GRETCHEN MORGENSON | Fair Game: How to Cut Megabanks Down to Size

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How to Cut Megabanks Down to Size

IT is a prevailing myth in Washington: big bailouts are over for good. Never again, the line goes, could giant financial institutions imperil the nation’s economy.

This is nonsense, of course. Whatever regulators and lawmakers say, the Dodd-Frank financial overhaul lacks any guarantee that taxpayers won’t have to come to the rescue again.

So it was refreshing to hear a member of the Federal Reserve Board debunk the bailouts-are-gone theory last week.

The official was Richard W. Fisher, the president of the Federal Reserve Bank of Dallas and a longstanding truth-teller about too-big-to-fail banks. On Wednesday, in a speech in Washington, Mr. Fisher laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.

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2 Responses to “GRETCHEN MORGENSON | Fair Game: How to Cut Megabanks Down to Size”
  1. neidermeyer says:

    All the fraud will come out and all the losses will be taken. Right now it’s the American public that is taking the losses and it is clear that the gov’t has reached the limit in putting the hurt on us, we’ve been in an economic depression for 4 years although they won’t call it that and ordinary working peoples income has fallen for 40 years… The failed megabanks failed because they took the path offered them by the gov’t and the FedReserve , offered by discontinuing regulations and by showing that NO ILLEGALITY WOULD EVER BE PUNISHED IN A MEANINGFUL WAY … The “good” bankers HAD TO go “bad” to not be trampled by the Countrywides and BofA’s much less the Lehmans, the Sachs and the BS’s.

    We need to let them fail … start enforcing reserve requirements , sell the pieces .. I probably have enough in my pocket to but BofA right now ,, after all they’re worth a negative couple dozen billion… We can’t start to heal until we cut away the rot.. The time to do that was 15 to 25 years ago.

  2. walstir says:

    “Richard W. Fisher, the president of the Federal Reserve Bank of Dallas… suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.”

    If a megabank is chopped into two banks and both subsequently fail for the same reason as the original megabank would have failed; then the economic impact would be the shame. The Financial Crisis was not the result of some key bank collapsing due to the unique actions of the individual bank. There was a systemic fallacy that real estate was an inherently profitable investment that was subscribed to by almost every sector of society. We have already had a mass failure of smaller financial institutions which required government intervention – the S&L Crisis. Banks are inherently unstable – they all promise to return their depositors money on demand; but they do not have the funds on hand because the money is invested.

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