is completely lame:
“Breaking up big banks would actually increase system risk” is a refrain heard from top administration officials, ever more vocal after they helped kill the Brown-Kaufman amendment (that would have limited the size and leverage of our largest banks) on the floor of the Senate.
Brown-Kaufman?
Sen. Brown Statement on Finalization of Wall Street Reform Conference ReportWASHINGTON, D.C. - U.S. Sen. Sherrod Brown (D-OH), chairman of the Senate Banking Subcommittee on Economic Policy, issued the following statement upon the finalization of a Wall Street reform conference report:
"This is an important step in our efforts to put Main Street ahead of powerful special interests. Passage of Wall Street reform legislation will provide American taxpayers with greater protection from the kind of risky Wall Street practices that put our economy on the verge of collapse and led to the loss of eight million jobs and six million homes.
"While I would have liked to impose tougher rules on derivatives and address the problems created by banks that are too big and have too much leverage, this legislation will help rein in the Wall Street banks and their financial weapons of mass destruction. We cannot allow short-sighted practices on Wall Street to put our economy on the brink of collapse.
"Wall Street banks risked Main Street jobs, Main Street pensions, and Main Street neighborhoods with get rich quick schemes that collapsed. Wall Street reform is the first step toward ending this."
Brown-Kaufman was about the size of traditional banks and their leverage, which had absolutely nothing to do with the crisis.
This is from August:
Krugman: Too big to fail FAILI’m a big advocate of much strengthened financial regulation. One argument I don’t buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, it’s just not possible.
The point is that finance is deeply interconnected, so that even a moderately large player can take down the system if it implodes. Remember, it was Lehman — not Citi or B of A — that brought the world to the brink.
And as far as I know, there never was a time when policymakers could have viewed the collapse of a major money center bank with equanimity.
They certainly were worried about systemic risk in 1982, when I had something of a front-row seat. There were fears that the Latin debt crisis would take down one or more money center banks — Citi, or Chase, say. And policy was shaped in part by the desire to make sure that didn’t happen. Bear in mind that this was in the days before the repeal of Glass-Steagal, before finance got so big and wild; the New Deal regulations were mostly still in place. Yet even then major banks were too big to fail.
So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary; there’s no way to make this automatic.
The problems stemmed from the repeal of Glass-Steagal and the shadow financial system that grew out of that.
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