EIN NEWS | Break Up The Banks

Break Up The Banks

July 16, 2012 – By Joe Rothstein, Editor, EINNEWS.com

”I find myself increasingly seeing the wisdom of Thomas Jefferson’s statement in 1816 that, “banking establishments are more dangerous than standing armies.”

The speaker was Phil Angelides, longtime California business leader, former state treasurer and chair of the bipartisan commission set up by Congress to investigate the causes of the worldwide financial crisis.

And now Angelides, at a forum sponsored by the Center for National Policy, was about to say something he had never expected to hear himself say: break up the too-big-to-fail banks.

After pouring through millions of pages of documents, conducting hearings throughout the U.S., and taking testimony from most of the key public and private figures involved in the ongoing financial meltdown, Angelides still wasn’t prepared to come down on the side of busting the big banks.

Until now. Here, in his own words, is why:

“This is the conclusion I’ve come to recently and not lightly. But the banks themselves, through their continued pursuit of the practices and culture that brought on the crisis of 2008, their fierce resistance to any kind of reasonable change, the unrestrained use of their enormous political power and their willingness to use whatever means necessary to bend the political system to their self-interest without respect to the public interest, have provided in my mind the conclusive evidence that a modern era of trust busting is now essential.

“They’ve proven that even nuanced changes are not accomplishable because they’ll beat the hell out of them.

“Despite all the efforts at historical rewrite, no one should have any questions that but for the tremendous assistance of the U.S. taxpayers every major Wall Street firm was circling the drain and on its way to collapse in September of 2008. Ben Bernanke told us 12 of the 13 major financial institutions would have collapsed. Tim Geithner said all of them.

“But they’ve forgotten all that and emboldened by their assisted escape from disaster and with their hubris reinvigorated, Wall Street and their political allies in Congress have mounted a fierce frontal assault to destroy the efforts to reform the financial system, spending hundreds of millions of dollars to distort our democracy for their financial interests. And, sadly they have been stunningly successful.”

Based on his experience heading the commission that’s dug deeper into the crisis than any other, Angelides has these recommendations for finding our way out of the morass:

1. Accountability.

It’s stunning that nearly all of those who led the capital markets over the cliff have paid no price. Rather, most are either still on the job or walked away with tens of millions of dollars. Why focus on accountability? Here’s Angelides’ analogy:

“If someone robbed the 7-Eleven and they took $1,000 and they could settle for $25 the next day with no admission of wrongdoing, you think they’d be back at it? Of course they would. So first, we need justice.”

2. Another full-throttle effort to reform the system.

“A good place to start is the derivatives markets. It is disgraceful and dangerous that that market is still in the dark corners of our financial system. Tougher and simpler capital standards, particularly for the largest banks, and at least until we get more fundamental restructuring, a tough and effective Volcker Rule. JPMorgan did us all a favor. It reminded us that that eviscerated rule would be of no use and no good, should be discarded, and we should start over with a tougher rule and get it in place.”

3. Reset the debt.

“I think it’s quite striking that since 2008, almost everything has been done
for the lenders and almost nothing for the borrowers. People seem to have forgotten that it takes two to tango and that when a lending institution extends credit to a borrower, particularly on a non-recourse basis, they take that risk. But whether it’s European lenders on the sovereign debt side or whether it’s American lenders who lent to homeowners, lenders are being held harmless, while borrowers are being strangled by a boat load of debt that they cannot sustain.”

4. End the speculation that dominates the financial markets.

“By 2011, the top 10 banks in this country held 77 percent of the nation’s banking assets. The top five banks – JPMorgan, Citi, Bank of America, Goldman, Morgan Stanley – held $7.9 trillion in assets and 95 percent of the $304 billion in over-the counter derivatives held by U.S. bank holding companies.

“These banks are too big to fail. They’re too big to manage. They’re too big to
regulate. They’re too complex to understand and they’re too risky to exist. And the bottom line is they offer very little benefit.

“These banks need to be broken up for reasons beyond just market impacts. Simply stated, they have become a clear and present danger to our economy and democracy and must now go the way of the trusts that were dismantled at the turn of the last century.”

It’s certainly not in the current cards that either President Obama or Mitt Romney will be making this case between now and November. But there are plenty of other candidates out there who can, and should, and would find widespread public support in doing it. A popular case for breaking up the banks—if it proves a winning argument at November’s polls—could kick start a genuine effort to tackle the financial octopus that’s strangling our economy and threatens to squeeze the life out of our democracy.

Phil Angelides came to his break-up-the-banks conclusion not because of inside information his position provides, but by looking clear-eyed at what the big banks are doing in plain sight. Polls say that the public sees it, too.

Now it’s time for political leaders to get some spine and say what Angelides has said, publicly, loudly, convincingly, and soon.

(Joe Rothstein can be contacted at joe@einnews.com)