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No More Bailouts. Break up the Banks!

Earlier today, President Obama imposed a salary cap of $500,000 on top-level executives at firms receiving bailout funds from the federal government.  This seems only fair considering that these executives have failed badly enough to require unprecedented assistance from taxpayers.  But it’s also a frightening amount of control being exerted on the private sector by government.

As our economic crisis has unfolded, there has been much debate as to HOW the government should proceed, but little doubt that they had to do something.  It was clear, even to believers in the free market system, that these financial giants were literally too big to fail.

Once the decision was made to assist institutions in crisis through taxpayer money, the government had no choice but to oversee the use of the funds.  You can’t just hand out money with no strings attached.  Unfortunately, proper oversight of the funds amounts to massive interference in private affairs by government.  This is not something that anybody is happy about.  But it was truly unavoidable given the scope of the financial crisis and the dependence of our economy on these failing firms.  In our mind, there is a single glaringly obvious preventative measure to be taken:


As soon as this recession is over, break down national banks into regional institutions.  Decrease the amount of consumer deposits banks are allowed to hold from the current 10% of all national bank deposits  to 0.5% or less.  Set a limit on the amount of money investment banks are allowed to hold.  Limit the amount of policies insurance giants can issue.

This solution sounds radical, but think about it.  Large banks would protest loudly, obviously, but fuck them!  They’ve COMPLETELY dropped the ball– let them pay the consequences.  Banking would still remain profitable, it would just be at a smaller scale.

nyc No More Bailouts.  Break up the Banks!

And then, we the taxpayers wouldn’t be on the hook for mismanagement.  Banks could pay their executives whatever the hell they want.  They could loan money to whomever they want.  And they’d know that if they screw up, they’re done.  There will be no government assistance to financial firms because our economy will not be dependent on any of them individually.

Consumers would be better off in many ways.  Obviously, we’d be off the hook for other people’s failures.  We’d also be dealing with reasonably sized banks as opposed to behemoths– we’d have more choices, inevitably leading to better service.

There is really no drawback to this plan, unless you’re a senior executive for a “too big” firm.  And yes, the process of breaking these institutions down would be complex, but isn’t that Timothy Geithner guy a genius?  I’m sure he can work something out.

The debate we’re hearing right now isn’t about curing an illness– it’s about managing the symptoms.  And we should deal with the symptoms.  But once the situation is under control, we need to address the disease.  We need to split up the banks!

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2 comments to No More Bailouts. Break up the Banks!

  • Leaner, meaner banks would probably be the best way to go, but at the same time these banks would still have their deposits covered by the FDIC. If they should happen to fail en masse, a government bailout would still be required-for the depositors, not the bank. At the same time, if a bank knew there was no bailout coming as a result of their poor business decisions, they would probably run their institutions very differently.

    What you’re suggesting may already exist in the form of anti-trust laws.

  • Lord Tantrum

    We already have a system limiting the deposit share any back can hold to 10% of total deposits, rj… I’d suggest cutting it significantly, to 1% or less. That way we’re not overly dependent on any of those banks and we don’t have to bail them out. You’re right that if they failed en masse we’d be in the same situation, but if they know there’s no possibility of a bailout hopefully they’d run things better. Antitrust laws do apply to banks but they don’t limit size. Thanks for reading!

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