Thursday, August 14, 2014

Too Big to Fail is dragging its size trillion feet

New unemployment claims rose above 311,000 last week, but the 5 week moving average is still as low as it's been since early 2006. There were 209,000 new jobs in July increasing the record for the number of consecutive months of job growth to 53. The April and May new jobs numbers were both revised upward by 5,000 and 10,000 respectively to 229,000 and 298,000 new jobs.

Job openings in U.S. rose by 94,000 to 4.67 million in June indicating an economy on the rebound, this was further confirmed by a 4% growth in GDP during the second quarter. This included a substantial increase in imports which are subtracted from the GDP. We'd have a much more robust economy without our trillion dollar annual trade deficit thanks to 'free' trade.

Under the Dodd Frank Act the really large financial institutions, also known as the "too big to fail" banks, are required to submit plans that allow for their complete dissolution should they in anyway endanger the United States as they did under the Bush Administration. Those plans were submitted some time back and upon review they were summarily trashed by the Federal Reserve and the Federal Deposit Insurance Corp (FDIC). Their joint conclusion was that the bankruptcy plans submitted by all eleven big banks make "unrealistic or inadequately supported" assumptions and "fail to make, or even to identify, the kinds of changes needed to simplify their corporate structures".

The regulators then gave them a year to make "significant progress". Sounds like the banks are conspiring to drag this out hoping for a change in Administrations. The biggest banks are still making their livings off of Repurchase Agreements or derivatives. These worthless pieces of paper are what crashed the banks last time and regulators under the Bush Administration claimed they had no authority to seize the insolvent "too big to fail" banks as the FDIC did with thousands of smaller banks. If this provision of Dodd Frank were taken seriously, most or all of these "too big to fail" banks would be seized now for failing to comply with the law.

Under Dodd Frank the regulators do have the authority to act if anyone actually has the will to go forward against the richest of the rich. The requirement that the banks themselves create 'living wills' was supposed to make the task manageable, but these banks are really just undead blood suckers, so planning for their own deaths isn't in their nature. They should simply be turned to dust now instead of waiting for them to create another crisis endangering civilization itself.

Banks of this size serve no useful function but instead siphon off trillions of dollars from the economy in a combination of billions for themselves, and from the damage they do to the rest of us with the power they wield in politics, government agencies and the economy.

The largest banks should be run directly by the Treasury Dept, the individual states should have their own banks like North Dakota does, consumer and commercial banks should all be member owned cooperatives commonly know as Credit Unions. Having three types of banks would provide the necessary competition to provide a way to disclose any structural problems.

This would give us even better growth than we had before the New Deal was dismantled by Reagan and his friends as the moneyed elite would have no leverage to undo reforms. That's not to say we wouldn't need to be vigilant, co-ops can be captured by their management. The Soviet Union was run by its management class as was Fascist Italy, and we're very nearly to that point here now. Education is the only effective deterrent, that's why Conservatives are determined to control education at all levels and control the media as well.  

Twitter @BruceEnberg - unless you're too big to fail.



Anonymous said...

Great article. The right wing Kool-Aid drinkers who listen to the right wing brain-washers on the radio still won't go along with anything like this.