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View Diary: Sen. Bernie Sanders to Introduce Bill to Break Up Too Big To Fail Banks (99 comments)

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  •  I'd wager Bernie's bill will be more to our liking (14+ / 0-)

    can't you picture, "under Brown/Vitter, the banks are technically still not broken up"'or some lame-o thing like that. I don't know enough about it. :(

    I ♥ President Barack Obama.

    by ericlewis0 on Thu Mar 28, 2013 at 03:16:45 PM PDT

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    •  Well, Sanders's own description (2+ / 0-)
      Recommended by:
      ericlewis0, Onomastic

      leaves a huge loophole up front (what if the response is that with "living wills," the answer is zero banks?  I don't believe it either, but I also can't disprove it). I'm also not certain from the description that it provides adequate legal means to break them up; nor gets into how they should be split, by horizontal or vertical lines of business.  It's easy to sound better in theory than practice.

      Difficult, difficult, lemon difficult.

      by Loge on Thu Mar 28, 2013 at 09:02:05 PM PDT

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      •  The regulators already (2+ / 0-)
        Recommended by:
        Mannie, ericlewis0

        have "adequate legal means" to break a bank up.  

        And what's your issue with questions about 'horizontal' or 'vertical' lines. Businesses sell off chunks of operations, buy other chunks of operations, and disband chunks of operations all the time.

        The banks have a stranglehold on the political process. Mike Whitney

        by dfarrah on Fri Mar 29, 2013 at 08:29:03 AM PDT

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        •  Yes, and they do so voluntarily (0+ / 0-)

          Who assumes which contracts, etc., are very difficult questions.  What I was getting at was whether anyone should have a preference for two smaller full-service banks versus splitting commercial and investment lines.  Each has its benefits and risks.

          If you're thinking of antitrust, that encompasses a particular type of harm (collusion that inflates profits by reducing output), and isn't enforced by treasury.  The other scenarios in which banks are broken up involve when they're taken into receivership, which happens in discrete sets of circumstances.  (A lot of smaller banks were every bit as predatory on consumers if not more so than their behemoth counterparts, so let's not romanticize community banking.)  Part of why banks are as big as they are is the surviving ones were the only buyers for some of the failed institutions.

          The time to do that was in the immediate aftermath of the crisis, as a way to get to a good bank/bad bank solution. The problem, however, was that investors saw safety in size, to the point that stand-alone investment banks either had to be acquired or converted into bank holding companies to raise capital.  And the immediate pressing concern was to "unfreeze" interbank lending.

          So, my concern is that it's very easy to fuck this up, and one particular way that can happen is to leave in place a bunch of smaller banks with high rates of leverage in the form of "un-sticky" commercial paper rather than retail deposits.  Another way to fuck up breaking up large institutions is to incentivize financial activity to go to off-shore or off-book entities.

          I don't have the right answer, I'll admit it, but by the way Sanders's bill delegates both the hard and the easy questions, he doesn't either.  I do suspect that finding ways to make the large banks less risky and thus less likely to fail is a more elegant solution to the TBTF problem.  To the extent these banks incur advantages from the implicit debt guarantees, which is fairly hard to quantify, that should be taxed, but for macroeconomic reasons, I wouldn't want to get rid of the Fed's lending programs.

          Insofar as the real reason is to check banks' political power, I don't see how this solution (versus higher capital requirements) would reduce the overall size of the financial sector relative to other parts of the economy, and thus importance to the political system.  

          At the very least, I'd want to see if the living wills could function w/r/t a minor shock before risking unintended consequences.

          Difficult, difficult, lemon difficult.

          by Loge on Fri Mar 29, 2013 at 08:53:44 AM PDT

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