Friday, September 18, 2009

Too big to succeed? Part II

On Monday, I asked, "A year after the Lehman Brothers failure, and almost a year after the initial TARP program which was rolled out to save our financial industry by saving those businesses which were "too big to fail", one question remains: What was done to prevent this from happening again in the future?"

Today, answers: Nothing at all.

Consider these figures: At the end of 2007, the four biggest U.S. banks -- Citigroup (C: 4.34, 0, 0%), JPMorganChase (JPM: 44.96, 0, 0%), Bank of America (BAC: 17.63, 0, 0%) and Wells Fargo (WFC: 28.82, 0, 0%) -- held 32% of all deposits housed in FDIC-insured banks. By June 30 of 2009 that had climbed to 39%.

And consider the leverage these banks hold over consumer lending in the U.S. According to government data, between them these four banks now issue about half of all mortgages approved and about two-thirds of all credit cards.

All of this begs the question: If these banks were too big to fail a year ago and they’re even bigger now, how is the U.S. any better off today than it was last September, when the collapse of venerable banking giant Lehman Brothers looked like the beginning of the next Great Depression?

And if you think you can trust our government knows what it is doing by allowing these banks to continue with "business as usual", consider Fox Business's analysis:
The problems with "too big to fail," according to those seeking reform, can be broken down into two parts.

First, it is now painfully clear that any single bank whose failure poses a threat to the broader U.S. economy has grown too big for its own good, not to mention that of its clients, as well as the nation.

Second, banks tagged as too big to fail are then free to operate under the assumption that the government will always come to their rescue, a belief that will likely lead to the same risky actions that brought the world’s economy to its knees a year ago.

In other words, there is absolutely NOTHING to encourage these banks to manage their risk. Obama can say that he won't bail them out again, but do you trust a politician to actually take a hard stand based on principle, especially considering he has already supported multiple bailouts? Do you trust Congress not to go screaming for a bailout?

Frankly, this is a MUCH bigger problem than health care in this country. It would take all 30 million uninsured Americans to have catastrophic illnesses tomorrow, to equal the economic devastation of these four banks failing.

President Obama, you are asleep at the wheel. WAKE UP! No matter how much money you get in campaign donations from these banks, if one of them fails, you WILL be held responsible in the next election.

No comments: