Friday, July 30, 2010


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Dear You--

We've heard a lot about banks that are too big to fail, but this chart demonstrates, in a rather striking manner, how disproportionately large the top four banks have become. Together the total assets of the Big Four substantially exceed the total assets of the rest of the 8,095 banks put together. It is also noteworthy that the Big Four assets alone exceed $7 trillion - or roughly half the GDP of the entire country. 

It is hard not to be impressed by the vast size of the Big Four, but the picture becomes decidedly less impressive when one recalls that it was these very same banks who needed baling out not much more than a year ago. They were not the repositories of brilliant financial acumen they purported to be, but instead decidedly flawed organizations whose greed, ignorance and speculative excesses had practically brought the world economy to its knees, and initiated the most serious recession since the Great Depression with dire consequences for the U.S. economy as a whole, and particularly grievous effects on the employment situation with the loss of over 8 million jobs.

If these banks had been normal businesses they would have been put in to receivership without a second thought. As it is, they have not only been supported with the $700 billion plus TARP money, but also in innumerable other ways by the Fed with particular reference to extraordinarily cheap money which they have been able to re-invest in Treasury Bills and elsewhere at a guaranteed profit. This is social welfare for the Rich and Corporate Interests carried to excess; and it is wrong because: (1) It favors large financial interests disproportionately. (2) It is the antithesis of the free market economy we profess to believe in. (3) The banks themselves weren't put into receivership as would have been the case with most other businesses. (4) These banks haven't fundamentally changed their ways and in absolute defiance of both fairness and commonsense, have been left too big to fail.

It is ironic to contemplate all this on a day when the Republicans once again blocked a bill that would have put $30 billion at the disposal of smaller banks to be used to invest in Small Business. Not only do the Republicans come across as complete hypocrites and obstructionists, but one has to wonder why the Obama Administration is tilted so heavily towards Wall Street and the Big Banks.

On the other end of the scale, we have serious problems with many of our small banks with approaching 1,000 on the FDIC watch list and FDIC takeovers of insolvent banks running at unprecedented levels. Quite how we get credit and investment flowing at adequate levels under these circumstances is a matter we have to resolve as a matter of urgency. I deal with this issue in Titanic Nation: How to Avoid Icebergs: The Case For Fundamental Chane In The American Way Of Life.

Farewell for the moment. Write soon. I miss your wit and your company.


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