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Much-Too-Big-to-Fail

Remember that too-big-to-fail problem we had when a bunch of banks started failing last year? We solved it in an interesting way: by making a bunch of banks bigger by helping them eat banks that would otherwise have failed. As David Cho explains in a great story this morning, the result is now a much-too-big-to-fail problem. "J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country," writes Cho. The same goes for Bank of America and Wells Fargo.

There's actually a rule against allowing that, but the rule was waived during the crisis. Antitrust guidelines preventing this level of concentration were set aside as well. As such, we're not only dealing with the lethal risk to the economy, but the more prosaic concerns of a market in which consumers have few choices and the players have too much power. Geithner promises that heavier capital requirements will solve the first problem and better financial regulation will solve the second, but it's hard to see how. The problem, in part, is that when a bank is much too big to fail, it's also much too powerful to politically oppose. And as we get farther and farther from the crisis itself, the congressional will becomes weaker and weaker ...

By Ezra Klein  |  August 28, 2009; 12:14 PM ET
Categories:  Financial Regulation , Solutions  
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Comments

Chase bumped the APR on my credit card to 29%, so I made it a priority all last year to pay them off -- which I did.

Then they bought WaMu where I have my other account. I just can't escape them.

Bring back Glass-Steagall.

Posted by: leoklein | August 28, 2009 12:27 PM | Report abuse

It's interesting that Carter Glass hoped for a "no regrets" banking system... and even proposed same sort of restrictions on non-investment fast-trade transactions that Kline discussed earlier today.

Th irony comes in that Glass, who was a Democrat at the time of Glass-Steagall, would (due to his views on social policy) be a Republican today: so, today, Glass would be unable to pass Glass-Steagall and the wisdom of the act would never be known.

It's also ironic that the repeal of Glass-Steagall has lead to those very same regrets that Glass predicted almost a century ago.

I think the lessons go beyond banking.

Posted by: rmgregory | August 28, 2009 12:50 PM | Report abuse

This would be another excellent opportunity for Eric Holder to prove that he's independent from the White House. He should unleash the DOJ's Antitrust Division on the big banks, and let the target banks know that the only optoins are decades of litigation, AT&T/IBM style, or else divestiture.

Posted by: tomveiltomveil | August 28, 2009 2:58 PM | Report abuse

Let's see, the US government shows a marked disinterest/inability to successfully regulate a prominent sector of our economy. The financial sector, like energy, like telecommunications, etc.

But I'm sure it would be different in the health insurance industry. We can achieve real healthcare reform by leaving a private system entirely intact while essentially regulating it differently.

Is it too much to ask that you connect some dots or at least coherently explain why you don't think they should be connected?

Your entire case for indifference to the public option has been predicated on trust in the Federal gov. to successfully regulate this private sector.

Posted by: timmyfuller2 | August 28, 2009 3:16 PM | Report abuse

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