House for measures that would limit the size or activities of U.S. banks.

The two red-highlighted phrases are significant. There is a VERY big difference between them; the first implies that size alone is not necessarily a problem, while the second is "D.C.-Think" pure, implying that regulation is paramount.

There IS an argument for re-instating Glass-Steagall, which prohibits commercial banks from involvement in the investment-bank business, and that may be what "or activities" refers to. Ticker makes that argument almost daily.

...President Barack Obama decided on a policy of containment rather than a structural transformation.

proposal for revamping the way the U.S. monitors and controls banks doesn’t include taking apart institutions, supported by taxpayer loans, that have grown in scope and size since Lehman imploded.

Did I say "D.C.-Think"?

...the Obama plan would label Bank of America, New York-based Citigroup and others as “systemically important.” It would subject them to capital and liquidity requirements and stricter oversight, relying on the same regulators who didn’t understand the consequences of a Lehman failure. And while companies could be dismantled if they got into trouble, they, their creditors and shareholders could also be bailed out with taxpayer money, according to the plan.

IOW, Citibank, a Zombie Colossus, might have to divest some of its business units, but not to worry: if things get nasty, taxpayers will bail them out.


The president’s fix is to empower the Fed to put the brakes on banks, hedge funds, insurers or other financial firms whose crash could have a crippling domino effect. About 25 companies may qualify based on their assets and on factors such as funding relationships, Fed Chairman Ben S. Bernanke told the House Financial Services Committee on July 24.

For all of you who think that Corporate Fascism (or maybe Corporate Fascist Socialism) is the tune to which Obama dances, that graf should be the clincher.

By the way, there is an allegory here. "D.C.-Think" is premised on the concept that the U S Government is 'too big to fail;' it assumes that D.C. is the end-all and be-all, and that the Feds, too, cannot be allowed to fail, no matter the cost.

Kinda makes the 10th Amendment look even more attractive.

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