Thursday, March 31, 2016

Steve Eisman: breaking up the banks not the solution

"It’s no longer accurate to say that the large banks pose a systemic danger to the American economy. Some argue that they should be broken up solely because they are too politically powerful. Perhaps so, although that power hasn’t managed to prevent regulators from dismantling bank leverage and risk. Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further. 

Now that we have a new bank regulatory regime that seems to be working, we should not complicate it with breakup proposals whose ultimate implications are unclear at best. But it is absolutely crucial that the new regulations not be rolled back. The Federal Reserve should continue its annual stress tests of the large banks. Calls for restricting the power of the consumer protection board should be rejected outright.


The central economic problem of our time is income inequality, especially the lack of personal income growth for most Americans, which was one of the underlying causes of the financial crisis. In lieu of rising incomes, credit was allowed to be democratized. Living standards were maintained only because increased credit supplemented deteriorating incomes. That helps explain, post-crisis, why United States growth is slow: Without easy credit, consumers cannot increase spending, because their incomes have fallen since 2007.
If we want a stronger economy, improving the distribution and growth of personal income should be our focus. Breaking up the big banks will not help, and might even hurt."
http://www.nytimes.com/2016/02/07/opinion/dont-break-up-the-banks-theyre-not-our-real-problem.html?_r=1

10 comments:

ricpic said...

Good chance FED will be audited by Trump Administration. No chance by Cruz, Ryan, Hillary, Bernie, all the usual suspects. Auditing the FED would be a start.

Methadras said...

Why not just ask the nobel prize winning dwarven economy jew, Paul Krugman what he thinks of it all. I mean the NYT makes him their go to dwarf on such matters.

A FED audit by Trump will most likely get him killed.

Michael Haz said...

The people who want to 'break up the banks' also want to make unions larger and more powerful.

Looking at you, Bernie Sanders.

Paco Wové said...

"The central economic problem of our time is income inequality, especially the lack of personal income growth"

I guess we're not supposed to notice that part 2 (the real problem) is not actually a subset of, or even related to, part 1 (what the author wants us to think is the problem).

"Inequality" is not the problem. "Declining incomes" is the problem.

Methadras said...

People who want to break up banks think they can apply monopolistic breaking strategies to the financial system without understanding a modicum of how money is created, distributed, bought, sold, transformed. They are financially illiterate fools. People on the right scream AUDIT THE FED!!! as if that's some kind of cure-all for the snake-oil that the right has mentally glommed onto. I think the fed should be audited, but for different reasons.

Yes, there is a banking cabal. Yes, the system is rigged and has been for years, but the idea that you can peddle the notion that you are going to be the world breaker for this kind of stuff is stupid. Which bank are you going to break up? How are you going to do it? What are you going to leave behind? What happens when it fails? What will the banking structure looks like. Simply saying break up the banks doesn't cut it. You have to have a plan and that plan needs to lead to a cogent, financially sound solution. Are you going to get that from politicians and the general public? Nope. Instead there will be a call for the Dept. of Treasury to do something which will go just like Haz said it will, more money for another bigger fatter government dept.

deborah said...

"Declining incomes" is the problem."

Hi Paco. I think this is built into the system. I'm a pretty pessimistic person when it comes to matters of government and finance. The post-war period was a fluke, and as the saying goes, wages have been declining since the Seventies when the rest of the world, especially Japan (cars), started catching up.

With the ascendance of tech (robots, off-shore hiring) things will only 'decline' more. The real question is standard of living. When I was a teen, I had to listen for my favorite song to come up on the radio. Or play a 45. But NOW I can listen to anything on youtube, my iPod, etc. Medicine is advanced for the average American, etc.

deborah said...

Right on, Meth. My question is if the next president wants to audit the Fed, how would he go about carrying that out. Could he get it done by executive order? Would it have to go through Congress?

Michael Haz said...

...wages have been declining since the Seventies ...

Don't overlook what happened to the US workforce beginning in the late sixties and early seventies....women entered the workforce in numbers not seen before. Until that decade, more women stayed home to raise children than entered the workforce. And when women did enter the workforce it was in a fairly limited role, teachers, clerical, nursing, and so forth.

The workforce nearly doubled in the seventies, without a concomitant increase in the number of jobs available. More workers, fewer jobs, equals a stagnation in real income growth.

deborah said...

Great point, Haz.

Methadras said...

Michael Haz said...

...wages have been declining since the Seventies ...

Don't overlook what happened to the US workforce beginning in the late sixties and early seventies....women entered the workforce in numbers not seen before. Until that decade, more women stayed home to raise children than entered the workforce. And when women did enter the workforce it was in a fairly limited role, teachers, clerical, nursing, and so forth.

The workforce nearly doubled in the seventies, without a concomitant increase in the number of jobs available. More workers, fewer jobs, equals a stagnation in real income growth.


And that had to do with one overarching variable that people neglect and that was the egregiously high taxation rates involved. Single person income households become dual income households and the driver was taxes.