Big Banks: Too Big to Fail and Huge Pain in the Ass(ets)

Path to Power

(don't accomplish much, just say you are)

Case in point: Big banks and their power to stay in power — 

Update from here (January 25, 2014) Introduction: It’s time to break up the big banks.

An irony of the 2008 financial crisis, which necessitated the unpopular, but necessary, bailout of banks deemed “too big to fail” is that it led to even greater consolidation. In 1990, the country’s five biggest banks held 9.7% of the nation’s banking assets, according to a recent report by SNL Financial. By 2007 it was 38.4%. Today it’s 44.2%.

This is the logical outcome of a banking deregulation binge that started more than 30 years ago and which Dodd-Frank reversed only at the margins. The investment class took bigger and more lucrative risks knowing that whenever a bank failed, the federal government would, in most cases, either bail it out or hastily arrange a shotgun marriage with another suitably large bank. Moral hazard begat financial instability, which in turn begat ever-greater gigantism in banking.

This cycle has been terrible for ordinary Americans but a bonanza for Wall Street and a major driver of inequality between the top 1% (really, the top 0.1%) and everybody else. “If you run a bigger bank,” MIT economist Simon Johnson explained at a recent “too big to fail” debate, “you get a bigger paycheck.”

The sick irony: Most of us have yet to recover from the 2007-2009 recession. Median household income – at $52,000 – is, incredibly, 4.7% lower than it was at the start of the economic recovery. Between 2009 and 2012, the last year for which data are available, income for the bottom 99% increased a mere 0.4%.

The kicker: But the top 0.1% recovered just fine. Between 2009 and 2012, income for the top 0.1 percent rose 45%, from $4.4 million to $6.4 million. Most of this money went to corporate executives and financiers.

Need another reason to greatly dislike banks? This might help.