If We Broke Up Standard Oil, We Can Break Up the Giant Banks

Published on Global Research.ca, by Washington’s Blog, April 30, 2010.

If we broke up standard oil, we can break up the giant banks. Says who? Senator Ted Kaufman (interviewed recently by The American Prospect’s Tim Fernholz).

You and Senator Sherrod Brown have proposed an amendment that would cap the size of the largest banks and, in effect, break them up. How do you sell this to people who are leery of what seems like a radical move? … //

… Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.

“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings”.

“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

Former chief IMF economist Simon Johnson:

Writing in the New York Times today, Joe Nocera sums up, “If Mr. Obama hopes to create a regulatory environment that stands for another six decades, he is going to have to do what Roosevelt did once upon a time. He is going to have make some bankers mad.”

Good point – but Nocera is thinking about the wrong Roosevelt (FDR). In order to get to the point where you can reform like FDR, you first have to break the political power of the big banks, and that requires substantially reducing their economic power – the moment calls more for Teddy Roosevelt-type trustbusting, and it appears that is exactly what we will not get.

Former Secretary of Labor Robert Reich:

Neither the draft bill, nor the Committee, nor anyone on the Hill having anything to do with financial regulation, is raising what I consider to be the two key reforms necessary for avoiding another financial meltdown — resurrecting the Glass-Steagall Act that once separated commercial from investment banking, and applying antitrust laws to the remaining five biggest Wall Street banks so none is “too big to fail.”

One of the world’s leading economic historians, Niall Ferguson:

What’s needed is a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are “too big to fail.” (full text).

Comments are closed.