Occasionally there is an opinion piece in the papers so clear in its analysis of a problem, so convincing in its argumentation, and so authoritative in its judgment that, on finishing it, a reader is tempted to just stand up and cheer.
That's what I felt like after reading "How to Shrink the 'Too-Big-to-Fail' Banks" by Richard W. Fisher, the president of the Federal Reserve Bank of Dallas, and Harvey Rosenblum, its research director, in the Wall Street Journal the other day -- Monday, March 11, 2013.
Fact No. 1 -- A dozen mega-banks control almost 70 percent of the assets in the American banking industry.
Fact No. 2 -- These huge banks constitute only 0.2 percent of the country's banks, but because they've been deemed Too Big to Fail by the federal government, they're not subject to the same rules and regulations as the other 99.8 percent.
So much for Equal Justice Under Law, the admirable sentiment engraved atop the columns of the classical Supreme Court building in Washington -- if only for ornamental purposes.
These two facts add up to one inescapable conclusion: These favored banks, complete with their far-flung subdivisions, auxiliaries, and wholly owned subsidiaries and assorted tentacles, claws and appendages spreading out in all directions national and international, have been immunized against the usual risks in a free market -- like going broke.
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The big boys' debts get an implicit government guarantee. Result: The whole American banking industry becomes dominated by a handful of banks-cum-hedge funds that operate without meaningful regulation -- and stifle competition.
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The effect is to deny this critical sector of the American economy the benefits of what Joseph Schumpeter dubbed creative destruction -- the "perennial gale ... that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Schumpeter called creative destruction the essential fact about capitalism.
Without the risk of failure, there is no responsibility to avoid it -- and no reform or rejuvenation after it. But just a government-authorized oligopoly sheltered from the workings of a free economy. And dragging it down. We may not realize it when we ourselves experience it, but failure is our friend and teacher. And without it, we might never learn.
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When banks get "too big to fail," they can intimidate not just their competitors but the law. Or as the current attorney general, Eric Holder, testified earlier this year, "It is difficult to prosecute them (because) if we do bring a criminal charge, it will have a negative impact on the national economy."
That's how this unholy alliance between big banks and big government operates -- to no one's long-term benefit, not even that of the favored banks themselves. Unchallenged, they grow fat and lazy and careless, especially with other people's money.
It hasn't been too long -- just last year -- that the country's largest bank, JP Morgan Chase, finally admitted that it had lost track of $2 billion, or maybe $3 billion, through a complex form of speculation called credit default swaps or derivatives. Whatever the proper name, they promised protection and delivered disaster. It seems a bank too big to fail may also be too big to manage. This is what comes of letting these banking empires grow beyond any control, even their own.
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There was a time (1933-1999) when the law clearly separated investment banking with all its risks from the ordinary, regulated commercial kind. That wholesome separation was mandated by the late and only now lamented Glass-Steagall Act, which was enacted in the wake of the Great Depression, when it had become all too clear what allowing banks to play with their depositors' money could lead to.
But memories are short and the hubris of man boundless. That salutary wall between commercial and investment banking was dismantled by a bipartisan team led by those financial masterminds, Bill Clinton and Phil Gramm. The politicians and the banking lobby knew better than to heed mere history and its lessons. Or thought they did.