Too Big To Fail Intensifies
- Posted by Jeff Carter
- on March 20th, 2013
Since the bank bailout of 2008, or maybe it really began in August of 2007, average people have been complaining about Too Big to Fail. My question is, “What did anyone expect?”.
Since President Clinton advocated for the repeal of Glass-Steagall, banks have been on a growth trajectory. There are some good business case reasons for hyper large banks. One is hyper large corporations. A hyper large bank can service a hyper large corporation more efficiently.
But, it wasn’t just Clinton. ” government actions during President George W. Bush’s term to push the purchase of the collapsing Bear Stearns, Merrill Lynch, Wachovia and Washington Mutual.” resulted in a lot of merger activity in the entire banking sector.
In the old days, companies might have to cobble together financing and there was added expense. Banks specialized in certain industries. There was more fragmentation. Brokerage houses and investment banks were similar. Who remembers EF Hutton?
When government started down the path of over regulation of banks beginning with the bank bailouts, it set the stage for very large banks to become hyper large banks. EF Hutton and the rest of the smaller brokerage houses were swallowed up. They are as extinct as the carrier pigeon.
Politicians and bureaucrats felt justified to over regulate since they were signing the checks to keep them in business. All the action brought us one of the most ineffective and useless banking/finance laws every produced by a legislative body, Dodd-Frank.
Now that we are stuck with it, everyone on all sides of the issue complains. Banks are too big. Community banks can’t afford the hyper regulation and credit has slowed down. Getting a commercial loan can be like pulling teeth. The velocity of money is slow and it doesn’t turn over.
American Banker echoes my thoughts, ” the crisis had not even finished unfolding, and on both sides of the pond, we rushed to come up with regulatory frameworks so that the devastation would never happen again. As time passes, we are seeing that Basel III, Dodd-Frank and European Market Infrastructure Regulation may not address all the causes of the crisis, and certainly cannot incorporate predictions about what may cause the next one.”
It’s pretty amazing to people like me and Patrick Young that regulators on both sides of the Atlantic could be so stupid at the same time. Maybe we were better off without all this interconnectedness!
Now that the tower has been built, it’s going to be awfully tough to take it down. President Obama can’t put on his “Theodore Roosevelt hat” and bust up trusts. The resulting financial panic would send everyone over a ledge.
What has to happen is a thoughtful redo of regulatory structure that will create different economic incentives. Then the market will sort itself out. Having private companies sort themselves out will cause less pain for all Americans than to have government action mandating something.
The bureaucrats and politicians are rarely right.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
Tags CloudAngel investor Ann Arbor Michigan BBQ Bernanke Blizzard Bob Dold Bond Market Buffett Tax Christmas Eve Competitive Markets Constipation Credit cards Dairy Queen Daniel Solis Democrat DO Floppy disk Food Prices Fund Money Great White Hope Heritage Foundation Illinois Policy Institute Jeff Bingaman John Wooden Kleiner Perkins Caufield & Byers Korean War Lou Reed Matt Davio McDonalds Mesirow Financial Normandy Academy O'Reilly Opportunity Pareto Paula Deen Pigford Rice screaming eagle Television network The Ventures Topsy Tuesday Violence Wkilleaks Wrigley Field
Becker Posner Blog
Ben Horowitz Blog
Betting the Business
Black Line Review
Blue Sky Innovation
Both Sides of the Table
Business News Network
Chicago Booth Graduate School of Business
Cooler By The Lake
Daily Economic Release Calendar
Doug Ross @ Journal
Economics of a POW Camp
Foundation for Families
Garden and Gun
George Stigler Institute
Good Beer Hunting
Great Food In Chicago-Steve Dolinsky
Hyde Park Angels
Illinois College of Business
John Taylor's Blog
Legal Issues in Angel Funding
Macroblog-Federal Reserve Bank of Atlanta
Microbrews in Chicago
Mike And G
Milton Friedman Institute
National World War Two Museum
Notes From Underground
Ronald Coase Institute
Senate Banking Committee
The Big Picture
The Clubber Fund
The Daily Crux
The Grumpy Economist
The Jack B Show
The Minimalist Trader
The Musings of The Big Red Car
The Polsky Center
The Streetwise Professor
Tough Love Marketing
US Federal Reserve Bank
US House Financial Services Committee
World War Two Blog