Should 'Mega-banks' be broken up to avoid 'to Big to fail bailouts'.

[Callie Del Noire]

http://www.thenation.com/blog/166370/petition-break-bank-america-pushes-forward

I figure that there is some logic to this. I mean video aside (and don't really like the video), the thing I'm wondering is what is the 'downside'. There have been a HELL of a lot of mergers in the last decade or so and I have to wonder if maybe breaking them up isn't a good thing.

I've been turning it over in my head and TRYING HARD to find the downside of this.

[Oniya]

There's been a lot of backlash to the concept of 'Too big to fail' - especially since we've found out that there isn't anything 'too big to fail'.  All it means is that when it does fail, it comes with the force of a tac nuke instead of a surgical strike.

I'm not sure I see a downside to this either.

[Callie Del Noire]

Call it my inner cynic but I don't see either side being right.. that being said I'm not seeing a way to fix the problem beside breaking it up to 'baby BOAs'.

[Oniya]

I think it might be a good 'first step'.  There needs to be some kind of oversight thing in place to keep the rampant mortgage speculation from happening again.

[Beguile's Mistress]

Keep in mind, too, that the fewer competitors there are in any industry the easier it is for them to control prices or in this case interest rates.  Without viable competition interest rates on investments by consumers can be kept low and the rates to borrowers can be kept as high as the market will bear.

Large banks are not morally, ethically or philosophically invested in the local economy either.  Branches of banks are more easily closed and consolidated with other branches when the bank is one of those big suckers.

I live in a city where there were three large banking concerns that are now two and one of those eliminated about 25% of their local branches.  The seven banks closest to me are all branches of the same bank.  We have smaller banks but they are having trouble competing against the larger banks.  Only customer loyalty is keeping the oldes independent system alive right now and two of the remaining smaller concerns are discussing consolidating.

I'm all for breaking up the big banks and getting some healthy competition going again especially since off-bank transactions through ATM machines, oline banking and transfers of funds between banks is so easy these days.

[Ramster]

Yes they should.

The smaller banks they are broken into should then be nationalised and run by civil servants, not bankers. Run the places like post offices, and pay the bankers no more than senior post office personnel - if they do a reasonable job, that is. Let the banks serve the community on a not for profit basis, rather than sucking it dry and gambling away its money, then holding the community to ransom for more.

[Hemingway]

I'll be the first to admit that my knowledge and understanding of matters relating to economy and finance are a bit more limited than they ought, and so I can't really comment on the practical sides of this. I don't know what the effect would be. I'm not about to let anyone with a vested interest in keeping banks too big to fail tell me, either.

But, as a matter of principle, the answer seems fairly obvious to me. A small group of people benefit greatly, but if they mess up, they're not the ones who pay for it. I mean, where's the justice in that?

[Beguile's Mistress]

Yes they should.

The smaller banks they are broken into should then be nationalised and run by civil servants, not bankers. Run the places like post offices, and pay the bankers no more than senior post office personnel - if they do a reasonable job, that is. Let the banks serve the community on a not for profit basis, rather than sucking it dry and gambling away its money, then holding the community to ransom for more.

But look at what is happening with the Postal Department.  Branches are cllosing and delivery services are being consolidated in facilities that are inconveniently located in some case for customers to visit.  An attempt to deliver a registered letter to my neighbor was made once, a notice left and the pick up spot was at a facility over ten miles away.

Mail carriers are either being laid-off or positions not filled when attrition eliminates people from the payroll.  Mail deliver is also going to be curtailed so that Saturdays are eliminated while prices keep going up for stamps and other services provided by the Postal Service.  Next day-delivery is still guaranteed, I think, but what had been second-day delivery is not guaranteed any longer.

[Chris Brady]

The issue with the postal service is one of Internet.  How can snail-mail, even the name hurts this, compete with sending off an e-mail where you can get an instant reply?  Not to mention all the courier services now available, like FedEx or UPS or any of them for physical packages.  Need money sent or received?  I believe that Western Union is still in business, among others.

This banking idea works better, because we still need physical money, and people to service us for it.  That's the difference.  So having it set up similarly to the USPS system is actually beneficial because you don't need all the parts of the USPS to work.  No need for the carriers or the sorters or even the map/route makers.

[Callie Del Noire]

The issue with the postal service is one of Internet.  How can snail-mail, even the name hurts this, compete with sending off an e-mail where you can get an instant reply?  Not to mention all the courier services now available, like FedEx or UPS or any of them for physical packages.  Need money sent or received?  I believe that Western Union is still in business, among others.

This banking idea works better, because we still need physical money, and people to service us for it.  That's the difference.  So having it set up similarly to the USPS system is actually beneficial because you don't need all the parts of the USPS to work.  No need for the carriers or the sorters or even the map/route makers.

Well part of the problem is folks like Congress and the DoD (along other federal groups) get FREE postage. Make Congress pay for their mail and how much would we save a year? 

Yes they should.

The smaller banks they are broken into should then be nationalised and run by civil servants, not bankers. Run the places like post offices, and pay the bankers no more than senior post office personnel - if they do a reasonable job, that is. Let the banks serve the community on a not for profit basis, rather than sucking it dry and gambling away its money, then holding the community to ransom for more.

Sarcasm aside, the breaking up would work.. like when they broke up AT&T back in the early 80s. Not nationalized.


A telling point is that a LOT of candidates have called for the repeal of the Dodd-Frank finance reform law (including Newt Gingrich who helped get it passed)

Sure, there should be very decisive reforms. I think, in retrospect, repealing the Glass-Steagall Act was probably a mistake. We should probably reestablish dividing up the big banks into a banking function and an investment function and separating them out again.

http://thinkprogress.org/economy/2011/11/08/364404/gingrich-wall-street-deregulation-mistak/

A lot of what we have seen come out of this is that banks are no longer divided between investment and commercial banks. That was clearly a mistake.

[Serephino]

Yes, these banks need to be broken up.  I don't think this country can survive a repeat if we don't fix the problem.

[gaggedLouise]

Right, I'm gonna pick up on a customers' side problem (which I figure has parallels elsewhere too) but this ties in strongly with the big banks being a cartel, and being seen as untouchable.


Around here in Sweden, three out of the four large banks (who between them have 90 or 95% of households and major businesses as customers, and who dominate the domestic credit market, including housing and private pensions) announced recently that from July on, they will not be handling cash over the counter at all at most of their offices. Sending or cashing in money orders at the counter of one's local bank has already been prohibitively expensive for several years in this country (extra fees, plus it takes time because frankly you don't get served with this kind of thing except at a very slow pace), but from now on, it's mostly a full stop. Barred, too, will be the actions of adding funds to your bank account, or your child's account (because you might need it to pay a timed transfer that can't wait, or because you received a few thousand in cash, or as a money order, for a job and you're not comfortable having it in the mattress or in a drawer in your table); picking up money from a pensions or wage account to which you don't have a card, and need to do it over the counter. Or because for various reasons you're not eligible for a visa card or the like. Anything of that kind, as long s you want it done inside the local bank office, in safety, gets blocked (in many places and especially in smaller towns, which is where it would be needed the most!) by three out of the big four. The fourth one will still be holding on to it, but probably with restricted hours - only before noon on three out of five weekdays or something.

All of these bank chains are saying they will be putting up automatic machines to allow for adding cash funds to an account. This is funny because last time I checked, most of them refused to set up that kind of beast, saying piously that they'd offer a route for money laundry and were too expensive to operate. The bank chain I'm using actually has that kind at some of their offices, even my local one, but up til two months ago, they were alone in this policy. Typical money withdrawal machines are all over the landscape of course, from the vestibules of banks to shopping malls and railway stations, but essentially customers have been told to manage their own business for a long time, and it's even something you get to pay for the priviliege of doing (I pay eq. of four bucks a month for having the "right" to do my banking erands online and holding a visa card). It's a no-brainer that several of these banks would want to have a small fee every time you withdraw money from your account at an automat, but it's proved an unsellable idea every time it's been suggested. When I pay with my card in a shop or online, though, the bank cashes in a little on it, not from me personally though, from the shop.

Predictably, every time you ask a banker they will wash their hands and say "anyone can learn to do their banking over the internet, it's not hard, and it's safe, and doesn't everyone have broadband these days? And if your old aunt Joan don't feel like learning it, and doesn't feel comfortable withdrawing her pensions money out in the street, where anyone can watch her, we'll have specially trained people who will help those folks do it, so everything will be fine". Those guarantees and promises don't amount to diddley of course. as soon as you are outside of the doors of the bank office, the bank has no legal responsibility if somebody jumps at aunt Joan and grabs her oversized wad of bills, or even poses as one of the "helpful assistants" paid to help with the transaction. And it's not as if absolutely everyone has internet either, is it? Or wants to learn to use it (you and I have no trouble, but what about some other kinds of people?) And no, the same kind of cut-down of service has been happening at post offices too.

Well, the trimming on customer service will push a segment of them over to other banks - including local banks - that do offer this kind of services, and who may also offer better interest dividends on personal savings, but there is little chance those banks would be able to get anything like the profits the big boys are making, or still less, the actual leverage the "big four" have with the state and with big business.

The end sum of it is: you're an utter nobody in this town if you don't hold a visa card, preferably a credit card, and have a decent inflow of digital cash to your account/s. What makes it even more offensive is that most of these banks were saved from collapse in the mid-90s by massive, multi-billion loans from the state national bank and the national treasury (have you heard it before, Americans?) There was even something called the Bank Emergency at the Swedish finance department at the time. The banks were indeed considered "too big to fail". In time, they did pay back most of the loans they had received to the treasury (who shoveled the money elsewhere), and they have long since recovered. There is no recognition from these banks though that they were implicated, from the start, in their own troubles or that they owe anything to the public and the taxpayers. And everyone knows that if another crisis would erupt, these same banks would be seen as too big to fail, all over again. Now though, we are also sitting with entire countries that are too big to fail, and whose debt contagion and need for money transfusions could spread all over the continent.

I think both the banks and the political establishment are badly in denial about these issues:

1)about the unacceptable human costs if something would fail: with a money system that's 95% running on digital money, a power failure or local internet trouble is enough to wreck many people's economy, or even their homes and lives.

2) about the lack of fairness and responsibility when all you have to say is, "if this bank goes down, everybody else goes down with us, don't they? so just pay our costs!"

3) about the risks of long-term instability and mass unemployment (or let's be frank: even worse mass joblessness).

Just because a particular bunch of politicians have been elected, that doesn't mean they have a blank cheque to do anything and everything they feel good about, together with their cronies in banks and big biz.