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View Full Version : Krugman: Break Up the Giant Banks to Stop Their Domination of the Political Process




bobbyw24
04-21-2010, 05:17 AM
→ Washington’s Blog

While Paul Krugman seemed to go against the rising tide of experts calling for the giant banks to be broken up, he clarified his position last week:
My view is that I’d love to see those financial giants broken up, if only for political reasons: it’s bad to have banks so big they can often write laws.

Bingo!

The giant banks have enough money to - literally - purchase Congress.

As Dean Baker wrote on April 7th:

In the United States it will always be easy for regulators to look the other way, even when the ultimate consequences prove to be disastrous. By contrast, cracking down on politically connected banks is difficult for regulators. The banks' executives will call their friends in the administration and Congress to complain about the crazy regulator who is trying to keep them from running their business.
And, you can be sure that the banks will have a story. They pay smart people lots of money to develop those stories. The banks' mouthpieces will make a conscientious regulator look like a crazed vigilante who just doesn't understand modern finance. Just ask Brooksley Born, the head of the Commodities Futures Trading Commission who was stopped in her effort to regulate credit default swaps back in 1998.

And as Miles Mogulescu writes:
[Simon] Johnson has the long-term politics right--unless we break up the 6-8 largest banks which dominate the financial system, we will both be strengthening a self-perpetuating oligarchy which dominates the political system to protect its own wealth and power to the detriment of the national interest and democratic governance, and which uses it's government guaranteed "too big to fail status" to take excessive risk which will lead to the next bubble, the next meltdown, and the next Hobson's choice by an even more debt-ridden government between bailing them out again with trillions in taxpayer dollars or allowing them to fail and sinking the economy into depression.

***

TBTF is antithetical to democracy. Because of their TBTF competitive economic advantage, the largest banks have become even larger since the beginning of the Great Recession in fall 2008 and the 6 largest banks now control assets totaling over 60% of the country's Gross Domestic Product. With this outsized control of the economy comes outsized control of the government. A bank with assets exceeding 2 trillion dollars can spend whatever it takes to influence elections and convince Congress to pass legislation that favors its interests rather than those of the vast majority of middle class voters, especially after the Supreme Court's pernicious decision in the Citizens United case allowing unlimited election contributions by corporations. "Oligarchy" is a term Americans used to apply to countries like Russia and smaller third world countries, not to ourselves. But with TBTF, as Johnson and Kwak explain, "The Wall Street banks are the new American oligarchy--

http://www.zerohedge.com/article/krugman-break-giant-banks-stop-their-domination-political-process

Dforkus
04-21-2010, 05:58 AM
I guess the knee-jerk reaction is to disagree with whatever Paul Krugman says, but in this case he just may be right...

By subverting politics, (and neither party can claim complete innocence), the can exert pressures that are immune to market corrections.

specsaregood
04-21-2010, 06:13 AM
I guess the knee-jerk reaction is to disagree with whatever Paul Krugman says, but in this case he just may be right...

By subverting politics, (and neither party can claim complete innocence), the can exert pressures that are immune to market corrections.

Well, wake me when he calls for breaking up the Federal Reserve.

Fox McCloud
04-21-2010, 11:15 AM
and its suddenly feeling like the time prior to the Great Depression all over again, when people were going around blabbering about wanting various "Trusts" (particularly banks IIRC) busted.

johnrocks
04-21-2010, 11:19 AM
What about breaking up the AARP, ALPAC, Unions and others who influences law, should they be broken up too?

Fox McCloud
04-21-2010, 11:21 AM
Unions are immune to anti-trust legislation--it's one of the many hypocrisies that exists in our legal system.

Brian Defferding
04-21-2010, 11:26 AM
Removing the government guarantees first. That includes eliminating things like the FDIC (to replace with private deposit insurance), getting the government underwriting out of Fannie Mae/Freddie Mac, and eliminating the Federal Reserve and all its ties to Goldman Sachs et al. I bet you the banks won't be big enough then, because they will have to risk their own capital when they lend.

Making Krugman's point moot.

specsaregood
04-21-2010, 11:45 AM
Removing the government guarantees first. That includes eliminating things like the FDIC (to replace with private deposit insurance), getting the government underwriting out of Fannie Mae/Freddie Mac, and eliminating the Federal Reserve and all its ties to Goldman Sachs et al. I bet you the banks won't be big enough then, because they will have to risk their own capital when they lend.

Making Krugman's point moot.

Indeed. His proposal is just a bandaid over the cancer. of course he knows this already.

dean.engelhardt
04-21-2010, 01:44 PM
→ Washington’s Blog


The giant banks have enough money to - literally - purchase Congress.


http://www.zerohedge.com/article/krugman-break-giant-banks-stop-their-domination-political-process

A broken clock is correct twice a day.

jclay2
04-21-2010, 02:17 PM
These banks had a chance to breakup/bankrupt during the financial crisis. Krugman, however, would not have that and moved heaven and earth to save these banks through the treasury and the federal reserve. Tarp anyone? Focus on the source of the problem.

Mini-Me
04-21-2010, 02:25 PM
Breaking up banks will not solve anything. With respect to the bankers' "property rights," I have no huge moral problem with breaking them up in the current market, because the major Wall Street banks have already sold their souls to the government anyway. If it actually helped instead of making the situation worse, I'd just as soon say that it serves them right. As Ron Paul says, "When one gets in bed with government, one must expect the diseases it spreads." However, the idea is totally asinine. What are you going to do after breaking them up, spend tons of taxpayer money trying to ensure they aren't colluding (both in terms of the market and politics; it's not like their interests aren't aligned, especially thanks to the Federal Reserve)? Exactly who will be in charge of that effort, a former (or future) Goldman Sachs employee? Or how about we give all that power to the same Nobel prize winning economist who bent over backwards convincing people to bail those same banks out to prevent the market from restructuring? Give me a break. :rolleyes: Plus, during the actual "trustbusting" campaign, how is anyone stupid enough not to realize that some huge banks will simply use it as a club against competitors, while remaining immune to it themselves through better politial maneuvering? If the banks have enough money - and more importantly, behind-the-scenes influence through media, think-tanks, and Nobel-winning statist hacks - to dominate the political process already, which they do, their power will naturally only increase along with the power of government. Finally, the worst thing of all is that papering over the problem will fool people into thinking it's being addressed, and that will deter people from actually seeking the correct solution for that much longer.

The whole reason the banks are so powerful in the first place is because government is too powerful and centralized, so it serves as a one-stop shop for getting everything they want by force. The solution is not to break up the banks; the solution is to break up the government!

dean.engelhardt
04-21-2010, 02:34 PM
→ Washington’s Blog

The giant banks have enough money to - literally - purchase Congress.

http://www.zerohedge.com/article/krugman-break-giant-banks-stop-their-domination-political-process

There are two options here. (Only one has a long term effect)

1) Government breaks up the private bank, or
2) Congress acts ethically


This is not a failure of governence of banks but an ethical failure of congress. Ultimatley, a failure of the American people to elect ethical congressmen. What members of congress will be held liable?

ChooseLiberty
04-21-2010, 06:21 PM
Note: The "Nobel Prize" for economics isn't a real Nobel Prize, but a prize invented by the bankers themselves who then co-opted the name.

It's more like the emmy's, grammy's, etc.

We should come up with another name for it.


Or how about we give all that power to the same Nobel prize winning economist who bent over backwards convincing people to bail those same banks out to prevent the market from restructuring? [/B]

Mini-Me
04-22-2010, 03:32 AM
Note: The "Nobel Prize" for economics isn't a real Nobel Prize, but a prize invented by the bankers themselves who then co-opted the name.

It's more like the emmy's, grammy's, etc.

We should come up with another name for it.

These days, more than one Nobel Prize seems to be like the Emmy's and Grammy's. Peace Prize, anyone? ;)

Athan
04-22-2010, 07:48 PM
I guess the knee-jerk reaction is to disagree with whatever Paul Krugman says, but in this case he just may be right...

By subverting politics, (and neither party can claim complete innocence), the can exert pressures that are immune to market corrections.

The problem is this guy has taken THIS long to get something right on an issue people already knew was right far longer than he did.

SamFisher
04-22-2010, 09:46 PM
The whole reason the banks are so powerful in the first place is because government is too powerful and centralized, so it serves as a one-stop shop for getting everything they want by force. The solution is not to break up the banks; the solution is to break up the government!

You think government today is "too powerful"?! LOL!
In WW2 government ran whole industries from the War Production Board, the Office of Emergency Management the Board Of Economic Warfare etc. It literally owned Detroit and retooled whole industries, it had executives and boards on government payroll and it did more central planning than the Soviet Union. Top marginal tax rates were 90%.

Even before the war by 1935 it broke up banks and it regulated them like never before. Yet, with all of those taxes and regulation, the largest economic growth happened in the 2-3 decades after the war under both democrats and republicans and we had no bank failures until 1987. Before the 30s banks failed almost every decade. So clearly, government can not only break up banks and regulate them if it wanted to but government can run whole industries build railroads and highways and do innovation in nuclear and space technology or own hospitals and keep doctors on payroll like the VA.

You are confused if you think there are the private corporations like banks and auto makers and then there is the government and the 2 are different. They are run & owned by the same elites and they cannot exist without each other. Or as a matter of fact if you think that there were the Allied forces who fought against the Axis forces in WW2: those were just the colors seen by the poor schmucks who got killed on both sides. Or who do you think armed the Taliban?! Santa Klaus?! These false dichotomies are used to divide the population and rule over them. The only valid dichotomy is between 99.9999% of humanity who's ruled and 0.00001% who rules them.

"The Nazis could have invaded Poland and Russia without Switzerland. They could not have done so without GM" - Bradford Snell
http://en.wikipedia.org/wiki/History_of_General_Motors#World_War_II

Mini-Me
04-23-2010, 05:00 PM
You think government today is "too powerful"?! LOL!
In WW2 government ran whole industries from the War Production Board, the Office of Emergency Management the Board Of Economic Warfare etc. It literally owned Detroit and retooled whole industries, it had executives and boards on government payroll and it did more central planning than the Soviet Union. Top marginal tax rates were 90%.
Yes, I very much do believe that the government is too powerful. If you disagree, I wonder why you're even here? This isn't exactly a popular forum for people in love with the status quo or even bigger government. ;) Either way, the mere fact that the government used to have even more power is irrelevant to the question of whether it still has too much today.



Even before the war by 1935 it broke up banks and it regulated them like never before. Yet, with all of those taxes and regulation, the largest economic growth happened in the 2-3 decades after the war under both democrats and republicans and we had no bank failures until 1987. Before the 30s banks failed almost every decade.
Ah, so there weren't any bank failures between the 30's and 1987. Doesn't that strike you as...odd? Fishy, perhaps? I mean, compare that to the average failure rate of ordinary businesses. There's a reason there weren't any bank failures for so long, and it's because the system is designed specifically with their comfort in mind...and this comfort does not come for free. It comes at someone else's expense, either directly or indirectly.

Of course, this all backfires when the reckless explosion of cheap (Fed-fueled) credit creates so many market distortions that it cannot sustain itself, and the overleveraged banks go under as the economy enters a recession/depression. That is, unless they're bailed out by taxpayers, since we all know that it would be a huge travesty if "too big to fail" banks actually failed from their recklessness and the market restructured to allow smaller banks to pick up the slack. (Notice that such a restructuring wouldn't take long: Failing banks are already bankrupt, and there is no "preventing" that. If you tax to bail out banks, that money is just shuffled around from other people and the competing banks they store their money in. Borrowing/printing money complicates this, but it still creates no underlying wealth. If you let a failed bank fail, its competitors will pick up its customers, buy off its assets, and hire new employees as they grow to meet the new demand.)

You could regulate banks to maintain reserve levels and all that to put a band-aid over the problem...or you could eliminate the root of the problem - a manipulable monetary base that a central bank can inflate at will - by getting rid of fiat money (or merely removing tax and legal tender barriers that prevent private currency competition based on commodities).

You're correct that we had a lot of growth in the decades following World War II, despite all the taxes and regulations. A lot of it had to do with technological progress, and I'll even concede that NASA helped play a role there through the development of widely useful technologies...but that doesn't mean that burdensome government didn't make it harder. Having direct control over the world's reserve currency and being able to inflate it at will "helped," but that kind of growth is artificial anyway, and it's a double-edged sword, as our national debt and currency issues should indicate.



So clearly, government can not only break up banks and regulate them if it wanted to but government can run whole industries build railroads and highways and do innovation in nuclear and space technology or own hospitals and keep doctors on payroll like the VA.
I agree that railroads, highways, etc. are the backbone of our economy, and the interstate system was one of the biggest reasons our economy grew so much during the period you mentioned, despite the taxes and regulations (and although I disagree with taxes entirely, I believe the interstate system was probably the wisest use the government ever made of them). Even minarchists believe that road construction is a legitimate function of government. Of course, an-caps will disagree here and point out that without the government sucking up all the resources to build them, private companies could pool their resources and do so for their own mutual benefit, etc. Never forget that every non-free action - individual or collective - comes with an opportunity cost. In other words, just because the government has done a few things well, that doesn't necessarily mean a free market could not have done them just as well or better. This isn't the thread for that discussion though. For the purpose of this thread, I'll pretend like I totally agree that the government should tax for roads and focus on other issues. ;)



You are confused if you think there are the private corporations like banks and auto makers and then there is the government and the 2 are different. They are run & owned by the same elites and they cannot exist without each other.
I think you might have me confused with a "pro-fascism, big business" apologist. I'm nothing of the sort. :p

You say that government has successfully regulated banks, but then you say that the government and large corporations are run by the same elites. You should recognize that this is precisely my point: Government is primarily a tool of coercion rather than a self-directed entity (although it still tends to act for its own perpetuation and growth, in the same way many large groups forget their purpose and instead continue to exist for their own sake). When all "legitimate" coercive power is centralized into this one tool, it becomes a one-stop shop for the wealthiest and most well-connected organizations to get everything they want by force. That is, as long as they're sneaky enough to avoid shattering public reverence of the state's authority.

Government does regulate banks, but it does not do so for public benefit, and it never will; it does so for the specific benefit of the largest banks and corporations in various industries. (Government actually cannot regulate for utilitarian public benefit, because even well-intentioned regulations inherently distort the market and cause negative side effects that are at least equal in magnitude to their benefits.) Literally every regulation - except possibly antitrust regulations, but you could even (http://mises.org/store/Antitrust-The-Case-for-Repeal--P10.aspx) make a case about those (http://mises.org/store/Antitrust-and-Monopoly-Anatomy-of-a-Policy-Failure-P296.aspx) - increases market entry and business operation costs. A lot of these cost increases - especially required legal work - tend to be constant factors rather than proportional to the scale of the company. Even "proportional" costs will disproportionately affect smaller companies during shaky months, because their smaller size and relative lack of stability gives them a more volatile account balance. This means large corporations love regulations to a certain extent (and feign opposition), because they block out upstarts and secure their dominance, and they only genuinely oppose them once market entry costs are already so high as to perpetually secure their dominance anyway. (This shelters large corporations from competition, which naturally makes them more inefficient, continuously costing the market both wealth and jobs.) To give an example, cap-and-trade advocates would probably be shocked to learn Enron's involvement in devising the cap-and-trade plan.

So long as the government has the arbitrary power to regulate, it is impossible to perpetually keep that power out of the hands of special interests, and any attempt to regulate those special interests will be instead used by them to destroy and block out competitors...because, as you said, the political and corporate elite are intricately connected (and the natural incentives of centralized power make this inevitable). There are three ways this happens:
If people loudly push for certain legislation, establishment corporations can quietly push for loopholes in the text that will make the law easier on them than smaller competitors (and therefore a net "benefit").
Even without that kind of a priori manipulation, the enforcement of a specific written law can be selective. When laws are enforced, the dense legalese they're written in generally carries multiple meanings which are selectively applied to different classes of people and companies.
In the broader sense, corporations control the political process and government through much more than campaign donations; the corporate/political establishment owns the media, political party leadership, NGO think-tanks, etc., and they all work for the collective benefit of that establishment. They're so entrenched that any time you try to increase government power to exert more control over them, they'll use that power to their own advantage.
So, in a way, you're right: The specific corporations that we see dominating the world today could not exist without government, because they rely on it secure their dominance through soft fascism (instead of competing fairly on the market)...but it would be absurd to say that no company (or market) can exist without an interventionist government.



Or as a matter of fact if you think that there were the Allied forces who fought against the Axis forces in WW2: those were just the colors seen by the poor schmucks who got killed on both sides. Or who do you think armed the Taliban?! Santa Klaus?! These false dichotomies are used to divide the population and rule over them. The only valid dichotomy is between 99.9999% of humanity who's ruled and 0.00001% who rules them.

"The Nazis could have invaded Poland and Russia without Switzerland. They could not have done so without GM" - Bradford Snell
http://en.wikipedia.org/wiki/History_of_General_Motors#World_War_II
I agree 100% with this.

the count
04-24-2010, 07:56 AM
Hey, anybody forget under who's watch many of the mega bank mergers occurred? well, how about the bush presidencies? i dont like obama, but the 'let business police itself' mantra of the republicans is not good either. thats why they BOTH have to go. there is no real choice as it is now. the 2 big parties are only interested to make sure NO OTHER party can establish itself.

the count
04-24-2010, 08:00 AM
There are two options here. (Only one has a long term effect)

1) Government breaks up the private bank, or
2) Congress acts ethically


This is not a failure of governence of banks but an ethical failure of congress. Ultimatley, a failure of the American people to elect ethical congressmen. What members of congress will be held liable?

1) remember the Ma Bell breakup? well, this telecom cyborg has reconstituted itself with nether a peep from congress. i guess the cozy relationship between ATT and NSA is important enough...

2) mentioning ethical and congress in one sentence is a joke!

torchbearer
04-24-2010, 08:00 AM
Hey, anybody forget under who's watch many of the mega bank mergers occurred? well, how about the bush presidencies? i dont like obama, but the 'let business police itself' mantra of the republicans is not good either. thats why they BOTH have to go. there is no real choice as it is now. the 2 big parties are only interested to make sure NO OTHER party can establish itself.

technically, the government will still police business without regulations. They are called fraud laws.