If the author wishes to see income inequality reduced, one of the fastest ways to do that would be elimination of the carried interest rule that allows banksters to pay less than 15% on income; and putting crooks (banksters) that break the law repeatedly through criminal conspiracies to defraud consumers of trillions of dollars would also help a great deal. Shame on Obama for letting them all off.
87
Spoken like a true insider, Mr. Eisman!
66
Mr. Eisman, you must have heard Lord Acton's dictum, “Power tends to corrupt and absolute power corrupts absolutely." That is a sure 'derivative' issue of big banks.
24
This article entirely ignores the ever present elephant in the room: the absurd notion that the quest for an always growing "economy" is in any way a sane notion. This foolishness puts humans in the role of a mestasisizing cancer on Earth. We must wake up and get out of the business of death.
74
Well, I don't agree with you Steve. But I take solace in knowing that breaking up the banks won't matter anyway. The entire national economy as well as the rest of the global economy seems to be falling apart. Globalization, as sold to the public has had it's successes - it has lifted billions across the world out of poverty, but global trade is lopsided and unsustainable. When you link those sums of wealth across the world with central bank printing presses going full-bore with fiat money and the banking leverage, you multiply the dangers into the "too big to fail" category. So, maybe breaking up the banks won't do us any good, but maybe it's worth trying anyways? Or will that just set off the whole thing by exposing very real hope papered over by central banks for the past 8 years?
11
"Unfortunately, Wall Street mistook leverage for genius. Then came the irresistible force known as subprime loans."
Leverage is precisely the cause of income inequality. When businesses become more concerned with their stock price than with the quality of their product, not only does quality become a drag on growth, the CEO and staff of the company begin to offer disproportionate rewards for those who can keep the company's dwindling state concealed the longest by creating phony assets to cook the books. In the meantime, workers' wages decline, reflecting the true state of the firm.
Leverage is precisely the cause of income inequality.
Leverage is precisely the cause of income inequality. When businesses become more concerned with their stock price than with the quality of their product, not only does quality become a drag on growth, the CEO and staff of the company begin to offer disproportionate rewards for those who can keep the company's dwindling state concealed the longest by creating phony assets to cook the books. In the meantime, workers' wages decline, reflecting the true state of the firm.
Leverage is precisely the cause of income inequality.
49
Looking at the comments, it is clear that Mr.Eisman's attempt at balance has fallen on deaf liberal ears. He rightly points out that income growth had begun to stall much before the crisis, driven by factors such as technology and globalization. Easy credit was a way for people to overcome lack of income growth. And banks aided and abetted.
The reality is that leverage is way down and imposing more restrictions will only hinder the slowly grinding come back of the U.S. economy. Quartering banks is NOT a solution to the low wage growth problem. It is retooling people, training them in new demand areas like technology and health care.
People have to take personal responsibility and stop complaining about imaginary banking demons. They are either dead, unemployed or neutered. Enough of this already.
The reality is that leverage is way down and imposing more restrictions will only hinder the slowly grinding come back of the U.S. economy. Quartering banks is NOT a solution to the low wage growth problem. It is retooling people, training them in new demand areas like technology and health care.
People have to take personal responsibility and stop complaining about imaginary banking demons. They are either dead, unemployed or neutered. Enough of this already.
21
As one wise radio commentator recently said, CEO's eat regulations for breakfast.
The rules that enforcing agencies are writing to implement Dodd Frank are highly influenced by the institutions they are regulating. I can promise that any regulations finally put into effect will be very weak and will have loopholes built into them that will easily allow the regulated institutions to avoid anything more than slight inconvenience when our grossly underfunded enforcement agencies try to enforce the watered down regulations that will have been largely written by the banks.
Dodd Frank is not self executing. Breaking up the banks is simple, clean and hard to avoid. Complete separation of commercial banks and investment banks would go a long way toward shutting down the financial industry casino and would stabilize the economy and force banks to invest in businesses that want to improve their products and services and not in paper shuffling and inventing new financial instruments that are backed by nothing more than wishful thinking.
The rules that enforcing agencies are writing to implement Dodd Frank are highly influenced by the institutions they are regulating. I can promise that any regulations finally put into effect will be very weak and will have loopholes built into them that will easily allow the regulated institutions to avoid anything more than slight inconvenience when our grossly underfunded enforcement agencies try to enforce the watered down regulations that will have been largely written by the banks.
Dodd Frank is not self executing. Breaking up the banks is simple, clean and hard to avoid. Complete separation of commercial banks and investment banks would go a long way toward shutting down the financial industry casino and would stabilize the economy and force banks to invest in businesses that want to improve their products and services and not in paper shuffling and inventing new financial instruments that are backed by nothing more than wishful thinking.
75
Well, good try, but not convincing.
The leverage games played by the largest financial institutions are the direct consequence of the repeal of Glass Steagall and the rise of financial derivatives as an industry unto itself. Eliminating the barriers between commercial and investment banking, cemented the old adage of gambling with OPM (other people's money). Would have thought that the CEOs of Goldman Sachs et al would assume a Danny DeVito role? But there you have it.
Actually, if capitalism is to work effectively, competition needs to exist among many players. The repudiation of anti-trust in this country since Reagan has resulted in financial oligopolies in many industries, including banking, where "wink wink" collusion is the order of the day. The collusion BTW, is not only between industry participants, but also between the government oversight functions, congress and the industry. Hence the sancrosanct nature of the lobbyist revolving door.
Maybe this country does need a good dose of Bernie or Ms Warren leadership to get our house back in order. No doubt the financiers would scream and the republicans would try to invoke a recession through whatever parliamentary legerdemain passes for governance in that party.
But as one early investor in Microsoft once put it, "it may be time for the peasants to storm the castle with pitchforks."
The leverage games played by the largest financial institutions are the direct consequence of the repeal of Glass Steagall and the rise of financial derivatives as an industry unto itself. Eliminating the barriers between commercial and investment banking, cemented the old adage of gambling with OPM (other people's money). Would have thought that the CEOs of Goldman Sachs et al would assume a Danny DeVito role? But there you have it.
Actually, if capitalism is to work effectively, competition needs to exist among many players. The repudiation of anti-trust in this country since Reagan has resulted in financial oligopolies in many industries, including banking, where "wink wink" collusion is the order of the day. The collusion BTW, is not only between industry participants, but also between the government oversight functions, congress and the industry. Hence the sancrosanct nature of the lobbyist revolving door.
Maybe this country does need a good dose of Bernie or Ms Warren leadership to get our house back in order. No doubt the financiers would scream and the republicans would try to invoke a recession through whatever parliamentary legerdemain passes for governance in that party.
But as one early investor in Microsoft once put it, "it may be time for the peasants to storm the castle with pitchforks."
50
Do our regulators even regulate? Ever watch Senators or Congresspersons in a hearing with the banks? It's like our elected officials can't genuflect and grovel enough. Sickening. The know it's their next big money job and they don't want to rock the boat.
So, I would redefine the problem as banking/congress to be more accurate. As for breaking them up, the sooner the better. At least then the banks wouldn't be able to effectively purchase so many congresspersons.
So, I would redefine the problem as banking/congress to be more accurate. As for breaking them up, the sooner the better. At least then the banks wouldn't be able to effectively purchase so many congresspersons.
33
things are now under control? oh, please...
31
It's like saying guns aren't the problem. Its the people in the bank that are the problem, gaming it for themselves.
15
The devil here is not in the details. The devil and evil is in the concept. What we get in the details, such as Mr. Eisman's self-serving divagations, is obfuscation.
20
While our new regulatory regime "seems to be working," there's no guarantee how long it will last. the next wave of deregulation, which I'm sure is being plotted as we speak, may roll it all back, and then some. Even broken up banks might reform. At least that would take longer to ----------- than a fit of deregulation.
Regulations and the danger of bank size aside, I have to think that the reduced number of banks and the tremendous size of those that remain is a direct cause of some of the increased inequality. Instead of greater numbers of bankers, we have fewer who are now earning record compensation. Going from a time of many high incomes spread across the country, to a time of fewer higher incomes in more concentrated locals, seem to me to be a perfect picture of growing inequality.
Banking has always been global and complex, but what's the benefit that might balance all the added risk to society from these TBTF sizes? Any we benefit from economy of scale has been passed long ago. For quite a while now hasn't it been all risk, no reward... unless you're one of the remaining bankers.
Regulations and the danger of bank size aside, I have to think that the reduced number of banks and the tremendous size of those that remain is a direct cause of some of the increased inequality. Instead of greater numbers of bankers, we have fewer who are now earning record compensation. Going from a time of many high incomes spread across the country, to a time of fewer higher incomes in more concentrated locals, seem to me to be a perfect picture of growing inequality.
Banking has always been global and complex, but what's the benefit that might balance all the added risk to society from these TBTF sizes? Any we benefit from economy of scale has been passed long ago. For quite a while now hasn't it been all risk, no reward... unless you're one of the remaining bankers.
17
I get your point, and tend to agree that you just cN't run an economy without biggsh banks.
However, I suspect that many of us actually aren't arguing for busting up banks--we're arguing that we need to stop patching them back together after they screw up like this.
However, I suspect that many of us actually aren't arguing for busting up banks--we're arguing that we need to stop patching them back together after they screw up like this.
14
Silly article. The Banks are certainly part of the problem.
26
Until recently, interstate banking was forbidden. Now it is allowed. What have we gained? A bank in any large American state can be big enough to compete internationally. Chase Manhattan, First National City and Bank of America (to name only the biggest) did so quite successfully in the days before interstate banking.
Standard Oil was broken up successfully, long ago, and many corporations divest large chunks of themselves, ostensibly to the advantage of their shareholders. So it can be done.
This is entirely separate from the question of leverage, which is always destabilizing.
Standard Oil was broken up successfully, long ago, and many corporations divest large chunks of themselves, ostensibly to the advantage of their shareholders. So it can be done.
This is entirely separate from the question of leverage, which is always destabilizing.
22
Thank-you Steve! This is by far the best, most objective overview I've seen published on this topic since the crisis.
Years ago in Econ class, I was taught the American consumer was the world's golden goose. If well cared for, they would provide economic benefits (demand and spending) to the world in perpetuity. But they've generally been exploited and undermined over the last 30 years by corporate right-sizing, off-shoring, union-busting and predatory credit practices that would have been unimaginable, and unacceptable socially and politically, since WWII.
Unless and until our political and corporate leaders recognize and support the American (and global) middle-class consumer, while moderating their own aggravating practices, I don't see how the golden goose recovers in our lifetimes.
Years ago in Econ class, I was taught the American consumer was the world's golden goose. If well cared for, they would provide economic benefits (demand and spending) to the world in perpetuity. But they've generally been exploited and undermined over the last 30 years by corporate right-sizing, off-shoring, union-busting and predatory credit practices that would have been unimaginable, and unacceptable socially and politically, since WWII.
Unless and until our political and corporate leaders recognize and support the American (and global) middle-class consumer, while moderating their own aggravating practices, I don't see how the golden goose recovers in our lifetimes.
19
Whatever the merits of Mr. Eisman's various suggestions, I assign them a zero value as a matter of principle.
Many people make Mr. Eisman out to be a sort of hero, in the belief that he saw what few others saw and knew it was wrong, so much so that he felt genuine anguish while eating his eggs Benedict on his rooftop terrace. But he is no hero.
First of all, many inside the business--myself included--knew what was coming; Mr. Eisman was hardly alone. Second, rather than use his insight to maybe write an op-ed in 2007 and save the country a few trillion off the bill for the coming crisis, he chose instead to stay mum, to place some bets on disaster and to sit back and wait. When the disaster arrived, he made boatloads of money. Is that not borderline treason? Why would anyone listen to such a guy?
The key is less about tweaking rules and regulations, and more about finding bank leaders--and equally important, regulatory and enforcement leaders--that believe themselves to be connected with and responsible to the larger community of Americans.
Banks can do what no person or other entity can do: create money out of thin air. If we are going to keep banks as part of our economic structure then they and the other constituents of the finance industry must be managed, regulated and policed by people we know to be of the highest integrity. And today, we have no such people in place, at Neuberger, Goldman, JPMorgan, DOJ, SEC or anywhere else. Fix that and the rest is easy.
Many people make Mr. Eisman out to be a sort of hero, in the belief that he saw what few others saw and knew it was wrong, so much so that he felt genuine anguish while eating his eggs Benedict on his rooftop terrace. But he is no hero.
First of all, many inside the business--myself included--knew what was coming; Mr. Eisman was hardly alone. Second, rather than use his insight to maybe write an op-ed in 2007 and save the country a few trillion off the bill for the coming crisis, he chose instead to stay mum, to place some bets on disaster and to sit back and wait. When the disaster arrived, he made boatloads of money. Is that not borderline treason? Why would anyone listen to such a guy?
The key is less about tweaking rules and regulations, and more about finding bank leaders--and equally important, regulatory and enforcement leaders--that believe themselves to be connected with and responsible to the larger community of Americans.
Banks can do what no person or other entity can do: create money out of thin air. If we are going to keep banks as part of our economic structure then they and the other constituents of the finance industry must be managed, regulated and policed by people we know to be of the highest integrity. And today, we have no such people in place, at Neuberger, Goldman, JPMorgan, DOJ, SEC or anywhere else. Fix that and the rest is easy.
34
When Steve Eisman says, "If I could sum up the catastrophe in one word, it would be leverage”, he grossly simplifies. How can you not use the words, "greed, deceit and unlawfulness". Leverage sounds so benign.
The lenders knew that things were going to go south and they wanted to cash in.
I assume that if Mr. Eisman so supports strong regulation and the Dodd-Frank bill he must surely does not support any of the the GOP candidates.
The lenders knew that things were going to go south and they wanted to cash in.
I assume that if Mr. Eisman so supports strong regulation and the Dodd-Frank bill he must surely does not support any of the the GOP candidates.
19
No, both issues are important. Banks are too big, corrupt, and unregulated. They don't serve their small depositors, but are causing harm to stock prices, investors, and international debt markets. Incomes are as unequal as at any time in the history of our country, which is nurturing to mass discontent, and even civil chaos.
17
Financial institutions; banks in particular, require collateral to manage risk. An unlimited stream of collateral deemed risk free fueled a growth in assets under management to a point where these banks are less efficient at allocating capital. To Big To Fail banks should be broken up into entities with less than one percent of GDP in assets under management to bring them back to their real purpose, which is to gather savings for real capital investment. Currently derivatives and the like are the investments the boys play at and our thirty record of wealth and income concentration the result.
11
The notion that the bankers and the regulators were ignorant about the consequences of their action and inaction rests in the carefully carved fiction that they were not acting with malicious knowing criminal intent. Better to be ignorant or even stupid when the alternative is criminal exposure. And the idea that the banks are limited to financial and economic arenas vanished with the merging of investment banks into commercial and retail banks bent on investment and profit without substantial substantive government public regulation. Income inequality begins and ends with knowing compliant corruptible crony capitalist bankers.
10
Steve Eisman is feeling the BERN!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Break 'em up!
Break 'em up!
16
This essay does not really address the facts. It covers them up with numbers, as if that's going to fix it. Just like the expats I know who send their kids to the best "B" schools, China is next. It's happening right now and it's not the air that's the problem. It is their misunderstanding of capitalism and morals. Greed is NOT good and of course morals are not taught in "B" school (business ethics is an oxymoron if there ever was one), regardless of what's in the curriculum or the catalog. Get a "good" job and make as much as you can! There's so much in this essay that begs to be commented on. Do you really think statistics are going to show us the way? Do you really expect me to believe that I am responsible for the crisis and that you're schooling taught you it wasn't really the banks' fault? Every page of every document I have from a "financial institution" says, in small letters at the bottom: "past performance is not a guarantee of future profits ..." Of course not. And we take the risk while bankers do not! What a gig!! But you still made lots of money so it's okay, even if millions suffered... you didn't see them or feel their pain so it didn't really happen. Or it was on your computer screen or cellphone screen so it wasn't really real...
16
You've got to be kidding me. The central message from the investment banker here can be summarized as "trust us, we've got this." The arrogance and hypocrisy is just off the charts. Wall Street has proven itself to be completely unreliable in terms of self regulation. These are the people that several years ago brought us to the brink of worldwide financial ruin, cratered the life savings of many average investors, required a massive federal bailout, and proceeded to go right back to handing out obscene bonuses. No thanks Mr Eisman. Fool us once, shame on you you. Fool us twice, not going to happen.
23
Saying that leverage was the cause of the financial crisis is incorrect.
The cause was poor credit policy that lenders believed they could pass off to the federal government (i.e. taxpayers) so they didn't have to worry about it. Big banks worked with big government to build this pipeline of trash and the result was an explosion of housing loans and housing prices followed by an implosion of the debt market and the housing market when it became apparent that it was a bubble of bad debt. Poor credit decisions can put any lender out of business regardless of leverage ratios. A lender cannot have a leverage ratio low enough if they are going to make reckless lending decisions.
The reason to breakup big banks is really exemplified in the last crash. When big banks and big government collude it's usually going to be expensive for the taxpayer. Who else can take on systemic risk but the system and that is made up of the citizen taxpayer.
Breaking them up is easy. We can restrict their business footprint to no more than say 5 contiguous states and they would have to spin off the accounts and operations of the states they did not want. Plenty of other ways to make this happen. We did it with AT&T and people thought the world would end.
The cause was poor credit policy that lenders believed they could pass off to the federal government (i.e. taxpayers) so they didn't have to worry about it. Big banks worked with big government to build this pipeline of trash and the result was an explosion of housing loans and housing prices followed by an implosion of the debt market and the housing market when it became apparent that it was a bubble of bad debt. Poor credit decisions can put any lender out of business regardless of leverage ratios. A lender cannot have a leverage ratio low enough if they are going to make reckless lending decisions.
The reason to breakup big banks is really exemplified in the last crash. When big banks and big government collude it's usually going to be expensive for the taxpayer. Who else can take on systemic risk but the system and that is made up of the citizen taxpayer.
Breaking them up is easy. We can restrict their business footprint to no more than say 5 contiguous states and they would have to spin off the accounts and operations of the states they did not want. Plenty of other ways to make this happen. We did it with AT&T and people thought the world would end.
20
What about making _all_ financial institutions transparently sustainable, so that they actually serve _all_ involved, rather than creating an non-sustainable mess?
Thank you, Hearthstone.
Thank you, Hearthstone.
3
Fox: "Take it from me, closing that henhouse door would be bad for the chickens".
55
Well done, Mr. Eisman. Thank you.
3
There's a consumer banking side to all of this, too. A few years ago I took out debt consolidation loans to pay down credit cards. I did it with a small, local, credit union. At one point I was sitting with one of the credit union's bankers, and we realized that there was an overlooked piece of paperwork that needed to be signed. "Oh great," I thought. "This means we won't close on this deal today. I'll need to get on the phone with an office in Duluth or something, and spend three weeks getting this garbage worked out." Boy was I wrong. The credit union guy called an extension upstairs, minutes later a coworker arrived with the needed form - it was signed and we were on our way.
.
This kind of all-in-one-location customer service is an important thing for the consumer - as important as subprime loans and the meltdown they caused. I never had issues with subprime loans: I refused to consider a subprime loan when it was all the rage. I was not directly affected by the subprime mortgage crisis. But I do use my bank, as a consumer, at least a few times every month.
.
This kind of all-in-one-location customer service is an important thing for the consumer - as important as subprime loans and the meltdown they caused. I never had issues with subprime loans: I refused to consider a subprime loan when it was all the rage. I was not directly affected by the subprime mortgage crisis. But I do use my bank, as a consumer, at least a few times every month.
10
The big banks don't need to be broken up, but there must be a very strong firewall between the banking and investment sides of the institution with strict limits on the use of banking customers funds. Investors are different and are willing to assume risk, but savers shouldn't be exposed to it.
The pitiful power of the big banks, and any other big money source, should be limited by campaign finance reform. And the easiest way to do that is limit campaigns to 8 weeks like the British.
The pitiful power of the big banks, and any other big money source, should be limited by campaign finance reform. And the easiest way to do that is limit campaigns to 8 weeks like the British.
15
Does not address the fact that some of those people should have gone to prision and please don't give me that nonsense that the jailing would cause the bank to fail
Give Blankfein 20 years and there will be another Goldman bloodsucker sitting in his chair before you get the cuffs on.
Give Blankfein 20 years and there will be another Goldman bloodsucker sitting in his chair before you get the cuffs on.
44
The problem is neither banks nor wall street......the problem is
GREED.
GREED.
16
Occam's Razor stipulates that the simplest answer is most often the correct one. Relaxing the regulation of banks caused them to misbehave. That is the simple direct answer. Another simple supposition is that people with a stake in something have a bias. Mr. Eisman is a managing director of a financial firm. To think that hat he has no personal interest in thwarting bank deregulation would also violate Occams Razor. It has gotten to the point that you no longer have to read an editorial. All you have to do is know who wrote it.
139
There is no doubt that gargantuan banks benefit the senior executives. A pyramid with a big base can be higher than one with a small base.
They also can make lots of bad decisions, which a smaller bank would shy away from, because it can offset losses against gains.
They can ignore its local, regional, and national businesses because it can operate on an international scale.
They can limit the effects of competition by dominating local markets and by replicating the operations of other big banks.
The defects of the capitalist system when dominated by monopolies or oligopolies were seen 150 years ago, when anti-trust legislation was conceived. There is a discussion to be had about how smaller banks could operate in an international climate, but projects often rely on consortia to be financed.
The big question, however, is whether the American people and economy would be better served in the round by many smaller and medium sized banks or fewer and larger banks.
They also can make lots of bad decisions, which a smaller bank would shy away from, because it can offset losses against gains.
They can ignore its local, regional, and national businesses because it can operate on an international scale.
They can limit the effects of competition by dominating local markets and by replicating the operations of other big banks.
The defects of the capitalist system when dominated by monopolies or oligopolies were seen 150 years ago, when anti-trust legislation was conceived. There is a discussion to be had about how smaller banks could operate in an international climate, but projects often rely on consortia to be financed.
The big question, however, is whether the American people and economy would be better served in the round by many smaller and medium sized banks or fewer and larger banks.
6
'The problem of derivatives — they can increase risk, rather than reduce it, as they were designed to do...'
They CAN? What the securitisation and rebundling and selling on of loans is designed to do is to increase risk - to disguise it and foist it on someone else.
Say what you like about Mr Potter in It's a Wonderful Life, he was canny about loans because if they went south he was stuck with the consequences. Chances are he'd actually walked the grounds of the houses on which he wrote loans.
By contrast, a derivative bundling loans is like a 'berry pie', some strawberry, some blueberry, some dingleberry. Only the guy who actually winds up eating the pie gets a mouthful of dingleberries. All those who sell it on have no reason to care; when the music stops, they've made their profit. The objects of the loans themselves are reduced to abstractions.
The size of the bank is not really the issue. The issue is that a system has been created that allows the financier to divorce risk from reward. Perhaps what is needed (in addition to other reforms) is somehow creating a branch of the banking industry specifically for consumer loans, which would require loans to stay with the originating bank.
They CAN? What the securitisation and rebundling and selling on of loans is designed to do is to increase risk - to disguise it and foist it on someone else.
Say what you like about Mr Potter in It's a Wonderful Life, he was canny about loans because if they went south he was stuck with the consequences. Chances are he'd actually walked the grounds of the houses on which he wrote loans.
By contrast, a derivative bundling loans is like a 'berry pie', some strawberry, some blueberry, some dingleberry. Only the guy who actually winds up eating the pie gets a mouthful of dingleberries. All those who sell it on have no reason to care; when the music stops, they've made their profit. The objects of the loans themselves are reduced to abstractions.
The size of the bank is not really the issue. The issue is that a system has been created that allows the financier to divorce risk from reward. Perhaps what is needed (in addition to other reforms) is somehow creating a branch of the banking industry specifically for consumer loans, which would require loans to stay with the originating bank.
16
Breaking up the big banks might be difficult, long and even disruptive, but not addressing the potential for large, global, complex, integrated financial collapse is too dangerous a risk.
10
What is more important than the size of the banks is how they operate. That is the real problem. And the worst of all the problems is that the the repeal of Glass-Stegall made it legal for banks to be both the caretakers of people's money (for a reasonable profit), as well as a giant casino that uses the people's money to make bets on purely financial assets (at great risk and indecent profits).
Therefore, banking reform begins with restoring Glass-Stegall, and Bernie Sanders is the only candidate calling for that.
Therefore, banking reform begins with restoring Glass-Stegall, and Bernie Sanders is the only candidate calling for that.
18
I think this is the result of middle class myopia as wages haven't kept up with the economy's growth. Our economy has increasingly become dominated by the big players and the big banks are the poster children for what is wrong.
What industry doesn't have five super huge conglomerates that dominate their markets? Today's Times has a story about the big airlines price fixing. One major area of contention in this election cycle is health insurance and there are only four providers. The largest employers in this country - telecommunications, defense/aerospace, pharmaceutical, oil/energy, auto manufacturers, steel, and chemicals - have just a handful of corporations. I don't hear anyone claiming we need to break up these companies.
Corporations exist to take advantage economies of scale with their ability to acquire large low interest short term loans. They live in the margins where the smaller companies can't possibly compete. Cost cutting, outsourcing, offshoring, restructuring, acquisitions/take-overs and technological improvements have been the business of business since the Berlin wall fell and we were introduced to the global economy. This has led to increased worker productivity and less jobs. The scarcity of jobs has flattened the wages. Americans are working harder for less and need to blame someone.
Globalization has resulted in bigger corporations with less jobs and banking is just like every other industry. They are just a convenient scapegoat.
What industry doesn't have five super huge conglomerates that dominate their markets? Today's Times has a story about the big airlines price fixing. One major area of contention in this election cycle is health insurance and there are only four providers. The largest employers in this country - telecommunications, defense/aerospace, pharmaceutical, oil/energy, auto manufacturers, steel, and chemicals - have just a handful of corporations. I don't hear anyone claiming we need to break up these companies.
Corporations exist to take advantage economies of scale with their ability to acquire large low interest short term loans. They live in the margins where the smaller companies can't possibly compete. Cost cutting, outsourcing, offshoring, restructuring, acquisitions/take-overs and technological improvements have been the business of business since the Berlin wall fell and we were introduced to the global economy. This has led to increased worker productivity and less jobs. The scarcity of jobs has flattened the wages. Americans are working harder for less and need to blame someone.
Globalization has resulted in bigger corporations with less jobs and banking is just like every other industry. They are just a convenient scapegoat.
5
The Glass–Steagall Act was undone by congressional efforts. What assurances do we have that the same thing won't happen to this "new regulatory regime?"
16
Leverage of fraudulently rated derivatives that were known to be fraudulent when they were flogged to the greater greedy fool were a prime cause of the great con game. A gigantic scam is not less criminal just because it is huge.
26
While all of those problems mentioned needs to be fixed, the author fails to realize that if those very problems exist and a bank is too big to fail, it will take down our economy. I truly do not understand the argument as to why breaking them up should not happen. It should happen in conjunction with everything else.
14
I recently watched "The Big Short," and the author's claim that only a handful of individuals were aware of an impending real estate collapse is not supported by the facts of the time. Their advantage, unlike John Q Public, was knowing how to profit from the impending RE implosion(see following link):
http://www.nytimes.com/2015/12/23/upshot/what-the-big-short-gets-right-a...
As an individual who purchased my home during the 80's housing bubble, and subsequently made a small profit during the ensuing foreclosure boom, I also recognized the early RE bubble and like John Q, I did not know how to capitalize on the coming crash.
Now to your main point, which is breaking up Big Banks is not a viable solution, especially since we now have "Dodd-Frank."
Dodd-Frank may be the law of the land, but from what I have read the legal loopholes are so prevalent, they are big enough for the proverbial "Big Truck to Drive Through." And I am not quite sure if they cover the original CRA exempt institutions from restarting their predatory lending practices.
While I am at, I read the following Politico review pointing out a flaw I picked up while watching the movie(the Selena Gomez explanation):
http://www.politico.com/magazine/story/2016/01/what-the-big-short-gets-w...
Finally, I thought the failing banks should have been nationalized, and I was in good company on the Left and the Right, as well as with certain FED officials.
http://www.nytimes.com/2015/12/23/upshot/what-the-big-short-gets-right-a...
As an individual who purchased my home during the 80's housing bubble, and subsequently made a small profit during the ensuing foreclosure boom, I also recognized the early RE bubble and like John Q, I did not know how to capitalize on the coming crash.
Now to your main point, which is breaking up Big Banks is not a viable solution, especially since we now have "Dodd-Frank."
Dodd-Frank may be the law of the land, but from what I have read the legal loopholes are so prevalent, they are big enough for the proverbial "Big Truck to Drive Through." And I am not quite sure if they cover the original CRA exempt institutions from restarting their predatory lending practices.
While I am at, I read the following Politico review pointing out a flaw I picked up while watching the movie(the Selena Gomez explanation):
http://www.politico.com/magazine/story/2016/01/what-the-big-short-gets-w...
Finally, I thought the failing banks should have been nationalized, and I was in good company on the Left and the Right, as well as with certain FED officials.
8
I disagree with the principal premise of the article: If banks are too big to fail the they must be broken up so their fate is tied to their performance. And absolutely bankers and not shareholders should be held responsible for paying fines - as another piece published in the NYT has argued.
Bankers have also been held immune of alleged crimes committed during the Great Financial crisis of 2008. That is one the enduring legacies of pseudo democrat President Obama - as soon as I saw his first appointment to the Treasury Department in 2009 I knew there was something rotten in Denmark. I believe bankers should be held responsible to the letter of the law just like every other citizen.
Candidate Clinton follows Obama in this velvet glove treatment of banks and Wall Street.
Bankers have also been held immune of alleged crimes committed during the Great Financial crisis of 2008. That is one the enduring legacies of pseudo democrat President Obama - as soon as I saw his first appointment to the Treasury Department in 2009 I knew there was something rotten in Denmark. I believe bankers should be held responsible to the letter of the law just like every other citizen.
Candidate Clinton follows Obama in this velvet glove treatment of banks and Wall Street.
8
My knowledge of the banking industry is nil. But what I want to know is how come out of all the thieves that were exposed by their own, let me repeat that...OWN avarice, were not put in jail. Rotten SEC, rotten prosecution and rotten people running the so called investigations including the rotten politicians who "investigated" the rotten people involved in the economic take down of the federal government. Their arrogance and hubris of the Damien's was breath taking. And the politicians did nothing. Why? Because their campaigns are funded by all these thieves...This will never change. Feel the Bern yet?
10
Mr. Eisner's view here is largely in agreement with Dr. Krugman's. Let's face it our problem areas are more difficult to see through the thicket than the obvious.
The single-minded focus on breaking up the banks is cute and galvanizing, but it is not a particularly thorough approach. Hillary has been far more comprehensive in her approach to regulating the financial sector. Unsound investments are what cause financial turmoil and we need to de-incentivize them.
5
"Some argue that they should be broken up simply because they have become too politicly powerful." Huh? It's well documented that the banks have paid the leading candidate for President, Hillary Clinton, many millions of dollars over the past few years. Her answer? "It's what they offered."
Wrong answer. You had to know that question was coming. You had know that you would be running for President and giving those speeches and accepting that money would be a huge negative to your integrity. But, you went ahead, and did it anyway. You, Ms. Clinton, are a stupid, stupid, woman. Not for taking the money, but for running for President, and thinking you could gloss over, TAKING THE MONEY.
You think the American voters are that enamored with your half baked resume to disregard the obvious? You, have always taken the money. You always will take the money. For you, it's about the money.
The irony is, my main concern for voting for President this time, is to get a majority in the Supreme Court, so that they will, in the future, prevent candidates like, Hillary Clinton, from taking this obvious bribe money which insures the status quo in our economy.
Wrong answer. You had to know that question was coming. You had know that you would be running for President and giving those speeches and accepting that money would be a huge negative to your integrity. But, you went ahead, and did it anyway. You, Ms. Clinton, are a stupid, stupid, woman. Not for taking the money, but for running for President, and thinking you could gloss over, TAKING THE MONEY.
You think the American voters are that enamored with your half baked resume to disregard the obvious? You, have always taken the money. You always will take the money. For you, it's about the money.
The irony is, my main concern for voting for President this time, is to get a majority in the Supreme Court, so that they will, in the future, prevent candidates like, Hillary Clinton, from taking this obvious bribe money which insures the status quo in our economy.
15
Mr. Eisman:
"In the movie, The Big Short," Stever Carell plays a slightly alternative version of" you in that he foresaw the coming economic collapse that was not seen by anyone at your firm, then a part of Lehman Brothers.
That's a pretty big matzo ball you've thrown against the wall.
"In the movie, The Big Short," Stever Carell plays a slightly alternative version of" you in that he foresaw the coming economic collapse that was not seen by anyone at your firm, then a part of Lehman Brothers.
That's a pretty big matzo ball you've thrown against the wall.
25
No mention of credit default swaps, low interest rates by the Fed, or the involvement of Fannie Mae and Freddie Mac. In fact, no real mention of any government policies that may have contributed to the crisis, save for regulators who didn't have a clue as to what was going on.
"If we want a stronger economy, improving the distribution and growth of personal income should be our focus."
OK, Mr. Eisman, what's your plan?
"If we want a stronger economy, improving the distribution and growth of personal income should be our focus."
OK, Mr. Eisman, what's your plan?
20
It isn't just the banks that need breaking up. 4 or 5 multinational corporations control virtually all of the food we eat. Another 4 or 5 control the media. 4 Airlines own 80% of all the seats in the air.
A free market system needs competition to efficiently set prices and allocate investments.
But what we have now is a centrally planned economy, just one planned from Wall Street instead of from the Kremlin.
A free market system needs competition to efficiently set prices and allocate investments.
But what we have now is a centrally planned economy, just one planned from Wall Street instead of from the Kremlin.
270
It's time to trim the bushes cause their starting to kill surrounding vegetation as Peter sellers would say.
17
Well, then, tax them.
Financial services are almost 45% of GDP, and it's been shown here in the Times that 70% of transactions benefit only the trader, not the stakeholder.
When people can make lavish incomes merely by lobbing other people's money back and forth, whereas productive activity (which produces things to eat, wear, live in or do work with) is penalized by a taxation system which productive workers lack the resources to game for themselves, there is going to be inequality. When investors can reap the rewards of funding ventures such as fracking, tar sands and shale oil, or shortsighted development of risk-prone areas, while laying off the environmental, health and community costs to taxpayers who cannot evade the burden, the driver of inequality is going to be "private profit, public cost."
Financial services are almost 45% of GDP, and it's been shown here in the Times that 70% of transactions benefit only the trader, not the stakeholder.
When people can make lavish incomes merely by lobbing other people's money back and forth, whereas productive activity (which produces things to eat, wear, live in or do work with) is penalized by a taxation system which productive workers lack the resources to game for themselves, there is going to be inequality. When investors can reap the rewards of funding ventures such as fracking, tar sands and shale oil, or shortsighted development of risk-prone areas, while laying off the environmental, health and community costs to taxpayers who cannot evade the burden, the driver of inequality is going to be "private profit, public cost."
299
I agree with the concern for income inequality. If money is not in consumers' hands, corporations will defer investment, and the slowdown will continue. Much blame belongs to Congress, which refuses to stimulate the economy. If a Republican were President, they would spend lots of money, despite their ideological protestations to the contrary. The structural issues are 1) that virtually all of the efficiencies of the computer age have filled the pockets of the few. For them, employees are money wasters. And 2) the global economy has meant that cheap labor, even sometimes slave labor, has provided us with inexpensive goods.
59
"Using borrowed money, the financial system made huge bets..." History repeating itself???
24
How many candidates have taken money from Goldman Sachs?
How many from Neuberger Berman?
And who are they?
How many candidates have not taken money from any super pacs?
How many from Neuberger Berman?
And who are they?
How many candidates have not taken money from any super pacs?
76
Yeah, tell us!
The stupid republicans want to do away with dodd-frank and the cfpb. We need to strengthen both and breakup the big banks. Too much power, financial and political, in too few hands.
99
Eisman should read today's NYTimes article outlining yet again bank corruption with a $154.3 million fine on top of billions paid.
http://www.nytimes.com/2016/02/07/business/fining-bankers-not-shareholde...
Their power corrupts. Period.
http://www.nytimes.com/2016/02/07/business/fining-bankers-not-shareholde...
Their power corrupts. Period.
168
What about Glass-Steagall or a 2016 version of it, Mr. Eisman? You have not addressed the US Treasury's and the American people's responsibility for the bets that the investment banks make so that their CEO's and shareholders continue to get their bonuses and dividends. Does not "braking up the big banks," in fact, mean separating the casino aspects of the investment banks from the more boring, but critical, FIDC-insured savings and loan functions of a true bank? Stepping over the Glass-Steagall question weakens your argument for leaving the big banks intact.
234
Glass-Steagall never applied to investment banks.
4
LESSONS FROM THE PAST According to this article, the Great Recession of 2007 had the earmarks of the causes of the Great Depression. Specifically overextended leverage. So banks had to have much less money onhand to secure loans than was prudent or safe. The same exact thing happened prior to the great depression. Leveraging was inflated so when the market fell it burst the huge bubble. When Reagan came to office, I believed that we would have another Great Depression because so many of the safeguards put in place to protect against bank failure were removed. In the name of "new prosperity." Ask if all the boats rose with the tide in 2007. You know the answer. I agree with the writer that there needs to be a consistent, incremental approach to implementing and monitoring regulatory laws intended to protect consumers from high risk financial practices. But with so many trillions of dollars in markets daily whirling around the globe at the speed of light over fiberoptic cables, everything is invisible in plain sight. Like atoms and molecules. I don't know how one would determine a safe maximum speed for transactions. But the speed of light is the highest velocity possible. We need to slow things down to a more manageable pace, where robots that make trades in nanoseconds won't dominate the market, pushing out human investors. The details of doing this will be complicated, but we must move forward to protect ourselves from another big crash.
60
It never dawned on lenders or regulators that housing prices kept going up because loans weren't being regulated?
This is not true. It's a gawking lie. Mr. Eisman, how can you write such rankly dishonest misrepresentations in a major paper?
If the banks' excuse is that they didn't know this, then we need to take a hard look at what they're pretending to not know now.
This is not true. It's a gawking lie. Mr. Eisman, how can you write such rankly dishonest misrepresentations in a major paper?
If the banks' excuse is that they didn't know this, then we need to take a hard look at what they're pretending to not know now.
24
So, I agree with Mr Eisman that back in the bad old days, many peeps were able to make up for their meagerly rising incomes by taking money out of their home equity every 3 or 4 years, and when that cash cow went dry simultaneously with a bad economic downturn there was much economic unease. And, I agree that, if the provisions of the Dodd-Frank act were allowed to become fully funded & staffed that the banks would be safer. But those are pretty big ifs when you consider the current make up of Congress and the uncertainty of the next Presidential election. I can't help but imagine that if a Republican President were elected then, soon after repealing the ACA, the Dodd-Frank act would be in line for the same and we would be in for a future that might seem eerily familiar.
10
Excess Leverage, yes. Also, overvalued assets, the same two ingredients of every financial bust-up.
Now, after seven years of increasingly underpriced money and consequently overvalued assets, a next bust-up looms. The insights of hindsight will trundle along afterwards. But, again too late.
Now, after seven years of increasingly underpriced money and consequently overvalued assets, a next bust-up looms. The insights of hindsight will trundle along afterwards. But, again too late.
6
Useful but not credible given your current job
9
Mr Eisman is certainly right in pointing out that extreme leverage was one of the causes of the 2008 crash, but I don't think a sudden onslaught of greed was the sole reason. Greed has always infected the financial sector. Lax regulation played a role, but that can always be expected under Republicans.
He provides a better explanation in the last two paragraphs when he points to inequality as the culprit. Money in the hands of the Rich does not aid commerce as much as money in the hands of the non-rich. The Rich spend a smaller percentage and use the rest for the kind of speculation Mr. Eisman rightly deplores. Inequality has been large before both the 1929 and the 2008 crashes.
But there is another perhaps more basic cause that he does not mention. That is the flow of money OUT of the private sector starting in about 1995 which except for a brief period in 2003 continued right on up to the crash. This was caused by the reduction in the federal deficit leading to the Clinton surpluses and the trade deficit which swamped the even the Bush deficits. http://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the-...
The cumulative effect of this outflow was a huge explosion in private borrowing as people turned to banks for money to conduct commerce. It appears that this was the primary cause of the huge leverages Eisman points out. BUT even at a leverage of "only" 10 to 1, if the amount borrowed were large enough, the system could not support it.
He provides a better explanation in the last two paragraphs when he points to inequality as the culprit. Money in the hands of the Rich does not aid commerce as much as money in the hands of the non-rich. The Rich spend a smaller percentage and use the rest for the kind of speculation Mr. Eisman rightly deplores. Inequality has been large before both the 1929 and the 2008 crashes.
But there is another perhaps more basic cause that he does not mention. That is the flow of money OUT of the private sector starting in about 1995 which except for a brief period in 2003 continued right on up to the crash. This was caused by the reduction in the federal deficit leading to the Clinton surpluses and the trade deficit which swamped the even the Bush deficits. http://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the-...
The cumulative effect of this outflow was a huge explosion in private borrowing as people turned to banks for money to conduct commerce. It appears that this was the primary cause of the huge leverages Eisman points out. BUT even at a leverage of "only" 10 to 1, if the amount borrowed were large enough, the system could not support it.
5
This is a piece written on behalf of Hillary's campaign; one of a series of opinion pieces solicited by the NYT's editorial board to backup their endorsement of Hillary's campaign. I'm sure that we will see many more. and they will become more strident in the attempt to undermine a central idea of the Bernie Sander's campaign: the political power of big money must be broken up if we are to reverse the past 40 plus years of economic inequality. The kind of financial reform cited by Mr. Eisman will be more effective after radical surgery is performed. Call it what you will, Wall Street, dark money, corporate largesse, Citizens United, the Davos World Economic Forum, etc., their cumulative control over a public policy that favors the rich must be reined in; and yes, internationally.
32
I'll never understand the materialistic fixation with income inequality in the US. When everyone in America (nearly literally everyone) has access to medicine, legal and police protection, education, food and shelter why are we still measuring our living standards by who owns the best car or the designer of our shoes. If the wealthy choose to work their lives away, give 40% of their earnings to pay for government services (services enjoyed in large part by others), and possibly drop dead at their desk one day…. why are we objecting? Furthermore how is this "income equality" possible? Divide all the assets tonight after the Super Bowl, make everyone equal, and tomorrow by 8am we will be unequal again. You cant force anyone to make wealth maximizing decisions. Tonight, some of will spend too much drink too much and skip work tomorrow. Those who show up to work will make either good or bad decisions with their money. We'll all be unequal again by 8:01AM.
6
" When everyone in America (nearly literally everyone) has access to medicine, legal and police protection, education, food and shelter "
You must not go out much.
You must not go out much.
8
Big banks were saved by big government.
8
I'll add two points to this very good article. During W's administration his SEC director, Chris Cox, allowed the debt to equity ratio to rise well above the typical conservative banking practice of about 10-12 to 1. As this article points out during that time the numbers got beyond 40 to 1!
And as pointed out there has been work done to address these abuses in the Dodd-Frank legislation. Where are the Sanders' supporters to acknowledge this?
My other point not mentioned in the article is that Senator Elizabeth Warren has spoken about the need to come up with modern legislation to replace the old Glass-Steagall Act. Warren recognizes that the old G-S laws are obsolete and a new set of provisions for our modern world is necessary.
I read this article as a level headed approach using the best of conservative banking practices that go a long way to insure fair banking practices that help both consumers and banking institutions.
I soundly reject the sackcloth and torch approach to burning down our banks.
And as pointed out there has been work done to address these abuses in the Dodd-Frank legislation. Where are the Sanders' supporters to acknowledge this?
My other point not mentioned in the article is that Senator Elizabeth Warren has spoken about the need to come up with modern legislation to replace the old Glass-Steagall Act. Warren recognizes that the old G-S laws are obsolete and a new set of provisions for our modern world is necessary.
I read this article as a level headed approach using the best of conservative banking practices that go a long way to insure fair banking practices that help both consumers and banking institutions.
I soundly reject the sackcloth and torch approach to burning down our banks.
13
Not even a mention of Glass-Steagall? The drive to extract maximum profits for investors for has superseded the roll of banks as functional financial service providers for those of modest means. With this shift in focus has come the 'leverage problem' which is largely the focus of Eisman's concern, the tightening of credit that has slowed economic recovery, and the usurious credit card rates. Perhaps if we had financial institutions that functioned more like banks of previous decades than the economic parasites that crashed our economy and with it the financial security and retirement investments of middle income earners, we would all be better off. Well, all of us except the masters of the universe with 7 and 8 figure salaries.
39
There's a lot wrong with banks.
For retirees, the big trouble is that they have CD's in them that get about .03% interest. That means that any medical or home expense must come, eventually, from whatever little nest egg they've managed to acquire over long years of frugality. Top banking executives on the other hand give themselves enormous salaries and benefits.
Places like J.P. Morgan Chase hire young "bankers" who have access to everyone's social security numbers and who can move money around willy-nilly. They're not that well educated, they're not paid particularly well, and they steal. They are not the bankers of old. And yet Chase does not install software that would make it more difficult for such crimes to occur.
The "investment" aspects of banks are fraudulent. What the "investment advisors" take out in fees is criminal -- actually decreasing the amount of money in such accounts. An elderly friend of ours was convinced a couple of years ago to let a Chase "banker" invest her savings in various "funds." He's making a lot of money in fees; and while, since our friend is in her late 90s, she might very well die before her savings run out, the fact remains that her money is being depleted not by herself but by her trusted banker's shenanigans.
No one seems to be interested in such actions.
For retirees, the big trouble is that they have CD's in them that get about .03% interest. That means that any medical or home expense must come, eventually, from whatever little nest egg they've managed to acquire over long years of frugality. Top banking executives on the other hand give themselves enormous salaries and benefits.
Places like J.P. Morgan Chase hire young "bankers" who have access to everyone's social security numbers and who can move money around willy-nilly. They're not that well educated, they're not paid particularly well, and they steal. They are not the bankers of old. And yet Chase does not install software that would make it more difficult for such crimes to occur.
The "investment" aspects of banks are fraudulent. What the "investment advisors" take out in fees is criminal -- actually decreasing the amount of money in such accounts. An elderly friend of ours was convinced a couple of years ago to let a Chase "banker" invest her savings in various "funds." He's making a lot of money in fees; and while, since our friend is in her late 90s, she might very well die before her savings run out, the fact remains that her money is being depleted not by herself but by her trusted banker's shenanigans.
No one seems to be interested in such actions.
35
There is a bill pending to force investment and financial advisers to act as fiduciaries. That would subject them to penalties and court action if they acted in their own interests rather than in the interests of the investors they are advising.
Don't hold your breath. The financial industry is fighting that prospect tooth and nail. Imagine! forcing financial advisers to work on behalf of the people they are advising instead of working for their own profits and the welfare of the institutions they represent! Unthinkable!
Don't hold your breath. The financial industry is fighting that prospect tooth and nail. Imagine! forcing financial advisers to work on behalf of the people they are advising instead of working for their own profits and the welfare of the institutions they represent! Unthinkable!
3
Mr. Eisman aside, we all know that there are still too many banks that are too big to fail. Analysts with no "skin in the game" of building bank balance sheets have told us that the next implosion would leave more, not fewer banks so big as they failed that bailing them out would bankrupt even more governments, including potentially our own and most of Western Europe.
Now, to our election. The GOP wants to eliminate Dodd-Frank. It is also good to remember that we have that consumer protection side of the regulatory process thanks to the determination of Sen. Elizabeth Warren. It may also help to remember that the banks were able to do much of what they did because Bill CLINTON worked across the aisle with Sen. Gramm to tear down any of the walls that previously made it difficult for banks to do what they did, to crash themselves and with them our and the world's economy.
Hillary Clinton, who makes her living giving 20 minute speeches for hundreds of thousands of dollars each for big banking houses, will never get my vote. I am an old woman, been around for a long time, and her being the first woman in the White House would not change what she would do. Elizabeth Warren would get my vote for that privilege. This cycle, Bernie Sanders has my vote and my monthly donation. Break up the banks.
Now, to our election. The GOP wants to eliminate Dodd-Frank. It is also good to remember that we have that consumer protection side of the regulatory process thanks to the determination of Sen. Elizabeth Warren. It may also help to remember that the banks were able to do much of what they did because Bill CLINTON worked across the aisle with Sen. Gramm to tear down any of the walls that previously made it difficult for banks to do what they did, to crash themselves and with them our and the world's economy.
Hillary Clinton, who makes her living giving 20 minute speeches for hundreds of thousands of dollars each for big banking houses, will never get my vote. I am an old woman, been around for a long time, and her being the first woman in the White House would not change what she would do. Elizabeth Warren would get my vote for that privilege. This cycle, Bernie Sanders has my vote and my monthly donation. Break up the banks.
56
The writer tells us not to break up the big banks because regulators have acted properly to prevent the previous crisis. But the banks aren't done finding new ways to game the system: that's what they do. Unless we break up the big banks now— and looking at the stock market, "now" may already be too late—we will surely face another (preventable) crisis. And experts like this author will tell us (again!) that nobody could have foreseen this happening.
26
Ray--Excellent points. "Now" probably is already too late. It's the climate change issue of the financial world.
2
In objecting to proposals to break up the big banks, Steve Eisman blames factors other than bank size for the 2007 crash, including excess leverage, a vast expansion of subprime loans, willfully bad loan underwriting, willfully bad lowering of credit standards, bank deregulation, and inadequate enforcement of existing regulations.
What he ignores is that these abuses were a direct result of excessive bank size. Large and politically powerful banks got themselves deregulated, got Congress to cut regulatory budgets, and engaged in regulatory arbitrage. Smaller banks couldn’t do those things. Only large banks could engage in excess borrowing at lower rates due to their size, safe in the knowledge that they were too big to fail.
Any bank, large or small, could engage in bad loan underwriting and inappropriate lowering of credit standards. But large banks could hide those activities more easily and for longer than small ones. And only large banks could engage in some of the criminal activity for which they were only minimally prosecuted, e.g. collusion in setting LIBOR and other interbanks loan rates, paying off the ratings agencies, and deceitfully marketing derivatives and junk bonds.
In short, bank size matters, a lot. Size is a necessary condition for some of the bank abuses that occurred. Size makes other abuses easier to engage in.
The abuses that Eisman describes go along with excessive bank size, and are good reason for breaking up big banks.
What he ignores is that these abuses were a direct result of excessive bank size. Large and politically powerful banks got themselves deregulated, got Congress to cut regulatory budgets, and engaged in regulatory arbitrage. Smaller banks couldn’t do those things. Only large banks could engage in excess borrowing at lower rates due to their size, safe in the knowledge that they were too big to fail.
Any bank, large or small, could engage in bad loan underwriting and inappropriate lowering of credit standards. But large banks could hide those activities more easily and for longer than small ones. And only large banks could engage in some of the criminal activity for which they were only minimally prosecuted, e.g. collusion in setting LIBOR and other interbanks loan rates, paying off the ratings agencies, and deceitfully marketing derivatives and junk bonds.
In short, bank size matters, a lot. Size is a necessary condition for some of the bank abuses that occurred. Size makes other abuses easier to engage in.
The abuses that Eisman describes go along with excessive bank size, and are good reason for breaking up big banks.
198
I disagree.
Any institution powerful enough to pose a systemic risk to the economy is too big to exist- bank or not.
As I write this the reforms enacted after the massive Wall Street theft that caused the crash are being undermined by Congress, by the Obama Adminsitration and by legal challenges.
Bernie is right: the business model of Wall Street is graft. The attitude is heads I win tails you lose.
Any institution powerful enough to pose a systemic risk to the economy is too big to exist- bank or not.
As I write this the reforms enacted after the massive Wall Street theft that caused the crash are being undermined by Congress, by the Obama Adminsitration and by legal challenges.
Bernie is right: the business model of Wall Street is graft. The attitude is heads I win tails you lose.
14
Don't cure the Ebola. Our real problem is the hemorrhaging.
8
Consumer credit wouldn't have become so huge and dangerous if millions of jobs hadn't first been sent overseas. Then the resultant profits were paid to politicians’ campaigns to reduce corporate taxes. With fewer jobs sought by more jobless people, with unions weak, of course wages went down. The destruction is systematic, and our politics still has no real remedy.
Added to that, medical costs were allowed to soar with unregulated insurance and drug prices. Families were ruined by medical bankruptcies. College debt spiraled.
Sen. Warren tells how consumer credit bankruptcy laws were revised to keep continuous profits from credit card holder debt slaves who could only afford minimum payments. Everything was engineered to increase the flow of money and political influence up to the top.
The op ed says, “If we want a stronger economy, improving the distribution and growth of personal income should be our focus.” How exactly? The elites oppose any ‘redistribution’ and call it extreme big govt socialism. The media denigrate the 1 candidate who proposes it. The likely nominees for 2016 aren’t offering solutions. Democracy ain’t working.
Added to that, medical costs were allowed to soar with unregulated insurance and drug prices. Families were ruined by medical bankruptcies. College debt spiraled.
Sen. Warren tells how consumer credit bankruptcy laws were revised to keep continuous profits from credit card holder debt slaves who could only afford minimum payments. Everything was engineered to increase the flow of money and political influence up to the top.
The op ed says, “If we want a stronger economy, improving the distribution and growth of personal income should be our focus.” How exactly? The elites oppose any ‘redistribution’ and call it extreme big govt socialism. The media denigrate the 1 candidate who proposes it. The likely nominees for 2016 aren’t offering solutions. Democracy ain’t working.
13
Not only can the Big Banks be broken up but they need to be ASAP. Not only is there too much political power held by the Big Banks but it has destroyed any facade of competition. All one needs to do is look at the cases coming from DE Chancery Court in which the Big Banks are already on both sides of a merger.
If anyone holds any illusions as to the power of the Big Banks, just ask yourself the following question: why are the customers of Goldman or Morgan who have learned from the SEC or Justice Dept that they have been cheated staying with their bank? Because they need to to have a chance to be included in the next big deal
As to Dodd Frank or the Volcker Rule actually accomplishing anything, they are such Kluges that the rulemaking needed to make either effective will never happen due to lobbying, industry capture and endless litigation over the Republican inserted requirement that a cost benefit analysis must be shown
Bank of America does not need to be joined with Merrill Lynch; Citibank doesn't need an insurance company attached to it, etc
The Big Banks present huge incentives for those employed whose earnings are based upon bonuses to engage in some activity, yet to be predicted, that will result in the next Big Problem because few, if any, really understand how the consequences of one activity can flow through to another in these Goliaths
If anyone holds any illusions as to the power of the Big Banks, just ask yourself the following question: why are the customers of Goldman or Morgan who have learned from the SEC or Justice Dept that they have been cheated staying with their bank? Because they need to to have a chance to be included in the next big deal
As to Dodd Frank or the Volcker Rule actually accomplishing anything, they are such Kluges that the rulemaking needed to make either effective will never happen due to lobbying, industry capture and endless litigation over the Republican inserted requirement that a cost benefit analysis must be shown
Bank of America does not need to be joined with Merrill Lynch; Citibank doesn't need an insurance company attached to it, etc
The Big Banks present huge incentives for those employed whose earnings are based upon bonuses to engage in some activity, yet to be predicted, that will result in the next Big Problem because few, if any, really understand how the consequences of one activity can flow through to another in these Goliaths
6
How many people lost their homes and their life savings in the crash? How much has been returned to them? How many bankers have gone to jail?
How many poor people, sending money overseas, lost because of bankers manipulation of exchange rates? How much has been returned to them? How many bankers have gone to jail?
How many bankers pushed the Fed to increase interest rates? How many bankers had pushed up their own interest rates in anticipation? How did the middle class benefit from this?
How many bankers are in the 0.1%? In the 1%? How many actually produce anything?
No, big banks may not be the problem (although you haven't convinced me), it's the bankers. They cannot be trusted with our money. They need to be tightly regulated and only rewarded when the people benefit. Not when the people lose their shirts.
How many poor people, sending money overseas, lost because of bankers manipulation of exchange rates? How much has been returned to them? How many bankers have gone to jail?
How many bankers pushed the Fed to increase interest rates? How many bankers had pushed up their own interest rates in anticipation? How did the middle class benefit from this?
How many bankers are in the 0.1%? In the 1%? How many actually produce anything?
No, big banks may not be the problem (although you haven't convinced me), it's the bankers. They cannot be trusted with our money. They need to be tightly regulated and only rewarded when the people benefit. Not when the people lose their shirts.
12
'How many bankers have gone to jail?'
The core of the problem is that in most cases, especially at the higher levels of finance, the ones most responsible for the debacle didn't break any laws. As I recall it, the preponderance of those who did face charges were at the lower levels - the loan underwriters who provided false paperwork or otherwise perpetrated provable fraud. We cannot convict someone of simply being greedy, or stupid, or having used poor judgement (except in some defined cases where a 'knew or should have known' standard can be invoked). Nor can we convict them retroactively, as the Constitution explicitly bars ex post facto charges.
I agree with your concluding paragraph. But in every discussion of this issue, that rhetorical question is raised, and it's a red herring shifting attention from the real systemic problem.
The core of the problem is that in most cases, especially at the higher levels of finance, the ones most responsible for the debacle didn't break any laws. As I recall it, the preponderance of those who did face charges were at the lower levels - the loan underwriters who provided false paperwork or otherwise perpetrated provable fraud. We cannot convict someone of simply being greedy, or stupid, or having used poor judgement (except in some defined cases where a 'knew or should have known' standard can be invoked). Nor can we convict them retroactively, as the Constitution explicitly bars ex post facto charges.
I agree with your concluding paragraph. But in every discussion of this issue, that rhetorical question is raised, and it's a red herring shifting attention from the real systemic problem.
1
This is just propaganda. he doesn't even address the real problem with these banks, which is that they are too big to fail. anytime that is the case, the leaders of the industry know that they have no incentive against making terrible bets at everyone else's expense. If the old form of bets become regulated, they will create a new form of betting that does exactly the same thing. And once again they won't be punished, and they know they won't, because they weren't last time. They never will be as long as they are too big to fail, and that is why they need to be broken up. We do not need these massive mega structures to supply enough credit to the economy.
11
America’s financial industrial complex needs to be put under civilian, democratic control, like Ike said was necessary for the military industrial complex.
Any effective regulation that protects us in the larger society has to cut the power and wealth of the bank monopolies. Yet candidates who won't do that are asking for our votes. So much for the will of the people. Adam Smith, patron saint of capitalism, warned against monopolies, which lead to usurpation of political power.
But if that’s simply rejected as big govt intrusion, then the financial industry is like a 'shadow govt' controlling our laws and officials we elect. Doesn't matter if there's 100% turnout on voting day.
Why did so many bank officials go to jail in the 90s Savings and Loan Scandal, but not after 2008?
Why didn't dawn on clueless lenders/regulators why housing prices were soaring? Wasn’t the ‘loose underwriting’ of mtgs, then bundling them, and getting triple A ratings, all part of the criminal conspiracy?
If big banks are so global, complex and it’s ‘incredibly’ difficult and disruptive to regulate them, this proves they own us.
Our next likely president likely agrees with this op ed. She won't contradict her husband's repeal of Glass Steagall which kept stability for 80 years. Instead it's the ‘shadow banks’ that are the threat. If they go too far she'll 'tell them to cut it out'. Thanks.
The real threat is shadow democracy. Let's talk about Citizens United and shadow democracy.
Any effective regulation that protects us in the larger society has to cut the power and wealth of the bank monopolies. Yet candidates who won't do that are asking for our votes. So much for the will of the people. Adam Smith, patron saint of capitalism, warned against monopolies, which lead to usurpation of political power.
But if that’s simply rejected as big govt intrusion, then the financial industry is like a 'shadow govt' controlling our laws and officials we elect. Doesn't matter if there's 100% turnout on voting day.
Why did so many bank officials go to jail in the 90s Savings and Loan Scandal, but not after 2008?
Why didn't dawn on clueless lenders/regulators why housing prices were soaring? Wasn’t the ‘loose underwriting’ of mtgs, then bundling them, and getting triple A ratings, all part of the criminal conspiracy?
If big banks are so global, complex and it’s ‘incredibly’ difficult and disruptive to regulate them, this proves they own us.
Our next likely president likely agrees with this op ed. She won't contradict her husband's repeal of Glass Steagall which kept stability for 80 years. Instead it's the ‘shadow banks’ that are the threat. If they go too far she'll 'tell them to cut it out'. Thanks.
The real threat is shadow democracy. Let's talk about Citizens United and shadow democracy.
130
As an interested observer, former statistics professor and software company founder, I really enjoyed reading the book The Big Short and watching the excellent movie.
I think there may be another problem which the opinion piece refers to once. That is political power, more specifically the availability of big money to bribe legislators and officials. My general impression is that there really was not much of a crisis in 2008, but there was a great excuse to demand trillions of government (taxpayer) funds.
When the former chair of a major investment bank is treasury secretary and the treasury bails out his (former) firm while letting the competition sink (Lehman), observers can have questions. When the bailouts involve only the quid and no quo (quid pro quo is the usual arrangement) and the money ends up in the bankers pockets, questions are reasonable.
The banks should be broken up or possibly nationalized to reduce their financial power to bribe. It may be hard to do and slow, but it is better than ending democracy.
If any readers or Mr Eiseman have some summary numbers comprehensible to a lay person which show that, without the bailout, there would have been serious harm beyond the bankruptcy of a few big banks I would be interested.
Watch Comedy Party Platform on Youtube (2 min 9 sec) or Benton-Comedy2 (3 min 43 sec). Send a buck to Bernie Sanders and invite me to speak. Thanks!
I think there may be another problem which the opinion piece refers to once. That is political power, more specifically the availability of big money to bribe legislators and officials. My general impression is that there really was not much of a crisis in 2008, but there was a great excuse to demand trillions of government (taxpayer) funds.
When the former chair of a major investment bank is treasury secretary and the treasury bails out his (former) firm while letting the competition sink (Lehman), observers can have questions. When the bailouts involve only the quid and no quo (quid pro quo is the usual arrangement) and the money ends up in the bankers pockets, questions are reasonable.
The banks should be broken up or possibly nationalized to reduce their financial power to bribe. It may be hard to do and slow, but it is better than ending democracy.
If any readers or Mr Eiseman have some summary numbers comprehensible to a lay person which show that, without the bailout, there would have been serious harm beyond the bankruptcy of a few big banks I would be interested.
Watch Comedy Party Platform on Youtube (2 min 9 sec) or Benton-Comedy2 (3 min 43 sec). Send a buck to Bernie Sanders and invite me to speak. Thanks!
9
Is the "Consumer Financial Protection Board" really an accepted name for the Consumer Financial Protection Bureau? I can't find it named that anywhere else on the internet.
3
I wonder how Steve Eisman would explain that Mike Burry is still skeptical of the financial system. Just curious.
5
Wow...so we should just trust regulators who have been weakened and defunded by pro Corproation Republicans and Democratic corporatists. And we should just trust you...are you kidding? The big banks need to be broken up an their investment arms must be separated from their banking arms. It is way past time to hope Republicans will allow regulators to do their jobs! We need to elect a real Democrat to the White House and democrats to the Congress committed not to corporate interests but to the interest of the people!
8
What pile of garbage. If a bank is so big that if it fails it tanks the US economy, to say nothing of the international economy, it's TOO big.
Break them up.
Break them up.
12
Some questions if I may?
If we break up the large banks, we are going to replace them with what?
As the author states, if you are going to break up the banks who gets to decide how to make the division?
Does this apply to all large banks or just some?
What about the large institutional brokerage firms?
How far down the food chain are we going to go?
Our economy is fragile right now, who gets the blame for the recession that comes as the result of the break up?
Anyone want to guess on how far the Dow will fall if this process starts? I'm guessing 2,000 points as a starter.
Has anyone put together a serious plan on how this would happen? Bernie's plan sound about as practical as Trump's "Let's build a wall across our border with Mexico."
If we break up the large banks, we are going to replace them with what?
As the author states, if you are going to break up the banks who gets to decide how to make the division?
Does this apply to all large banks or just some?
What about the large institutional brokerage firms?
How far down the food chain are we going to go?
Our economy is fragile right now, who gets the blame for the recession that comes as the result of the break up?
Anyone want to guess on how far the Dow will fall if this process starts? I'm guessing 2,000 points as a starter.
Has anyone put together a serious plan on how this would happen? Bernie's plan sound about as practical as Trump's "Let's build a wall across our border with Mexico."
5
Magical thinking AND....other people's money is like, the best!!
4
The bigger issue is that bankers, at companies, some with *centuries* of mortgage experiences, jettisoned the details integral to mortgage banking in pursuit of quick profit.
Those subprime mortgages, designed to go bad, should have been far more toxic to the banks than they were.
When the banks started bundling mortgages into bonds, or collateralized debt obligations, as that enjoyable movie correctly called them, there were many obligations that the system helped the banks dispose of illegally.
When a mortgage holder fails to make payments and fall into arrears, regulations require the morgage holder to notify the homeowner of the implications of not makng payments. And when those warnings don't elicit payments, then the first requirement of a mortgage holder is to prove to a court that they are the actual holder of the lien, the rightful keeper of the collateral. The banks created an electronic system to relieve themselves of the obligation of producing the actual mortgage papers in a foreclsure proceeding. Judges in both FLand IA have looked quite disapprovingly at that shortcut. After all, without requiring proof of standing, what is to stop any individual who knows somebody who isn't making mortgage payments from going into court and claiming standing to foreclose just on their say so? That computerized system to bypass proof of standing should never have survived the first, or any challenge to it. The banks' practices simply bypassed required steps & their costs.
Those subprime mortgages, designed to go bad, should have been far more toxic to the banks than they were.
When the banks started bundling mortgages into bonds, or collateralized debt obligations, as that enjoyable movie correctly called them, there were many obligations that the system helped the banks dispose of illegally.
When a mortgage holder fails to make payments and fall into arrears, regulations require the morgage holder to notify the homeowner of the implications of not makng payments. And when those warnings don't elicit payments, then the first requirement of a mortgage holder is to prove to a court that they are the actual holder of the lien, the rightful keeper of the collateral. The banks created an electronic system to relieve themselves of the obligation of producing the actual mortgage papers in a foreclsure proceeding. Judges in both FLand IA have looked quite disapprovingly at that shortcut. After all, without requiring proof of standing, what is to stop any individual who knows somebody who isn't making mortgage payments from going into court and claiming standing to foreclose just on their say so? That computerized system to bypass proof of standing should never have survived the first, or any challenge to it. The banks' practices simply bypassed required steps & their costs.
8
Hi, If breaking the banks is not the answer, who will reimburse those of us who got burned by the 2008 crisis? Who will be punished for having caused.
Hi, If the banks are not to blame, who will be punished for what happened to borrowers such as myself? I lost my home in GA due to foreclosure/predatory lending--in other words my life was ruined. Who will go to jail in the banking/mortgage industry for being greedy and thinking only of their fat commissions instead of the client's best interest? I care about nothing else except justice to the borrower. The banks know how to make their money back. We don't. Why not be good and fair to the borrower? After all, with no borrowers, banks would be out of business in no time. Eugenia Renskoff
Hi, If the banks are not to blame, who will be punished for what happened to borrowers such as myself? I lost my home in GA due to foreclosure/predatory lending--in other words my life was ruined. Who will go to jail in the banking/mortgage industry for being greedy and thinking only of their fat commissions instead of the client's best interest? I care about nothing else except justice to the borrower. The banks know how to make their money back. We don't. Why not be good and fair to the borrower? After all, with no borrowers, banks would be out of business in no time. Eugenia Renskoff
8
"The central economic problem of our time is income inequality, especially the lack of personal income "
"Breaking up the big banks will not help, and might even hurt."'
Since you indicate this issue is central; what are your proposals for improving the distribution and growth of personal income? I guess you're not a big Bernie guy either. Perhaps you could be a little more expansive on why his breakup ideas would be harmful. A large part of our countries young generation seem to this his central idea of breaking up the major bank is credible and worth pursuing. w
"Breaking up the big banks will not help, and might even hurt."'
Since you indicate this issue is central; what are your proposals for improving the distribution and growth of personal income? I guess you're not a big Bernie guy either. Perhaps you could be a little more expansive on why his breakup ideas would be harmful. A large part of our countries young generation seem to this his central idea of breaking up the major bank is credible and worth pursuing. w
4
The issue is about power, the power to get Congress to pass laws that make what should be illegal, legal; to deny the regulatory agencies the ability to enforce regulations, essentially to do whatever they want to do.
Researchers have published papers that tell us that corporations, if viewed as a person, are Sociopathic or Psychopathic. Do we want to have that kind of organization in control of the legislatures of the nation - local, county, state and federal?
Breaking up these banks is one way to minimize their power. Passing laws that take away their status as pseudo-persons with inherent rights is another way. Perhaps simply taking away the limited liability protections, that no actual human has, would be sufficient.
Of course, we could have done what many recommended back in 2008 - let the banks fail, nationalize their assets, conscript their executives and employees and pay them according to the federal pay scale. Finally prosecute those who authorized the acts that led to the financial crisis.
No business or group of businesses should be allowed to wield the power given to We the People. And that is the root of the income inequality that you cite as our real problem. The Self-Appointed Royalty that runs the banks like the inequality and want to expand the gulf. Just as Royals have done for millennia.
Researchers have published papers that tell us that corporations, if viewed as a person, are Sociopathic or Psychopathic. Do we want to have that kind of organization in control of the legislatures of the nation - local, county, state and federal?
Breaking up these banks is one way to minimize their power. Passing laws that take away their status as pseudo-persons with inherent rights is another way. Perhaps simply taking away the limited liability protections, that no actual human has, would be sufficient.
Of course, we could have done what many recommended back in 2008 - let the banks fail, nationalize their assets, conscript their executives and employees and pay them according to the federal pay scale. Finally prosecute those who authorized the acts that led to the financial crisis.
No business or group of businesses should be allowed to wield the power given to We the People. And that is the root of the income inequality that you cite as our real problem. The Self-Appointed Royalty that runs the banks like the inequality and want to expand the gulf. Just as Royals have done for millennia.
9
First, the Consumer Financial Protection Board ought to be made stronger:
Take it out from under the jurisdiction of the Federal Reserve.
Make it a completely separate independent regulatory commission, along the lines of the FTC and the SEC. The Fed needs to tend to its knitting on the economy and the money supply.
Second, strengthen the CFPB mandate to protect consumers, not the banks.
Third, give it plenty of funding for enforcement.
Fourth strengthen personal liability on individuals, not just amorphous organizations like banks and corporations. And fund enforcement of that liability. Fifth, make top and middle executives personally liable not just for their own intentional acts but also for negligence in their oversight of the actions of the individuals that they are supposed to be managing.
Sixth, provide more funds for criminal prosecutions of individuals by the justice department.
Seventh, don't allow banks to indemnify, or reimburse, individuals, nor to buy liability insurance, to cover the verdicts and penalties for damages imposed on individuals.
Eighth, don't spare non-U.S. banks, nor their employees or executives, with any operations in the USA. If they want to operate here, they -- and their individual employees and executives -- ought to come under full liability of the US laws, even if they sit in places like London when they commit actions that affect the US banking system and US consumers. Don't rely on the feckless Brit regulators -- they are pussycats.
Take it out from under the jurisdiction of the Federal Reserve.
Make it a completely separate independent regulatory commission, along the lines of the FTC and the SEC. The Fed needs to tend to its knitting on the economy and the money supply.
Second, strengthen the CFPB mandate to protect consumers, not the banks.
Third, give it plenty of funding for enforcement.
Fourth strengthen personal liability on individuals, not just amorphous organizations like banks and corporations. And fund enforcement of that liability. Fifth, make top and middle executives personally liable not just for their own intentional acts but also for negligence in their oversight of the actions of the individuals that they are supposed to be managing.
Sixth, provide more funds for criminal prosecutions of individuals by the justice department.
Seventh, don't allow banks to indemnify, or reimburse, individuals, nor to buy liability insurance, to cover the verdicts and penalties for damages imposed on individuals.
Eighth, don't spare non-U.S. banks, nor their employees or executives, with any operations in the USA. If they want to operate here, they -- and their individual employees and executives -- ought to come under full liability of the US laws, even if they sit in places like London when they commit actions that affect the US banking system and US consumers. Don't rely on the feckless Brit regulators -- they are pussycats.
10
A rather disingenuous piece, which says we don't have a problem with the banks, because Dodd-Frank controls leverage and the worst behavior. But, as Mr. Eisman admits, with the huge size of the banks comes out-sized political influence. Wall Street has lobbied the Republicans to kill Dodd-Frank. We are just a Republican president away from the repeal of Dodd-Frank, and then what is left to protect against a repeat of 2008? The way to protect against another financial collapse and government bailout is to separate the traditional consumer and commercial banking business from the the creation and trading of derivatives and even more esoteric financial instruments -- the gambling side of the banking industry. Government-insured deposits should not be housed inside institutions which engage in high-leverage gambling. We need a new Glass-Steagel Act.
20
One simple modification would be that for every $1 trillion in quantitative easing (QE) undertaken by the Fed, then the fed would purchase $100 billion in subordinated debt in large banks. The taxpayers would receive some compensation for the "implicit guarantee" that large banks enjoy in what is really an undercapitalized fractional banking system through interest payments.
Banks with capital in excess of 10 percent would be exempt from having the government as a participating debt holder.
Banks with capital in excess of 10 percent would be exempt from having the government as a participating debt holder.
Thank you. I agree.
1
Are they too big to fail? Then they are too big.
There's no reason they should have the sort of economic and political power that they do.
There's no reason they should have the sort of economic and political power that they do.
12
With all due respect, Mr. Eisman, having five or six banks controlling half or more of all US bank deposits ought to be cause for concern and caution on the part of commentators such as yourself. Finding a small, local bank you can trust with your hard-earned salary and scrimped savings has become substantially more difficult since the great snarf-up of the little guys began in the early 1990s.
21
As long as banks are as big as they are they will hold immense political power. Officials in the federal government and the Federal Reserve parade in and out through the revolving door - the idea that these people can regulate banks in the interests of the country as a whole is absurd.
After the 2008 crash some regulation was passed, but the size and power of the biggest banks was increased. The regulations will inevitably be weakened or evaded as long as banks have the power to control the agencies, the Fed and Congress.
The real question is who should be running the country's economic and financial policy.
After the 2008 crash some regulation was passed, but the size and power of the biggest banks was increased. The regulations will inevitably be weakened or evaded as long as banks have the power to control the agencies, the Fed and Congress.
The real question is who should be running the country's economic and financial policy.
52
Last week I cited this article about Citibank. Citibank is not the only one.
With Dodd-Frank Rollback, The Big Bad Banks Are Back,
by Steve Denning, Forbes
http://www.forbes.com/sites/stevedenning/2014/12/12/with-dodd-frank-roll...
Entire GOP Field Would Repeal Dodd-Frank, Return Power To Wall Street
https://americanbridgepac.org/entire-gop-field-would-repeal-dodd-frank-r...
It may be that it is just that our campaign financing system is out of whack, but it their size and power of the big banks that makes them so hard to regulate. By giving so much to so many politicians, the banks in effect regulate themselves.
With Dodd-Frank Rollback, The Big Bad Banks Are Back,
by Steve Denning, Forbes
http://www.forbes.com/sites/stevedenning/2014/12/12/with-dodd-frank-roll...
Entire GOP Field Would Repeal Dodd-Frank, Return Power To Wall Street
https://americanbridgepac.org/entire-gop-field-would-repeal-dodd-frank-r...
It may be that it is just that our campaign financing system is out of whack, but it their size and power of the big banks that makes them so hard to regulate. By giving so much to so many politicians, the banks in effect regulate themselves.
88
While Bernie Sanders wants to break up the big banks, average Americans are busily shoveling hard earned dollars into their greedy maws at record levels.
The four biggest banks out of 8,000 total FDIC insured account for 55% of FDIC insured deposits. It seems unlikely that a majority of Americans will vote to break up their own bank.
If you want to know what breeds arrogance among big banks, that is it. "See, they love me!" as Trump might say.
I took my deposit and mortgage accounts out of BofA and Visa card from Chase and moved to a credit union. There is not a single service they don't provide, including international banking and the rates are far lower, like 2% for a car loan. No account fees, no minimum deposit and MUCH friendlier service.
I happen to find the egregious criminality of JPMorgan Chase and others in money laundering for drug cartels, manipulating interest rates and utility markets, providing banking services for Madoff and collecting for payday lenders, not to mention mortgage abuses, unworthy of my deposits.
But apparently, I am in a small minority.
The four biggest banks out of 8,000 total FDIC insured account for 55% of FDIC insured deposits. It seems unlikely that a majority of Americans will vote to break up their own bank.
If you want to know what breeds arrogance among big banks, that is it. "See, they love me!" as Trump might say.
I took my deposit and mortgage accounts out of BofA and Visa card from Chase and moved to a credit union. There is not a single service they don't provide, including international banking and the rates are far lower, like 2% for a car loan. No account fees, no minimum deposit and MUCH friendlier service.
I happen to find the egregious criminality of JPMorgan Chase and others in money laundering for drug cartels, manipulating interest rates and utility markets, providing banking services for Madoff and collecting for payday lenders, not to mention mortgage abuses, unworthy of my deposits.
But apparently, I am in a small minority.
309
The last 35 years of my use of banks has been done with the smallest bank I could find. Usually a locally owned, small footprint institution. My current bank has an empire of one main branch and one additional smaller office. The bank's president and vice president has met with me at my place of business and I know most of the tellers there. They have everything I need, and much more than I need. We consumers must talk with our wallets and feet.
12
Here, here!! Right on target.
7
Very good points.
Put you banking into a credit union.
Better yet, a state-owned one . Oopsonly in ND
Put you banking into a credit union.
Better yet, a state-owned one . Oopsonly in ND
5
The basic premise here they we only have one "real" problem is absurd. Should we ignore heart disease because we have not cured cancer?
Many banks are too big to manage and the people at the top simply don't know what is going on at the lower levels. For this reason alone, these banks need to do some divesting. Claiming that breakup is too complicated only reinforces the conclusion that they are too big to manage.
The so called "shadow banking" activities are the most significant risk area of all and the new regulations were stripped of any effective controls on that by furious lobbying.
This author seems to have a vested interest in the status quo and this article seems to be an attempt to protect his vested interest.
Many banks are too big to manage and the people at the top simply don't know what is going on at the lower levels. For this reason alone, these banks need to do some divesting. Claiming that breakup is too complicated only reinforces the conclusion that they are too big to manage.
The so called "shadow banking" activities are the most significant risk area of all and the new regulations were stripped of any effective controls on that by furious lobbying.
This author seems to have a vested interest in the status quo and this article seems to be an attempt to protect his vested interest.
244
"This author seems to have a vested interest in the status quo and this article seems to be an attempt to protect his vested interest." Ya think??
3
Maybe the people at the top SHOULD know what is going on at the lower levels or else they shouldn't be at the top. This is a convenient explanation by the most greedy.
5
"Many banks are too big to manage and the people at the top simply don't know what is going on at the lower levels."
And what about the even bigger federal government? Do the people at the top really know what is going on at lower levels? It would appear that career bureaucrats can often do whatever they want to knowing that their political bosses will soon change.
And what about the even bigger federal government? Do the people at the top really know what is going on at lower levels? It would appear that career bureaucrats can often do whatever they want to knowing that their political bosses will soon change.
3
Breaking up the big "banks" likely is practicably impossible unless it's done on a global basis, or we effectively destroy the broken-up entities in the U.S. as they'd need to compete with global goliaths enjoying immense advantages. We talk blithely about all this regulation of firms that are global in reach and operate in global markets as if we can make unilateral decisions without dreadful consequences to our own.
But income distribution is a hollow distraction, not surprisingly offered as one by a managing director of an investment house. High-income jobs are doing fine, and the big growth we see keeping official unemployment at or below 5% is in low-income jobs with few or poor benefits. What's missing is the middle, that we're offshoring and seeing obsolesced by automation. You have growth at both ends and loss in the middle, it's not surprising that you'd see "income inequality".
We SHOULD approach our global trading partners to break up the so-called "banks" into their constituent banking, insurance and brokerage elements as per the defunct Glass-Steagall; only on a global and not merely a national basis, thereby eliminating artificial cross-border advantages of size.
And we need to recognize that increasingly, human labor is being obsolesced by technology and figure out how we can retain the economic frameworks we now have that rely on consumers to drive the engines of innovation -- and if we can't retain them, figure out what must take their places.
But income distribution is a hollow distraction, not surprisingly offered as one by a managing director of an investment house. High-income jobs are doing fine, and the big growth we see keeping official unemployment at or below 5% is in low-income jobs with few or poor benefits. What's missing is the middle, that we're offshoring and seeing obsolesced by automation. You have growth at both ends and loss in the middle, it's not surprising that you'd see "income inequality".
We SHOULD approach our global trading partners to break up the so-called "banks" into their constituent banking, insurance and brokerage elements as per the defunct Glass-Steagall; only on a global and not merely a national basis, thereby eliminating artificial cross-border advantages of size.
And we need to recognize that increasingly, human labor is being obsolesced by technology and figure out how we can retain the economic frameworks we now have that rely on consumers to drive the engines of innovation -- and if we can't retain them, figure out what must take their places.
38
Richard, I raised the exact same point with Professor Simon Johnson on the Economix blog back in 2009 (see attached link):
http://economix.blogs.nytimes.com/2009/10/13/simon-johnson-answers-your-...
http://economix.blogs.nytimes.com/2009/10/13/simon-johnson-answers-your-...
1
Tell me, Mr. Eisman, why would we believe a managing director of the investment firm Neuberger Berman? The vast majority of us do not.
208
I have my doubts too, but to dismiss out of hand offers nothing useful.
To disbelieve on no other basis than Eisman's employment is applying guilt by association.
Surely you can do better than that.
To disbelieve on no other basis than Eisman's employment is applying guilt by association.
Surely you can do better than that.
37
Perhaps he knows something.
10
Actually, you should go back and read the book by Michael Lewis, The Big Short: Inside the Doomsday Machine, in which Steve Eisman is profiled. He was one of the people who saw the Subprime Mortgage market was about to explode and tried to tell others before it happened. He is right understands the issues, and correctly identifies the biggest challenge today which is income inequality. Breaking up the big banks does not address this problem and as a cure for what ails the economy now, could be worse than the disease. Yes, credit derivatives and speculation are still an issue but it is largely the hedge funds, insurance companies, and other speculators in this space that are a problem not the big banks. Steve is right in identifying that the regulators have come a long way in donig a better job of de-leveraging the banks and reigning in bad behavior.
20