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    Time To End Too Big To Fail! Time To End The Fed As Well!

    By ironboltbruce on Thu, 03/22/2012 - 2:47pm |

    Time To End Too Big To Fail! Time To End The Fed As Well!

    Even the Fed is admitting that Dodd-Frank perpetuates rather than regulates the "Too Big To Fail" banking corporations that continue to rape and plunder America and the global economy.

    FEDERAL RESERVE BANK OF DALLAS ADVISES WE MUST END TOO BIG TO FAIL - NOW!

    The following is a letter from Richard W. Fisher, President and CEO of the Federal Reserve Bank of Dallas:

    If you are running one of the "too-big-to-fail" (TBTF) banks - alternatively known as "systemically important financial institutions," or SIFIs - I doubt you are going to like what you read in this annual report essay written by Harvey Rosenblum, the head of the Dallas Fed's Research Department, a highly regarded Federal Reserve veteran of 40 years and the former president of the National Association for Business Economics.

    Memory fades with the passage of time.  Yet it is important to recall that it was in recognition of the precarious position in which the TBTF banks and SIFIs placed our economy in 2008 that the U.S. Congress passed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) [Public Law 111-203].  While the act established a number of new macroprudential features to help promote financial stability, its overarching purpose, as stated unambiguously in its preamble, is ending TBTF.

    However, Dodd–Frank does not eradicate TBTF.  Indeed, it is our view at the Dallas Fed that it may actually perpetuate an already dangerous trend of increasing banking industry concentration.  More than half of banking industry assets are on the books of just five institutions.  The top 10 banks now account for 61 percent of commercial banking assets, substantially more than the 26 percent of only 20 years ago; their combined assets equate to half of our nation's GDP.  Further, as Rosenblum argues in his essay, there are signs that Dodd–Frank's complexity and opaqueness may even be working against the economic recovery.

    In addition to remaining a lingering threat to financial stability, these megabanks significantly hamper the Federal Reserve's ability to properly conduct monetary policy.  They were a primary culprit in magnifying the financial crisis, and their presence continues to play an important role in prolonging our economic malaise.

    There are good reasons why this recovery has remained frustratingly slow compared with periods following previous recessions, and I believe it has very little to do with the Federal Reserve.  Since the onset of the Great Recession, we have undertaken a number of initiatives - some orthodox, some not—to revive and kick-start the economy.  As I like to say, we’ve filled the tank with plenty of cheap, high-octane gasoline.  But as any mechanic can tell you, it takes more than just gas to propel a car.

    The lackluster nature of the recovery is certainly the byproduct of the debt-infused boom that preceded the Great Recession, as is the excessive uncertainty surrounding the actions - or rather, inactions - of our fiscal authorities in Washington.  But to borrow an analogy Rosenblum crafted, if there is sludge on the crankshaft - in the form of losses and bad loans on the balance sheets of the TBTF banks- then the bank-capital linkage that greases the engine of monetary policy does not function properly to drive the real economy.  No amount of liquidity provided by the Federal Reserve can change this.

    Perhaps the most damaging effect of propagating TBTF is the erosion of faith in American capitalism.  Diverse groups ranging from the Occupy Wall Street movement to the Tea Party argue that government-assisted bailouts of reckless financial institutions are sociologically and politically offensive.  From an economic perspective, these bailouts are certainly harmful to the efficient workings of the market.

    I encourage you to read the following essay.  The TBTF institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism.  It is imperative that we end TBTF.  In my view, downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Only then can the process of "creative destruction" - which America has perfected and practiced with such effectiveness that it led our country to unprecedented economic achievemen - work its wonders in the financial sector, just as it does elsewhere in our economy.  Only then will we have a financial system fit and proper for serving as the lubricant for an economy as dynamic as that of the United States.

    Source of this letter:

    http://dallasfed.org/assets/documents/fed/annual/2011/ar11a.pdf

    The entire essay, "Choosing the Road to Prosperity: Why We Must End Too Big to Fail Now", by Harvey Rosenblum:

    http://dallasfed.org/assets/documents/fed/annual/2011/ar11b.pdf

    Public Law 111-203:

    http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/content-detail.html

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    TIME TO END TOO BIG TO FAIL! TIME TO END THE FED AS WELL!

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    Tag: #cronycapitalism, #kleptocracy, #economy, #fed, #federalreserve, #banks, #banking, #tbtf, #sifi, #doddfrank, #fascism, #occupy, #ows, #vvvpr

    Key: crony capitalism, kleptocracy, economy, fed, federal reserve, banks, banking, too big to fail, tbtf, systemically important financial institutions, sifi, dodd-frank, christopher dodd, barney frank, corporate fascism, occupy wall street, ows, vvv pr

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    Comments

    I agree with the Federal Reserve Bank of Dallas, on this but you shouldn't equate a regional Fed with "The Fed."

    I know, I know, a minor point.  But then I see that you want to end the Fed entirely.  While I certainly think that the Fed should be more transparent and more accountable, I wonder how we would maintain bank stability, with a fiat currency, without any sort of central bank.  Because if we kept the dollar the way it was and just removed the Fed from the equation, then all credit creation would rest solely

    Care to elaborate?


    by Michael Maiello on Thu, 03/22/2012 - 3:50pm

    1.  To suggest that the Federal Reserve Bank of Dallas is not part of the Federal Reserve System, a.k.a. "the Fed", is like saying "this" General speaks for the Pentagon but "that" General doesn't.  Classic Faux News / CNN / MSNBC opportunistic Orwell-Speak.

    2.  "Care to elaborate?"  I already have.  Google "Who Actually Owns the Fed and Why That Must End".


    by ironboltbruce on Thu, 03/22/2012 - 5:24pm

    No, to equate the Dallas Fed with the U.S. Federal Reserve is the same thing as saying that, if the Governor of Alabama says we should bomb Iran, it's a declaration of war.

    The regional Feds are not "the Fed."

    As to your other point... I know who "owns" the Fed and what its charter is.  What I want to know from you is what kind of monetary system, aside from a rigid gold or asset backed standard, could possible function in the absence of a central bank?

    That's so cool that you compare me to Orwell, who was an excellent writer.


    by Michael Maiello on Thu, 03/22/2012 - 5:28pm

    Destor23:

    1. If you think "is part of" and "equate" mean the same thing, then you must have had a tough time in 5th grade Geometry. 

    2. If you actually "know" who owns the Fed with more precision than the source I referenced, I doubt you'd be spending time posting comments to a blog like this.

    3. I have never posted my opinion of Orwell as a writer anywhere, so by definition I have never "compared" Orwell to any other serious writer.  Nor did I compare Orwell to you.


    by ironboltbruce on Thu, 03/22/2012 - 5:40pm

    1. Uh... Reread the first few lines of your own post and then get back to me.

    2. It's public information. And "blog like this?"  "Blog like this?"  To quote the great Han Solo, "Who's scruffy lookin'?"

    3. I was purposefully twisting your words about Orwell in the service of a joke.  Not quite Orwellian, but Hitchens might have laughed on a slow day.


    by Michael Maiello on Thu, 03/22/2012 - 5:56pm

    There is no reason that the monetary authority of the United States needs to be vested in an "independent" and quasi-private governing institution.  Public monetary decisions are important, and certainly errors can be made when such decisions are made.  But they are no more important or error prone than decisions on public spending or taxation, both of which direct vast sums of money, and are part of the national legislative process.  So we could start by making the central bank a normal political arm of our democracy, with policies set by legislative decision.

    However, the TBTF issue is frequently confused with the Fed issue.  Even if we had a public national bank in 2008, our Congress probably would have voted to use that bank to bail out any TBTF institutions that were tottering.   Even if we had a decentralized banking system with no central bank, had there been TBTF institutions in 2008 Congress would have voted to bail them out.

    The central issue is not bailing out TBTF institutions whose collapse would destroy the economy.  The issue is permitting the existence of TBTF institutions whose collapse would destroy the economy in the first place.

    If there were some mile-high, privately owned, 700-story mega-ziggurat in the middle of Manhattan, and it were severely damaged by an earthquake, there would be no option but to shore it up at great public expense.  The problem is stupidly building a mile high, privately owned, 700-story mega-ziggurat in the middle of Manhattan in the first place.

    Another issue is why it is considered politically respectable to rely on the nation's monetary powers to expand the monetary base so as to secure and validate the liabilities of large financial institutions when they are tottering, with all the moral hazard that entails, but it is not considered politically respectable to use that monetary authority to secure and validate the debts of tottering households when they are similarly tottering.  Instead of arguing that we shouldn't have bailed out the TBTF institutions, progressives should be arguing that we should have bailed out households as well.

    We could also have employed our nation's monetary authority to hire the unemployed and put a floor under the recession and the human misery it caused.  Instead, progressive parties in the West followed conservatives down the road of austerity, liquidationism and public debt hysteria.

    These things didn't happen because the American people don't own and operate their country.  Their country is owned and operated by a plutocracy that runs it for the private benefit of the wealthy, and that bestows wealth on those below them only to the extent that they deem those bestowal to serve their own interest.

    It doesn't matter who nominally "owns" the Fed.  So long as there are massive concentrations of private financial power in the country, those powerful people will own and run the country and its government.  If people are serious about building a fairer and more democratic country, they will have to get serious about wresting wealth and ownership of the country from the plutocracy, and distributing it more evenly among the citizenry.

    Unfortunately, there are some very misguided libertarians and anarchists out there who in who in their knee-jerk hatred of government, and in the name of their immature notions of "freedom", will probably only multiply and replicate the very same financial instability that caused the recession and Great Income Crash in the first place.  Capitalist finance is inherently unstable and fragility-prone, and financial disruption and collapse are the norm for a poorly regulated system of finance and credit.  If people are serious about doing something about these financial debacles and the primitive economic inequality and recklessness that lies at their foundation, they are going to have to get serious about organize institutions of governance to better control and regulate finance, and better distribute wealth.

    So progressive dissidents need to show they are serious about stepping up to take charge of their country and govern it for the pursuit of democratic and egalitarian values.  If they instead follow the all-too-American impulse toward anti-governmental and ultimately anti-social forms of personal and local freedom, they will only be replicating the social and political pathology that is at the heart of of our recurring national failures.


    by Dan Kervick on Thu, 03/22/2012 - 7:01pm

    The central issue is not bailing out TBTF institutions whose collapse would destroy the economy. The issue is permitting the existence of TBTF institutions whose collapse would destroy the economy in the first place.

    This, and all of your supporting comments, is exactly the point. Too big to fail implies having a monopoly-like quality. Too big to fail means too big to exist.


    by Verified Atheist on Thu, 03/22/2012 - 7:31pm

    Dan yes


    by Resistance on Thu, 03/22/2012 - 10:02pm

    Agree.  Nicely put, Dan. yes


    by MrSmith1 on Thu, 03/22/2012 - 11:32pm

    Yes. And, of course, public assistance to borrowers would have been a more efficient way to save banks anyway.


    by Michael Maiello on Fri, 03/23/2012 - 6:34am

    Capitalist finance is inherently unstable and fragility-prone, and financial disruption and collapse are the norm for a poorly regulated system of finance and credit.  If people are serious about doing something about these financial debacles and the primitive economic inequality and recklessness that lies at their foundation, they are going to have to get serious about organize institutions of governance to better control and regulate finance, and better distribute wealth.

    This is all too true.  The problem comes with deciding what it exactly means to better control and regulate finance, and better distribute wealth.  We are currently controlling and regulating finance, we are currently distributing wealth.  It is just that we're not doing it very well. 

    Too often the debate gets simplified to whether we need to control less or more, regulate less or more, distribute less or more.  Sometimes the outcomes of the solutions has to do with less or more, but ultimately it is about the quality of the controls, regulations, and distributions.  There are such things as counter-productive controls, regulations and distributions.

    We will working with a system that is some form of mix between capitalism and socialism.  Making the tweaks to it will take some time and unfortunately for us some actual in-depth analysis and tough decision-making to make it work for all of us.

    For instance:

    Instead of arguing that we shouldn't have bailed out the TBTF institutions, progressives should be arguing that we should have bailed out households as well.

    Which households?  Should someone losing their home because they lost all their money gambling be bailed out along with those who are losing their homes because of company layoffs?  At what point does taking from Peter to pay Paul hurt both, and what point does it benefit it both, as well as their neighbors.  There is no one answer to fit all the scenarios. 

    Pursuing egalitarian values does not necessarily mean that one pursues the end of all suffering, the end of differences in classes or economic achievement.  This is why there was the same outrage when the unemployment rate was 4% as was when it was 8% or 9%.  And why there isn't as much outrage over the current state of affairs as some believe there should be.  How much economic misery is tolerable is a subjective thing.

    And no matter how many times one calls concerns over the debt hysteria, it does not change the nature of the debate over where and when and to what extent the misery needs to be endured, whether for the good of the short term or the long term

     

     


    by Elusive Trope on Sat, 03/24/2012 - 9:31am

    Yes, there are many questions.


    by Dan Kervick on Sat, 03/24/2012 - 10:41am