If They Are Too Big To Fail, Let's Make Them Smaller

I read--relatively rrecently--"lAmerican Lion," by Jon Meacham, regarding President Andrew Jackson. There is much to be deplored re: Andrew Jackson and his presidency, especially his treatment of Native Americans. But there is much to be learned regarding government and banking. He refused to knuckle under to the big banks. They retaliated by creating a panic in the subsequent administration of Martin Van Buren, and they would do the same or similar now if overly provoked. But they must be reined in.

"Rediscovering Values: On Wall Street, Main Street, and Your Street-A Moral Compass for the New Economy."

So will a DC author and New York publisher running a book tour through the New York, DC ,California book circuit rediscover Main Street and Your Street?

Before you take Jim Wallis to task for the cloistered environment of New York, DC, and California, you might have taken the time to check his background and the proposed sites for the book tour. he was raised in a mid-west evangelical family, went to Michigan State University (East Lansing), and Trinity Evangelical Divinity School (Deerfield, IL). The proposed sites include Windsor, CO (1/21) and Harrisburg, PA (2/03).

I often detect a knee-jerk reaction here to anything that Jim Wallis proposes - if Wallis is doing it, I'm against it.

"The banks say they are 'too big to fail.' So let's make them smaller. That should get the attention of Wall Street."

I believe the Treasury Dept. determined that some banks were too big to fail. The TARP money was forced upon them whether they needed it or not. The government caused the problem, by pushing subprime lending.

Freddie Mac and Fannie Mae both just requested some 400 billion more to keep them afloat. The government will continue to perpetuate the problem because they won't let the institutions that need to fail do so.

There still are. Anti-trust laws aren't supposed to keep big companies from buying small companies (or the reverse, which has been known to happen). They are meant to prevent monopolies. Coke owning Caribou Coffee doesn't give it a monopoly (Starbucks, anyone?) any more than Coke being the largest soft drink company gives it a monopoly.

Large banks are not villians, per se, and shouldn't be treated as such. Large banks, in fact, are a boon to the economy as a whole, because the bigger the bank, the larger the amount of money available for loan, hence the more capital is available to start and expand businesses, which increase employment, etc. That doesn't mean that banks should be regulated to prevent predatory practices, just that bigness isn't the enemy. It also means that Wallis' line of which he is so proud--"The banks say they are 'too big to fail.' So let's make them smaller"--is just another example of the fatuous lack of economic understanding that we've come to expect from him.

Palamas, you propose a fundamental dilemma. Did we run into this problem because predatory lending is a bugaboo in a fine system that just needs a little regulation or is there a fundamental flaw in the system that creates the perfect storm for our current financial situation?

Personally, I sometimes wonder if we are too afraid to tinker with our economic system because we have tied it so much to constitutional system / style of government to which we are so tied emotionally and spiritually on an often unexplored level. We (I mean that in the general sense, myself included) seem to be caught somewhere between feeling that our system of government is sacred, or maybe, thinking that it is the most philosophically sensible system possible. I'm want to believe that I fall on less emotional side of things but can't help but realize that they can get blurred even for the wannabe intelligent among us at times (I'm clearly talking about myself here :-). This is a dangerous thing because we rarely question, in practical ways, the things we feel most emotionally secure with even if they don't make as much intellectual sense as they could. The danger is that we must be clear about this human tendency when evaluating things like our economic system.

I worry that we won't challenge our perceptions of what is possible. If our economic infrastructure is flawed and we don't challenge it, it may be because that would be challenging something that we are comfortable with and thus makes us feel secure. But ultimately, is it more important to perceive ourselves as stable or to actually doing that which is important to create and maintain stability in a changing world?

I believe that many feel overwhelmed by the challenging the infrastructure because of the probable temporary destabilizing affect that it would cause to our way of life. What makes that most ironic is that not making change and change tends to make people feel anxious and vulnerable even when it is potentially good. The issue in this is the idea of "potential"-- when you make change it has the potential to create unforeseen ripples that may force changes to something that, while stagnant or not good, feels normal. The question I have for Mr Wallis is how, if we do make these changes, which maybe perfectly great changes, how to help people actively participate in managing the anxiety that comes from emotional insecurity (perception of vulnerability that comes from changing what seemed normal, even if it wasn't healthy) and the anxiety that comes from the actual economic destabilizing affect that comes from changes to an infrastructure so integrated into the international banking system.

Thank you NC77, for inserting some common sense and history into the discussion. The fault does, indeed, lie with historic administrations and congress, who legislated how banks would have to lend, including to risky borrowers, whether they saw it as a good business investment or not. The result - - the current foreclosure mess. And the Treasury department did, indeed, make the "too big to fail" determination. Let's make sure we have the blame where it belongs.

And Jim Wallis grew up near Detroit.

"We (I mean that in the general sense, myself included) seem to be caught somewhere between feeling that our system of government is sacred, or maybe, thinking that it is the most philosophically sensible system possible"

That was a convicting statement - identifying a tendency to make sacred our politico-economic statement. Thank you for your thought provoking response.

I am still waiting to read my own copy of 'American Lion,' but I feel the need to comment here. Jackson certainly did refuse to 'knuckle under to the big banks,' but it really should be 'bank.' (singular - the Bank of the United States, which Jackson managed to destroy) Destroying the bank was one of the most thrilling moments of 'power to the people' in U.S. History, but it left the banking industry with no regulation at all - they responded by printing paper money like crazy, creating inflation. Jackson then caused the Panic of 1837 himself with the 'specie circular' - requiring gold or silver for payments to the U.S. government reversed the inflation by cutting the money supply. Van Buren and the banks get all of the blame for the panic because it happened while Van Buren was president, but it was certainly caused by Jackson himself.

I have not always been impressed with Wallis' economic theory, but I think he is on to something here. The problem is one that I have a hard time comprehending - which is why account holders put up with big banks in the first place. I have always had my money in small, locally controlled banks - I get good service from people I know and trust. If people are willing to put up with lousy service, high & hidden fees, and corporate 'one-size-fits-all' policies when they have an option, I'm not sure that Jim Wallis is going to be able to convince them to switch.

Maybe. Although I think I just asked a question. Reflecting on the question might be interesting. Rejecting the question as a knee-jerk reaction--might be--a knee-jerk reaction.

I've always said, "Bigger isn't necessarily better... better is better." The size of the institution does not matter as a function of quality, only quantity. Quantity is certainly a component of quality. If you had a quarter-sized filet mignon, I doubt you would be satisfied that you have the finest cut of meat for your meal. However, each bank tends to specialize in various areas of economic expertise, i.e. small business loans, mergers/acquisitions, IPOs, etc. Keep the government out and let banks succeed based on their ability to serve their customers, period. The SEC has been unable to stop corruption and risky behaviors. Barney Frank and Chris Dodd have only served to politicize the system more. Maybe a non-profit watchdog organization... or a group of them... would serve the public better. The government is just not smart enough to know all there is to know about all the banking that's necessary to provide and secure money for the engine of the economy. Bring the accountability closer to the people and the banks will respond to the needs of the people. Keep the political connections at the core of the rules and regulations, and guess who the banks will gladly serve? It must be based on markets and sound practices, so some oversight is necessary. Who do you trust to police the banks?

I look forward to the conversation that Wallis' book provokes.

I appreciater Jim's article in the Washington Post and wondered if anyone has a list of local banks that are working to help out folks in trouble... I'd like to switch my account, following Jim's example -- but don't know which of our local (DC) banks would be best to support.

Thanks,

There's always the possibility that I misinterpreted your original post, and when that occurs, I'd be more than willing to recant and apologize. So I went back and reread your original post.

The first part refers to Reverend Wallis as "a DC author and New York publisher" and to me it clearly implies that anyone who is currently living in Washington, DC cannot possibly have a clue as to what is going on about mainstream America. When you use terms that are clearly pejorative, you subject yourself to two fallacies - (1) that Wallis has always lived in DC and has no idea what is going on in the rest of the United States and (2) that the residents of Washington, DC are not also feeling the effects of the economic recession.

The second part of your quote "running a book tour through the New York, DC, California book circuit..." clearly implies that Wallis's itinerary is limited to those liberal bastions. If you had only taken 5 minutes to check on the planned cities, you would have been disabused of that idea.

So yes, I do reject your question because when the answer to your question is easily available to anyone who has a computer, it is not really a question. Instead of characterizing Wallis's tour as some kind of elitist boondoggle, I would suggest that you keep him in your prayers and if he comes to a city near you, confront him with your recommendations.

You might infer meaning to identifying Wallis as a DC author. My only implied meaning is that Wallis is an author that lives in DC.

The book is rediscovering values on different streets around the nation (if I understand the title). I only highlight that every person sees the world from a point of view. Every medium of communication shapes the message. Every mode of commerce/business (e.g. bookselling) shapes the message.

It is interesting you add my comment about DC and New York up to mean something about an elitist boondoggle and liberal bastions. Apparently those places give rise to certain passions and ideas in the public mind--particularly as related to values and the economy. Which might lead some strange cynic to wonder about if the book might read different if it was written by someone in Nome, Slapout or Pine Ridge.

I remember hearing that Congress was told if they didn't pass the bailout bill or bills in the fall of 08 that Wall St would "Crash the economy". Nice talk

Didn't Jim Wallis head up the SDS chapter at Michigan State?

I'm glad to see you're moving away from the Cap and Trade boondoggle bandwagon justintime. Now if you'd only agree that a carbon tax is a much better way to go...

I'm glad to see you're moving away from the Cap and Trade boondoggle bandwagon justintime. Now if you'd only agree that a carbon tax is a much better way to go...

This is a good idea. If it happens it may succeed in causing some big banks to fail. What will then keep the Democrats and Republicans from joining in one of those warm fuzzy group hugs with their shared corporate and financial donors to move more taxpayer money to the gold men with the sacks?

The real answer is a massive tax revolt with a demand to end all corporate political donations and all personal donations that exceed one week at minimum wage.

Either way, there are still trillions in bad loans sitting somewhere that eventually have to be dealt with. The banks were allowed to assign on paper whatever value they wanted to the bad loans they are holding from the housing crash. This means that even though the housing markests lost trilions in value over the last year or 2, the banks can show values for those loans on their books that don't reflect their current value.
Can I do that too? I would love to say that my house was still worth $150,000 instead of it's current $85,000ish value.

Why are you defending Goldman Sachs when it's common knowledge that Goldman colluded with those so called "independent" ratings agencies, including Moody's?

How Moody's sold its ratings - and sold out investors
http://www.mcclatchydc.com/227/story/77244.html

The Securities and Exchange Commission issued a blistering report on how profit motives had undermined the integrity of ratings at Moody's and its main competitors, Fitch Ratings and Standard & Poor's, in July 2008, but the full extent of Moody's internal strife never has been publicly revealed.

Goldman left foreign investors holding the subprime bag
http://www.mcclatchydc.com/227/story/77844.html

In 2002 Bob unexpectedly stopped by my office. As it turned out, things had not gone well at all with his IRA investments. As most advisors would washington mutual bank locations have done, his tax preparer/advisor had quickly moved all of Bob's assets into a variety of "load funds."

Of course, being newly licensed he was clueless (as were many licensed advisors) as to market behavior or analysis of any kind. The end result was that Bob's portfolio lost in excess of 50% over the next 2 years. (Not to gloat, but my clients' losses in the same period were non-existent.)