Guest Post: Breaking Up The Too Big to Fails Will NOT Harm America’s Ability to Compete with Foreign Banks

By George Washington of Washington’s Blog.

Preface:  Please read to the end to see the humorous quote.

I have previously debunked numerous false arguments used to defend the too big to fails. See this and this.

But the apologists for the TBTFs are now arguing that breaking up the beached whales … er, giant banks … will harm America’s ability to compete with foreign banks.

Joshua Rosner (managing director of an independent financial services research firm), has written an important essay debunking this argument:

Those who argue against a more proactive reduction in risk and size of TBTF institutions will, as always, revert to an argument that strikes a natural chord in every American’s heart: ‘Doing so would create an unleveled international playing field for our institutions relative to their international competitors’. Level playing fields are a worthy goal, but this is not a relevant argument. Instead, this tired bromide must be resoundingly dismissed on several counts:

  • Those countries with the largest banks as a percentage of GDP (Iceland, Ireland, Switzerland) demonstrated that a concentration of banking power can cause significant sovereign risk and tilt global economic playing fields away from that country.
  • The likely breakups of ING, Lloyds and KBC suggest that it is we who seek to support an unlevel playing field where we subsidize our TBTF banks while other nations recognize the policy failures of moral hazard. If we continue down this path we will likely be at risk of violating international fair trade regimes.
  • When the “unlevel playing field” argument is cited, keep in mind this reasoning supports the disadvantaging of 8000+ community banks relative to our largest banks, all in the name of protecting big banks from governmentally- subsidized international competition.
  • There is no longer any evidence that, beyond a cost of capital advantage that comes with implied government support, there are sustainable and tangible economies of scale arising from being the largest. The financial supermarket concept has been proven a failure. The only ones who benefit are the high-level executives.
  • We must demand that our legislators no longer allow unelected officials at the independent Federal Reserve to sign international accords created by the TBTF banks through supra-national bodies like the Basel Committee.
  • Are we to believe that if we did not have such large and globally dominant firms, US borrowers might be paying more that the 29% interest that several of the TBTF firms are now charging on their card accounts? Perhaps we should think about what advantage our population has gained as a result of our financial institutions being such a large part of our economy or being globally dominant.
  • Since when did we accept a national strategy of following rather than leading? When we do what is right, others follow. As example, consider the bank secrecy havens – they made money for a bit. Now, even the Swiss and the Cayman authorities are coming around to our view.
  • We are already at a disadvantage given that the largest foreign banks operate in the US without any tier one capital requirement and yet mostlarge foreign banks have not built a bricks and mortar presence here. Nobody screams about their undercapitalization nor has that undercapitalization caused deposits to migrate to foreign banks.

What fake excuse will the apologists for the TBTFs throw out next?

That breaking up the giants and letting small and mid-sized banks, credit unions and state public banks compete fairly will shift the Earth’s gravitational field as deposits shift away from the money centers?

Note: Rosner has a funny and potentially effective idea for putting pressure on Congress. He suggests that we all call our representatives and ask how much the lobbyists have paid them to destroy America’s economy by propping up the too big to fail banks.

Rosner’s actual language is somewhat over-the-top:

If leadership won’t add such language [reigning in the TBTFs], call your elected official and ask how much they actually receive when they agree to put on the kneepads.

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  1. Ultimate Janitor

    This is great. They will literally say anything to do their masters bidding won’t they?

    This filth pig sty called The US Congress needs to be cleaned up in a hurry. But they have knitted a complex web or rules and laws over the years to insulate themselves from our wrath.

    And the campaigns never really address the filthy wrongdoings do they? No of course not. Because each candidated is a dirty piece of filth. One more dirty than the next.

    Since it will be hard to clean this stain up legally how can we get it done?

    Ultimate Janitor.

  2. briareus

    “Since it will be hard to clean this stain up legally how can we get it done?”

    The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, OR TO THE PEOPLE.
    –Tenth Article in Amendment to the Constitution for the United States of America.

    The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.
    –Ninth Article in Amendment to the Constitution for the United States of America.

    When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation. We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.
    –from the Unanimous Declaration of the thirteen united States of America.

    1. Ultimate Janitor

      So we should dissolve the government?

      And we have the leagal right to

      Outline the general mechanics of how that will happen (in broad terms)

      While you are working on that I will continue to work on my .45 loads.

      1. Skippy

        Hope you have it combat machined, oh and ambidextrous safety too.

        Skippy…9mm talks, stay down .45 demands it.

      2. briareus

        The general fashion, I believe, will take roughly this form: Rulemaking in the near future–some ugly real-world implementation of Congressional feel-goodery–will cause the feds to be kicking in someone’s door. This won’t be a criminal in the customary sense of the term, it will be a typical mother-father-children two car household that everyone can identify with. And it won’t be the result of something criminal or what we customarily think of as a criminal act. It will be their failure to perform to some new absurd regulation; their failure to jump through some arbitrary bureaucratic hoop. Whether it be a health care one or a census one or an environmental one won’t really matter; the substance of the rule will be trivial compared to the baldly onerous invasive nature of the rule.

        The father, perhaps pushed to the edge from unemployment (that everyone will identify with) and mortgage trouble (that everyone will identify with) or some other common problem, will not comply with the authorities demand to come out and turn himself in. In similar fashion to BalloonBoy’s family videos being up and shared on YouTube before the balloon even landed, someone will find this father’s previously recorded video statements, and they will go viral while the story is fresh and on heavy rotation. People will nod their heads as they listen to he and his wife cogently articulate the terrible state of things going on in the country. Facebook groups and Twitter feeds in support of the family will be up and growing fast before the feds even decide what to do.

        Under pressure, and to the tune of the talking heads of the cable news channels chattering away, they will raid his home on live television with SWAT teams and the father/mother/children/some/all will be killed.

        The talking heads will remind us to always play ball with the cops and tell us he was endangering his family by not doing so. The pundits will talk about the tragic circumstances of a man pushed to the limit. The Administration and the authorities will talk about the law applying to all in our fair country and decry this man’s paranoid delusions that resulted in his family being unfortunately killed while the heroic paramilitary men raided their ‘fortified home’.

        But this man won’t be someone they can smear as a baby-screwing cultist. This won’t be a family that will be easily slandered as paranoid ‘truthers’. This time, enough of the population has achieved a sufficient level of politico-economic education to mentally connect the dots between the reactionary government, the untouchably corrupt and ruinous international bankers, and the full frontal deceit of the mainstream media. This time, enough people to comprise a social tipping point will readily identify with this family.

        And they will all know that they are next.

        And then things will get rolling.

  3. John Emerson

    Wait — this sounds like anti-trust. Hasn’t it been agreed in the biz that all anti-trust action is either unnecessary, ineffective, harmful, or all three?

    “Liberals are not afraid of bigness” — Richard Hofstadter.

    Words to live by.

  4. psychohistorian

    I don’t believe that guns will be necessary. I certainly hope not.

    When the other shoe drops in this sick economic kabuki it will be continue to be obvious who the perps are and we will only need the societal will to prosecute them and kill the propaganda machine that has convinced Americans that greed and anti-social behavior are our manifest destiny.

    What happens when America can’t afford their war machine any longer? Will it keep feeding it as it citizens die off in droves?

    If that happens I may want to find some way to make a social statement with munitions, but I like my textual white noise better.

  5. Bill

    You might think about the foreign and domestic component of too big to fail institutions. Should the US underwrite the risks of US banks who lend to firms in other countries? Should we protecting only domestic lending, and not foreign lending?

  6. Steve

    I recall reading a HBReview piece in the very early 90s, arguing that the US had to allow larger banks, so that they could better compete against Japanese banks, which were then dominating the global landscape.

  7. Sandi Rubinspan

    Where is Richard Kline…. Please can I have 10 minutes of superb.

    All the posts, including mine, seem to be whining rants. I guess I am having a geshtalt moment. Whether it last when the inebriation wears off is anyone’s guess. Probably not, I’m likely to be much more conciliatory tomorrow.

    Anyway. I see we are busy funding the local police to buy the latest high tech gear to surveile(sp) the great unwashed, who by the way, are busy living up to expectations.

    Meanwhile, people are stealing a trillion dollars, and we debate the merits.

    What a bunch of dumb f**king cows we have become. (as Neil Young drones in the background). He shrugs and walks into the envolope of mist that encourages his desire to be anonymous.

  8. Sandi Rubinspan

    Oh yes. I just remembered a question that I wanted your opinion on, Yves.

    Now if a county, or any other separable unit, became indebted through a criminal act, ( specifically the ultra right wing Alabama county you featured last week that we were supposed to bleed over), is the contract valid. If the US is still intact, I wouldn’t think so. It is obviosly a fraudulent caontract. Especially given that the principal that signed the contract (mayor) is under Federal indictment.

    I’m right. The contract with Jacksonville is not enforceable. How far have we fallen.

    My Dad just died. He earned two silvers, a bronze, and a purple heart for things that happened after he was shot in the face by a German sniper in a town called Schmitten(sp), Germany. He was a teamster, a truck driver that earned a living wage, and raised seven children, all graduated from college under the FDR vision of affordable upward mobility.

    The funny thing is, he was the only son of an unmarried mother, and a smelterman, so he did not have to go.

    My 23 old son explained to me, the other day, that the US has become a country that hinders upward mobilty. I have to agree.

  9. Sandi Rubinspan

    Thomas Jefferson’s greatest fear is mine. The greatest threat to a free people is an empowered aristocracy.

    Maybe all of the GW Bush and Wrongald Raygun faithful that are presently gasping for air will think for 30 seconds: every policy in the US for the last 40 years is based on the concept of “Plantation Capalism”. That’s where you and I are owned by Walmart: Clinton, John McCain and Jon Kyle, Frank, Schumer, Lieberman, Dodd,etc. our Senators.

    Do not listen to the Mark Thoma’s or Brad De Long’s or even Krugman. The intelligencia are bankrupt, preaching the take one for the gipper crap since ’74.

  10. rps

    •Since when did we accept a national strategy of following rather than leading?”
    Yes, when were leadership, inspiration, character, integrity, honor, and national pride vanquished and replaced with dishonesty, avarice, and selfishness?

    Were Martin Luther King, Robert F. Kennedy and John F. Kennedy the last to inspire and lead?

    “We choose ……in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”

  11. LeeAnne

    As a friend was sitting in gridlock on the upper east side and all around her cops were handing out $35 tickets,as she tells it, a guy in the middle of all this had gotten out of a cab yelling ‘out with Bloomberg.’ I couldn’t help thinking that the revolution will start with something like this, something trivial. It reminded of the assassination at Sarajevo that burst into a world war just days later.

    And we’ll go out ‘not with a bang but with a whimper’ because revolution or not this dream this democracy is over –killed senselessly by propaganda and exploitation of the best among us.

  12. Keenan

    A poster on Mike Shedlock’s site made a thoughtful historical reference several days ago that still resonates. I paste it (typos corrected and my parentheses to make his word choice consistent)for NC readers who may not have seen it:

    Allow me please to ask you what these names all have in common. That is beyond there being Germanic in nature.

    (Claus) Stauffenberg
    Ludwig Beck
    Erwin von Witzleben
    Gunther von Kluge
    Erich Hoepner
    Friedrich Olbricht

    Some of you may know, I would venture to say that most of you do not.

    The reason that I write these names here is because they were not like the vast vast majority of us. They were far beyond even those of us that have stated here on these boards that something beyond “normal methods” to correct our situation will be needed, however we have no intention of beginning on our own nor of participating if others do.

    It is also in reference to those that speak of fascism, or our governments behaving as nazis, which many on these boards over the time I have participated here have declared.

    No, these names are not the names of members of the Nazi party.

    These are the names of men who are heros. These are the names of men that resisted the Nazi party in WWII Germany. These are the names of men that were executed by Hitler for their attempt to rectify (the situation in Germany brought on by) the monstrosity that was Hitler and the Nazi party.

    These men were HEROES! These men gave their very lives to protect what they knew was right and just.

    The reason that I write there names here is simple. In these times we need men of this courage and conviction. In these times we need to BE these men of courage and conviction.

    The reduction of our world to one of slavery of the masses in the control of the elite does not have to be accomplished by warfare.

    All these men have left to the world now is a memorial in Germany with these simple words upon that memorial…

    “You did not bear the shame.

    You resisted.

    You bestowed an eternally vigilant symbol of change

    by sacrificing your impassioned lives for freedom, justice and honor.”

    Are any of these men among us now in some modern day incarnation?

    I hope so.

    I keep hoping that change can be brought about by methods advocated by, say M.L. King, Thoreau and Gandhi.

  13. Dave Raithel

    As a one who actually enjoyed Soderbergh’s five hour, two part homage to Che Guevara, and as one whose sons (16 and 22) occasionally don t-shirts bearing his image, there’s much in the above that interests me – apart from the original matter – what to do about the inept financial reforms schlepping through Congress. I suggest that calling a co******er a co******er is ineffective, no matter how good it makes one feel. But pinging into each “reply” gives no unity to my responses, so here we go:

    1) Randy Weaver is not a role model for “the revolution.”

    2) As a father-mother-two-kid-two-car family that is in fact less than fully employed (my hours down, the college grad looking since before graduation in May, his part time gig turned off with budget cuts to the University on September 30, only the wife’s mostly secure due to seniority), I do not relate to Teabaggers – the people who are apt to resort to violence – or at least like to pretend that they can and might – over health care reform, or answering a census question, or complying with some environmental regulation. Those people freak me, my wife, and my kids out. (A census, by the way, is a Constitutional mandate …)

    3) Shedlock listed, I am certain others realized, German officers and public officials attempting the coup d’etat against the Third Reich. No doubt, they had balls of brass, knowing full well what would happen to them should they fail. In this country? Get off the pipe. There is no taste for “militant” capacities much left of center in America – doesn’t fit with the cults of personality surrounding King or Ghandi, the whole peace love dove patchouli sniffing must do everything by consensus thing. King and Ghandi ought be recognized for identifying the tactics that would succeed in their cultures in their places and times. But as I once suggested in a comment (where the topic also had shifted from our abuse to what should be done about it): These were people demanding admission to the order of things – they were claiming bourgeois rights from the ruling bourgeois. In saying that, I do not mean their claims were trivial; expanding the set of eligible decision makers diminishes the marginal powers of those attempting to retain their monopolies. (Yes, there’s more to the anti-colonial circumstances of India’s “revolution”, but it was a revolution led by the Indian middle and propertied classes so that they might engage as equals with the middle and propertied classes of the West. That the American bourgeoisie had to use violence only demonstrates the historical and cultural specifics of the necessary tactics – remaining feudal and aristocratic classes in Britain wanted the war more than those English bourgeois interests who realized fairly soon that fighting the Colonials was bad for their business.)

    4. So we have to consider what we’d really get in the way of “reform” if the people who ARE disposed and capable of doing violence were to exercise it and make “a revolution” in today’s America:

    a) The American officer corps has grown increasingly conservative with the perpetuation of a professional, voluntary armed force.
    b) The officer corps leads men (and yes, it is still MOSTLY men who seize and hold ground) who tend to kill others who are not them – the small-unit cohesion, band of brothers psychological phenomenon. Those men will shoot first, and let their officers ask any questions. This is how it will be with the National Guard or the local constabulary.
    b.i) Exceptions to the case – and there always are – are irrelevant. So, e.g. as heroic as the acts were of those Warrant Officers who put themselves between My Lai and Calley’s men, the fucking war went on and on and on.
    b.ii) The “radicalization” of the enlisted ranks that eventually ground the war to a halt (the escalation of “fragging” in 1971 and 1972; the deliberately wrong coordinates provided to B-52 runs, etc.) did not translate into any kind of progressive, liberating “populism” when those servicemen returned. In fact, less than a decade latter, we got Reagan, and look at the shit we’re in now.
    b.iii) No remembrances of things past stopped the Stupid War in Iraq, and the forgetting of history has us considering that a pyrrhic victory in Afghanistan might be a reasonable victory. (The last man to die is the winner.)
    c) So now consider what else men with guns are like, what they read, what they do: It’s Alex Jones, metallism, Dominionism, militias playing army in the woods. True story: My oldest boy came back from the firing range the other day to say that someone there was wearing a T-shirt that read “Violent – I shot motherfuckers in Afghanistan”. That asshole is going to help set you free? The fact there is NO coherence between these varying groups of men with guns – some ex-military, some never-been-wish-they-haddas, victims seeing conspiracies everywhere – and who all seem to need to find somebody to blame and hurt, is probably for the best for the rest of us. (One editorial addendum so as to be more specific about whom to fear: I eat red meat, I have no moral problems with hunting provided you eat what you kill, and people who have weapons mostly to hunt are as likely to support Ducks Unlimited and the Conservation Reserve Program (pulls marginally productive land out of crops and into nature reserve) as not. I am not talking about people for whom a weapon is a tool; I am talking about people whose fetish is guns and whose politics are paranoid.)

    5) So, given the inertia of institutions formally organized for doing violence, and the incoherence of the informal groups, and the rejection of violence as a tactic by the “left”, what would we get if the people who know how to organize and exercise violence were to do so? It would be a centrist-tipped-rightward reform. It would be “reactionary.” It would fuck over labor, women, immigrants, gays and lesbians, environmentalists and the environment. It would be a government run by the same people who invented that ACORN is a criminal conspiracy and still claim that the CRA is what caused the collapse of finance capitalism and so THAT’s why Wall Street got bailed out. When you met your new boss, he wouldn’t necessarily be the same as the old boss, but you’d still be abused …

    Man, I’ve done give myself the willies….

    And no, I got no clue what to do about the abuse. I have no more “faith” in politics than I do in “armed insurrection.” About all I can say is – and it will sound dogmatic, I know – that the present historical circumstances do not permit of progress on any front, that matters will have to become worse, much worse, before the subjective conditions of political change develop within our communities.

    In the meantime – get a weapon, learn to use it, and since it’s better to feel better than not, insult your congressman.

  14. chindit13

    This reminds me of Dr. Strangelove and the discussion about the Doomsday Machine Gap.

    I would hate to think that other countries, by virtue of the massive banks they retain, could blow themselves to Kingdom Come, while the poor US, with only thousands of smaller and systemically unimportant banking institutions, could at best just suffer from a lot of regional brush fires.

    Oh the (lack of) horror!

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