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George Washington: Numerous Top Bankers Call for Break Up of Giant Banks

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[Originally published at Washington’s Blog]

Banking Titans Call for Break Up of “Too Big to Fail”

The following bankers are calling for the big banks to be broken up:

  • Former managing director of Goldman Sachs – and head of the international analytics group at Bear Stearns in London- Nomi Prins
  • Numerous other bankers within the mega-banks (see this, for example)
  • Former Natwest and Schroders investment banker, Philip Augar
  • The President of the Independent Community Bankers of America, Camden Fine

Top Economists and Financial Experts Agree

It’s not just bankers.

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
  • Former chief economist for the International Monetary Fund, Simon Johnson (and see this)
  • Former 20-year President of the Federal Reserve Bank of Kansas City – currently FDIC Vice Chair –  Thomas Hoenig (and see this)
  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Economics professor and senior regulator during the S & L crisis, William K. Black
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

Click here for background on why so many top bankers, economists and financial experts say that the big banks should be broken up.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

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44 comments

  1. bold'un

    This is a smokescreen to avoid the real problem which is how to finance private real estate (big issue in US, UK, China, Spain, and not for the first time in history).
    It can’t be possible for the finance industry to offer finer borrowing rates to individuals than to corporations and even sovereigns. How many people in Spain have lower mortgage interest rates than their nation? How many US corporates are paying more than 3.55% to borrow for 30-year funds?
    Nor can it be part of the state’s duty to make mortgages affordable by paying or guaranteeing the risks.
    How can mortgage finance be both profitable for providers and affordable for borrowers? Where do Romney and Obama stand on mortgages?

    1. James Cole

      While the overall point of your post is utterly baffling, it is clear that you do not understand the difference between secured and unsecured lending.

      1. jake chase

        The only result of “making mortgages affordable” is to create a real estate bubble fueled by borrowers unable to afford the affordable mortgages they take on, because the prices at which they are compelled to buy make no economic sense in relation to the incomes for which they are forced to labor. We have reached the end of mortgage credit as a substitute for wages. We will see whether the elite chooses to engineer wage gains or a depression. Those are the choices.

        1. Art Eclectic

          Exactly. Anytime I see the word “affordable” in relation to a financial product I automatically assume I’m about to get shafted in the fine print.

        2. Walter Wit Man

          Yep. I actually agree with you here. Propping up housing prices hurts more people than it helps.

          We need lower house prices even if that means some people have to suffer in the short term (and ideally we could come up with just remedies to lesson the short term pain).

          The next generations are getting crushed so the most well off Boomers can sit on their golden eggs.

        3. F. Beard

          Yep. Credit creation creates the need for more credit creation. We need to break the vicious cycle. A ban on further credit creation and a universal bailout till ALL private credit debt is paid off would do it.

      2. Warren Celli

        The disease of Xtrevilism ebbs, flows and consolidates…

        Aberrant sociopathic killer Xtrevilism gang rapists — in a balancing maneuver designed to pacify the masses and the Evilism good old fashioned Vanilla Greed rape for Profit faction that still does not get it — play the good cop bad cop game and make everyone feel good by recanting their past sins. Of course no sins are admitted as they all pretend to be really good stalwart Americans with the country’s best interest at heart. Their true intent however is obvious when one looks at the formidable walls of plausible deniability that they have surrounded themselves with to be used in their now totally scam ‘rule of law’ should any quibbles arise.

        Building constant plausible deniability is a hallmark symptom of the disease of Xtrevilism.

        The Pernicious Greed for Destruction continues, the herd thinning is on track, the two tier ruler and ruled world with the ruled engaged in perpetual conflict with each other is progressing nicely, and it is all so incremental, so smooth, so entertaining, so rightiously feel good engaging, with so many individual circuits of deception for the deceived to shunt their power away — especially in the process decoys of voo doo economics. Secured and unsecured lending requires trust in a ‘rule of law’ not in a selectively enforced scam that is written by and favors the aberrant sociopathic few.

        Deception is the strongest political force on the planet.

        1. F. Beard

          Think of it this way: the non-meek are identifying themselves so the meek can inherit?

        2. Paul Revere

          I commend your pent up anger and intelligence,
          yet I would like to mention that this appears to be
          knawing away at you from the inside out.
          Don’t let them win by exploiting your “tell”

          Have Faith, and beat them at “The Turn”.

          Take a moment and turn away from the hate.

          Plant a seed of “Goodness” for the future

          that will grow for yourself,your family, your

          community, your state, and ultimately, for your

          fellow Citizens of The United States of America…

          Which, If you tend your garden well, will have a

          positive influence on the Citizens of the World.

          Set an Example, Do the Right Thing,

          Plant a Seed of Goodness, and Let it Ring!

          Best Regards, Your Fellow Man

          1. Warren Celli

            Thanks Paul — the truth is a seed of “Goodness” that bears strong healthy crops. Sometimes it is difficult to see the love and happiness on the package but it is there if you look for it.

            Deception is the strongest political force on the planet.

  2. James

    Good article and great points all, but it won’t make one whit of difference in the end. The problem is not that we don’t know what needs to be done, for the most part at least (TBTF banks are only the tip of the iceberg. They’re merely a symptom, not the disease itself.) The problem remains that we don’t have the political will and/or courage to actually do it. What we have is total electoral, judicial, and legislative capture on the part of the moneyed TBTF interests worldwide, and that ain’t showing any signs of changing anytime soon. The article makes it appear that there’s some sort of consensus for change to the current system, which I suppose might be useful in some minimal way if it were to prompt a significant number of people to grow a backbone and demand change at the risk of walking away from the current system altogether, but humans being humans (or is that sheep?), I simply don’t see that happening either. No, change to the current system will only come the way it always does: after total/near total systemic collapse disenfranchises enough people that they simply give up and walk away from it to start something else out of necessity. Which, fortunately enough, might not be all that long from now.

    2. LeonovaBalletRusse

      J, “consensus” – by those who have taken their market positions, “betting” on the [fixed] outcome? So nice to be on the “right” [sunny] side of the “market,” especially the “marketplace of ideas” when the “sink is shipping.”

  3. R Foreman

    Without the large broker-dealers, what would become of the USA’s ~20 $Billion per day need for buyers of its debt?

    Does the USA then just start printing $20 Billion per day as the MMT people continually say we can do? I think there are reasons the PTB have fought so hard to keep this system in place (as in, US Govt finances will fail otherwise).

    I don’t believe the ramifications of this kind of bank breakup have been fully thought out. I’m not against it, but I’d like to hear from several experts what they think would happen. A system collapse one way or another might be inevitable anyway.

    1. James Cole

      You don’t think the good old USA could figure out how to either sell or monetize its debt with a network of smaller broker-dealers?
      Plus: “I’d like to hear from several experts what they think would happen”: Really? The original post is quite literally a list of such experts. Maybe some creative web searching with those names as search terms would provide the illumination you seek before you decide to post your next display of ignorance.

      1. R Foreman

        Your concern for my mental well-being is noted James, but ignorance in the form of jumping on some bandwagon without a proper hearing of facts would be the larger crime.

        From your response I have to believe you’re a proponent of the bank break-up idea. Has it occurred to you that after a breakup there might not be any smaller broker-dealers left (since several large insolvent entities equate to numerous small insolvent entities) ? This is one kind of analysis I was referring to, but I’m sure you realized that since you’re such a perceptive guy.

          1. R Foreman

            It would take more than dozens to buy $20 Billion per day of overpriced gov’t debt. Right now it takes dozens of insolvent TBTFs to do it.

            That’s beside the point though; without accounting fraud these banks go poof and make a big crater in the economy. Allowing the fraud to continue just makes the crater bigger down the road.

            Few if any of the experts are willing to address this issue, the need for debt repudiation to restore economic balance. I’ve only seen one or two people (Steven Keen, and commenters on a couple blogs) who even understand what the solution is. Breaking up big banks is a half-assed solution, as it only helps a few small banks who are would-be competitors.

      1. Ames Gilbert

        Now, if the governor of California used his clout to organize all the counties to pursue the eminent domain tactic as an organized group (union). . .
        . . . and at the same time used his clout to found a state-owned Bank of California (where all taxes and other income were deposited) to fund the new mortgages . . .
        then the idea might fly!

    3. Walter Wit Man

      I suspect the calls by Weill et al to “break up” the banks will be coupled with the proposal to use eminent domain to buy up individual mortgages: http://www.rollingstone.com/politics/blogs/taibblog/from-an-unlikely-source-a-serious-challenge-to-wall-street-20120720#ixzz21J0ZHYO0

      I noticed these two proposals are being heavily promoted in the financial press and the blogs.

      This is probably how a future scam will be implemented.

      It would be much easier to use eminent domain to seize the TBTF banks rather than seizing the individual homes.

      1. Walter Wit Man

        And notice the proposal is from “Mortgage Resolution Partners”, a firm that would profit off of municipalities/states using eminent domain.

        I’m guessing companies like MRS will make money running these operations and the big banks will probably make money providing the financing to municipalities for these.

        It would be much easier to simply have the federal government seize the banks and come up with a more bottom up method to deal with the mortgage problem.

      2. Ames Gilbert

        Now, if the governor of California used his clout to organize all the counties to pursue the eminent domain tactic as an organized group (union). . .
        . . . and at the same time used his clout to found a state-owned Bank of California (where all taxes and other income were deposited) to fund the new mortgages . . .
        then the idea might fly!

        (Sorry for posting in the wrong place above)

  5. Francois T

    None of the bankers mentioned by Georges would be making those statements if there was any chance of break up happening for real.

    I totally agree with Yves on that one: this is blatant pandering to the 99%, a feel-good grade-AAA bullshit vaporware to assuage the unwashed masses.

    I’ll believe what they say the day Obysmal make what these bankers said official policy of the US government while firing Geithner the same day.

    Until then…have a good nap!

  6. Tim

    I have to wonder whether this has become less a policy problem and more a business problem, given the banks’ share prices (especially relative to book) and ROE performance. You know, in the military, a plane that can’t fly is stripped for parts. Especially if the parts are worth more than the assembled plane.

    Maybe Ferdinand Pecora is no longer with us. But last I checked Henry Kravis still is.

    1. JTFaraday

      That’s what I think. I think for the not-Jamie Dimon crowd, there is more money to be made with a break up, and that ultimately this becomes a contest between two(?) groups of factional “business” interests.

      I would like to think that “the public interest” can be made to prevail, but it doesn’t look likely to me.

    2. Walter Wit Man

      Exactly.

      They’ve already unloaded their problematic mortgage securities and derivatives onto the Fed and other various federally-backed entities, right?

      So now they are pretty much only involved in servicing the securities and mortgages, right?

      Breaking them up after taking their bad assets is probably the best deal for the bank shareholders.

      And the big banks will be there to help sell off the good assets under proposals like the one Taibbi mentions in the article I link to above (under which the banks would provide loans to municipalities to buy homes via eminent domain).

  7. briansays

    i’ll believe this when phil graham signs on and confesses to the error of his ways

    i’m not holding my breath

  8. Bam_Man

    Yeah, with the stock prices of each and every one of these mega-banks in the toilet and showing no signs of life, these guys are obviously figuring that these banks are worth a lot more (at least in terms of market value) broken up than in one piece.

    These lying, conniving thieves are still major shareholders of these banks after all.

  9. ep3

    yves, this breakup talk reminds me of a W. Bush thing. Remember how everyone harped on W “don’t invade…” cuz you couldn’t bring democracy to those places, etc. but thru a rough period, things are getting a little better for those places (please just go with this until i make my point). So now we have obama saying his way is the only solution. Yet his vision then of the solution doesn’t arrive directly at breaking up the banks as a solution. so we push thru with obama’s vision and it’s a disaster along the way. so now a few years down the road, he can say “hey look, now we want to (fill in the blank) fix the banks, just like everyone was saying, now we have the political will, etc.”. But my point is that it’s like a “well we broke a few cartons of eggs along the way, but the chicks that were born, boy are their feathers white.” same with bush. have everything be a train wreck and then what’s left becomes a solution.
    just a thought.

  10. Enslavedlikeme

    Vote the OREO out this time, the CRACKER out next time, and demand 8-year term limits for all other “elected” officials.

    * Everyone must stop Maryland’s Gov. Martin O’Malley’s push for the White House. He has and continues to destroy small businesses in our State and will do the same to the country if allowed to continue. Just like the elected “lifetime” officials (pick a party) have done in your State.

    Everyone MUST get off their asses, drag their family, friends, and co-workers to an election booth this November and vote them out. “OBAMA” goes this time and “ROMNEY” goes in four years. And, don’t just talk about it, but turn off the “boob tube” and actually FIGHT to implement Term Limits between now and then.

    Otherwise, you will also be … Enslavedlikeme

    Our founding fathers would have been shooting by now.

    1. Aquifer

      Hmmmm – OK, replace Obama with Romney and then replace Romney with – whom? A Dem? Sounds a bit like what we have been doing for decades (eons?) now – with what result …

      So, how about trying something new? Lets throw BOTH of them out and put a decent human being, with no corporate strings attached, with a program for the 99%, in instead!

      The fact that it could be done but too many, including folks here, apparently, aren’t supporting it continues to baffle me.

      I keep suggesting Stein with the Green platform but have yet to have anyone seem willing to engage in a spirited discussion about why they are opposed …

      E.g. if one wants to break up the banks why not support giving the power and position to those who would do it? And if one won’t support them, then how does one propose to actually break up the banks, and if one has no plan, but won’t support those who do, then, forgive me, but how can i take all this critique very seriously?

  11. Fiver

    I floated the notion way back when Dimon gave his wildly overdone BS mea culpa for the also BS “oops” regarding poor management oversight, poor choice of VAR and the rest in the London Whale fiasco that:

    The entire affair could be a planned PR prelude to an equally BS “resolution” of the TBTF issue – BS in the sense that the appearance would be one of this Admin finally “acting”, whereas the reality was that banksters had taken zombies about as far as they could (looting the entire way) and wanted greater freedom of action, or

    The same, but with the twist that Dimon wanted to have a great, big, whacking score prior to moving on to some other very powerful slot.

    Regardless, given the JPM scandal, Libor, and other recent revelations of routine, pervasive, criminal activity and also given that the ECB and Germany have rather suddenly “seen the light” (though I, for one, said they would all along under orchestrated attack from “markets” wielded as financial/politicalweapons) with the Fed’s finger on the trigger should ECB balk, the overall plan of the 1% continues to be evident: make some purported “real” changes, and pass around (largely via trickle down) some more appealing crumbs AFTER top banksters have made all the moves necessary for their own personal wealth and power bloat to continue.

    I will not be at all surprised to see “action” on TBTF. The simple fact is that the 1% is about nothing if not about “managing” its interests, and if it takes a few high-profile, low-cost (to them) moves, they’ll do it.

    I stick with my call for a much “better” H2 for the US based on having flattened European competition, Central Bank action, Obama re-elect (which ends any stupid barking about a “fiscal cliff”), major stimulus brought on in 2013, and a US “boom” that has even the Roubinis talking about a “real recovery” – just before it all goes “splat” in late 2014 because, in reality, not 1 single thing of fundamental consequence has been fixed, or for most, even admitted into awareness.

  12. mood disorder

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  13. sierra

    The “Weill” has come full circle.
    But, within that “circle” lies a deep pit of enromous economic destruction
    Throw them all in there!

  14. John Lenihan

    Banking Titans Call for Break Up of “Too Big to Fail” (!!)
    If this headline is really true (doubtful), then it could mean that the biggest dogs are starting to eat the all the others, who then start to howl.

  15. Glen

    Well, everybody can call for it, but nothing will happen until monkeys fly out of Obama’s ass.

    Heh…

    1. Glen

      Make that, nothing will happen until Timmy flies out of Obama’s ass.

      Hate to pick on monkeys…

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