Break up the big banks

September 15, 2009

President Barack Obama pledged on Monday “to put an end to the idea that some firms are ‘too big to fail.’”  Though he outlined some worthy prescriptions, he failed to face up to the very size and power of the financial institutions that makes “too big to fail” possible.

For the big have gotten even bigger since the start of the financial crisis. At the end of 2007, the Big Four banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — held 32 percent of all deposits in FDIC-insured institutions. As of June 30th, it was 39 percent.

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In total, they had $3.8 trillion worth of deposits as of June 30th. Compare that figure to the FDIC’s Deposit Insurance Fund, which showed a balance of just $10.4 billion on the same date.

The FDIC has been the most effective regulator since the onset of the crisis, closing down failed banks in order to limit risk to taxpayers. But its resources are woefully inadequate to deal with the largest institutions. (I am excluding the $500 billion credit line it has at Treasury; those are taxpayers’ resources, not FDIC’s.)

And that’s just the commercial banking side. These banks — especially Citigroup, Chase and Bank of America — have huge investment banking operations that are maddeningly complex and, systemically-speaking, very dangerous.

Obama certainly recognizes the problem — “the system as a whole isn’t safe until it is safe from the failure of any individual institution.”

But his recommendations — more stringent capital requirements, stronger rules and a “resolution authority” to cope with systemic meltdowns — won’t solve it once and for all.

To be sure, higher capital requirements are a very good start. They not only give banks a bigger cushion to deal with losses, they also limit the amount of credit they can flush through the system. This is a good thing: Too much credit is the air that inflates dangerous asset bubbles in the first place.

But higher capital requirements won’t make too-big-to-fail banks much smaller. At best they will penalize the biggest banks by reducing their returns on equity, giving smaller banks a leg up competitively.

A tax on assets is another good idea to discourage growth, but what we need is more aggressive action to force shrinkage.

For instance, resurrecting a version of Glass-Steagall would be highly sensible. Commercial banks have no business using their federally-insured balance sheets to finance risky investment banking operations. The two functions should be split.

And what ever happened to anti-trust laws? Among them, Citigroup, Chase and Bank of America control two-thirds of the credit card market. That stranglehold gives them significant leverage vis-à-vis consumers.

Another issue is derivatives, which Obama didn’t really address.

Notional exposure still totals tens of trillions at the biggest banks. Sure, many of these positions offset one another, but that assumes the daisy chain won’t break. To insure market integrity, the biggest players in it all have to get an explicit “there will be no more Lehmans” guarantee.

This gets to the heart of the issue. Though Obama says a return to “normalcy” means emergency rescue facilities can end, it’s a safe bet that they’ll come right back the next time we have a systemic event.

The only way to ensure we’ll never need them again is to eliminate too-big-to-fail banks. The fastest way to achieve that is to break them up.


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Obama speaks loudly and carries no stick.

Posted by Jean Gateau | Report as abusive

THIS is the “socialism” that concerned citizens should be railing over – the socialization of risk for the benefit of the banking oligarchy. Where is the outrage over this BS “Too Big to Fail” policy?!? We’re told to forget “health insurance” for the weak while our tax dollars fund government “wealth insurance” for banksters at the cost of trillions of dollars – the implied government backstop for the derivatives counterparties. Resurrecting a version of Glass-Steagall WOULD be sensible, but it unfortunately appears that most politicians can be deemed “Too Corrupt to Govern.”

Posted by Dude | Report as abusive

Bankers are behaving like gangsters. Politicians and the Fed are the enablers.

Posted by Josiah McGuffog | Report as abusive


This isn’t socialism.
It’s Fascism, Elitism, and a Corporate State.

Posted by C.D. Walker | Report as abusive

Well, its socialism for the rich, monetarism for the rest. dUSTRE58E5RT20090915

Why so long to be made public, Rockefeller & Co. CEO commits suicide?

Posted by jamie kennedy | Report as abusive

The concentration of deposits all of which are at least partially insured by us and the rise in money at risk at these banks is a recipe for disaster.

This is a national disgrace. If the politicians from both parties can’t fix this quick, they need to be kicked out of office.

I have never seen this country so screwed up in my entire life.

Break em up now!

Posted by Bart | Report as abusive

Cash flows get crimped due to delinquencies, property values and foreclosures causing the global economy to limp through difficult times.

Financing of properties is going through a huge restructuring process and the pricing should readjust to the new trends affordable by people. This transition is causing a lot of industries and job sectors to be totally wiped out.

Due to various disconnects in the industrial chain, job markets in various segments are down, property owners are sunk in debts and lenders are skeptical to lend and bail out people from the difficult situation. The income to afford to repay loans is declining highly.

Read More: Read More:

Posted by daveinfo | Report as abusive

Amen, C.D.
Dude, you’ve got your ideologies confused — it’s fascism. Have we considered that the owners of the Fed are the very banks that have been so massively bailed out with taxpayer dollars? Or that the majority shareholders of these banks, are the ultimate beneficiaries of the bailout orchestrated by the Treasury Secretary and the Fed Chairman? Imagine the handful of old men who are the owners of these banks, whose coffers have been filled by our taxpayer dollars via “bailout?” These banks that are NOT disgorging and making loans to Main Street, but are holding onto our taxpayer bailout dollars to enhance their balance sheets. Who does Bernanke work for? These same old men. They are using our dollars to pay themselves back after making lots of stupid investments, so they don’t bear the losses, and they also have plenty of cash to go shopping for their old competitors, now laid low. They can pay pennies on the dollar to snap up their assets, and behold, now they have a much larger, and rapidly-growing, share of the banking market!

Watch the market share of these four big banks keep growing over the coming years!

Do you ever wonder if getting a controlling share of the banking markets, by eliminating competitors, was the endgame all along? the old men simply needed to loot the Treasury so they could go on an incredible shopping spree for failing bank assets!

Makes one wonder — Were the threats of an IMMINENT ECONOMIC COLLAPSE, boldly stated on television by our fave, George Bush Jr., not somewhat odd, when you consider that creating panic should have been the last thing the government would want to do? Was the threat by the banks that they are too big to fail and must be bailed out, intended to create fear? Of course! Is such a threat and the fear it engendered, the manner by which we came to be held hostage by these old men and their banks? How about the efforts of their stooges, Greenspan, now Bernanke, Paulson now Geithner, to make sure we would take the bait.

Don’t get me wrong…I think they can be incompetent, create huge problems by deregulating the financial sector, and by their greed and incompetence. But isn’t the modus operandi always the same? Find a way to hide behind these avoidable crises to create for themselves opportunities on a grand scale, under the cover of many plausibly-deniable alternative explanations for the cause of the mess?

Posted by Linda Netherton | Report as abusive

Good article and graphics, to me it looks like a time-bomb ticking past four o’clock.

…and voters enable Politicians and the Fed.

Posted by Casper | Report as abusive

C.D. Walker 9:25 p.m. is 100% correct. I could not put the words any more succinctly than this:


This isn’t socialism.
It’s Fascism, Elitism, and a Corporate State.

- Posted by C.D. Walker


I am not a student of banking but I wonder how would shrinking the size of America’s largest banks affect their foreign banking competiters?

Posted by al coholic | Report as abusive

The banks are legal entities.

They have the right to own assets as they see fit.

Those who call for the banks to be torn apart must be socialists. And they don’t even understand how the word applies to them. Making them uninformed socialists (as if there were any other)

Posted by Mr Moneybags | Report as abusive

Thank you so much for such a meaningful visual aid. I really appreciate it!

Posted by Paul Eade | Report as abusive

C.W. – Whoa. No need to shout at me, man. This is still a relatively peaceful discussion thread. You can call it what you want, man. But it IS a form of socialism. Just look up the word up, man. The banksters don’t just control our economy, they use our national treasure to do it. Words carry more meaning than what sound-bite media talking heads would want you to think. In fact, they don’t want you to think. Just label it and move on. My comment is more directed to the political “pundits” who focus their “outrage” on the alleged “dangers” posed by the “socialization” of health insurance yet they ignore the dangers of corporate socialism that are exemplified by TARP and bankster control of OUR economy by those who “socialize” their risk with OUR tax dollars and privatize their reward for the few in control. Which, I’ll admit, man, is also pretty much what the fascists did, but the mid-20th century fascists did call themselves “National SOCIALISTS.”

Posted by Dude | Report as abusive

Someone needs to note that Larry Summers and tiny Tim Geither are central figures in the ongoing financial crisis and the principal roadblocks to real reform. They are fraternity brothers soulmates of the Wall Street billionaires who took us to the brink in 2008 and will do so again in 2010, if not worse. We need to understand that some of the folks traveling on this national economic bus are not concerned with the threat of being too close to the brink or even going over it – because they are ridding on top of the bus with their hang gliders ready for a soft landing at the botoom of the cliff. They have contingency plans for surving another great depression.

Posted by John McCarter | Report as abusive

About options — $10 trillion? Balanced unless the “daisy chain breaks?” Call me obtuse, but does a monoliner overextending itself before a downturn constitute breaking? Last I heard there are $700 trillion of options outstanding (well over 10x gross world product). People are not talking nearly enough about options.

I’m getting sick of this. Nothing has changed in the world of finance.

Posted by Pete Cann | Report as abusive

Another possible idea would be to say that the pay of the people at the top 1% of the bank in total cannot exceed some percentage of the bank’s rock-solid capital, and any cash bonuses must be used by the recipient to by stock of the bank and held for five years after award.

And this should apply to investment banks, commercial banks, hedge funds, insurance companies and other “financial institutions.” Make the decision makers have skin in the game.

The very words “capitalist democracy” are an oxymoron because capitalism creates corporatism, and corporatism despises the messyness of democracy. What we have here is corporatist capitalism that does an excellent job of fooling the population into believing it is a democracy. It’s easy though since corporations own the media, and the population is too lazy to do the research and too much like lemmings not to follow the herd.

Posted by dp | Report as abusive

Absolutely correct. When we faced the dilemma of banks that were “too big to fail” what did we do? Of, we made them bigger. And now we are enacting new rules that will make it that much harder for smaller banks to compete on even footings with these behemoths.

One wonders about the thinking in the closed political circles. Do politicians not understand that we must eliminate potential catastrophes of the big bank failures, or do they really enjoy the high drama and relish the thought of another meltdown as being an opportunity to push legislation that would never see the light of day in saner moments?

Posted by Guy Thompto | Report as abusive

We stopped enforcing antitrust law a long time ago and have permited a great banking oligopoly to grow around us. The simple fact is, Democrat or Republican, legislation is bought and paid for by the commanding forces in this country—-that certainly is not We the People anymore. As we begin to unwind again and see that this here is not some nascent economic recovery, maybe, just maybe, there will be enough impetus for real and meaningful banking reform and actual antitrust enforcement. Or we will just allow even more consolidation, which to me seems quite likely.

Posted by elmatto21 | Report as abusive

is there any indication as to what is driving the growth of the big-4?

Posted by Andrew | Report as abusive

I prefer the John Kay pamphlet this blog is “inspired” by

Posted by dumdum | Report as abusive

No one apparently understands that the word “socialism” for the right means any government program. They will use the word, but never really know what it means.

I lived in Germany for 7 years: any doctor, any time, any treatment. And you know what? They only have 5 banks- and they are all big.

Those who throw the word Socialism around are the same as those Jews who call negative Israeli policy “anti-semitic”.

By the way, don’t break up the big banks- I have too much tied up in Citicorp stocks.

Posted by Bob | Report as abusive

From Thomas Jefferson:

“If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

How true. How many banking scandals have the banks given us in the 25 plus years of de-regulation? History has proven that the banks cannot regulate themselves and require baby sitters to look after them. Yes, break up the big banks and return to banking regulation. With jail time for violators.

Posted by RFL | Report as abusive

Wells Fargo/Wachovia/AG Edwards is too big to even be run well. The left hand doesn’t know what the right hand is doing. Such a shame!

Posted by Jimmy J | Report as abusive

Break banks up will not solve the problem, ’cause if they all fail simultaneously in the wake of a future “burst”, the collective efect anyway would force the government to bail them out, even if all of them, independently are not “too big to fail”. So, keep thinking another way around this problem.

Posted by Daniel | Report as abusive

Banks got a tremendous boost through TARP and TALF and consumers got fewer mortgages and higher credit card rates. Financial reform can’t come soon enough. — John F. Wasik, author, “The Audacity of Help: Obama’s Economic Plan and the Remaking of America” (

Socialism is when a centralised government authority takes away the private property and profit of entities, because of the concept of class war.

If the government seeks to break up the banks, it will be at the behest of the poor uneducated masses. It will be because these masses are offended that other people prosper so much.

If you doubt this, then read the posts of this very forum. The own words of the posters indicate as much.

Companies are private entities. They work for their own profit. Just like any other individual. The only real issue here is that they earn more money then you do. And certain people don’t like that.

To break up a company, because you don’t like how large and rich it is? And yet you think this isn’t socialism? Just accept the word and the meaning. If you are a socialist, have the good graces to admit it.

On another note, socialists often call their enemies ‘facist’ as well. Yet another indicator that a person holds a socialist mindset.

Posted by Haha | Report as abusive


Posted by zytronbloodworthy | Report as abusive

The animaged graphic for Rolfe Winkler’s “Break Up the Big Banks” is not displaying.

Posted by Norman | Report as abusive

Because so many people have requested it:
Socialism – Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

So, *technically*, a government controlled bank (or healthcare) isn’t socialism beacause it isn’t a ‘good’. One could argue that it fits into the part about planning/controling the economy.


I agree that socialism is where the government controls the means of production.

As any economist (or really anyone with any financial knowledge) will tell you, one of the primary requirements for production is security and finance. Ask any businessman. Hell, ask any worker who drives to work in a car subject to mortgage.

Hence, when the government dismembers the banks, it is exercising central control over security and finance. Which means it is exercising central control over production. Which makes the policy fit the definition of “socialism”. Which in turn makes the people who support the policy fit the definition of “socialist”.

Posted by Anon | Report as abusive

HaHa. What rubbish. You conveniently forgot to mention that these “private” corporations… which work for their own profit… just robbed the taxpayers of tens of trillions of dollars through TARP and most importantly access to unlimited amount of liquidity from the FED. Sovereign money created FOR these private entities.

How on earth can you talk about PRIVATE when it’s all about PUBLIC money. You moron.

Posted by HoHo | Report as abusive


That money was not stolen from Americans. It was donated by Americans. And Obama was the one who gave permission. If you have issues with the president giving your money away, take it up with him. It was not the corporations who did so.

You are no doubt also aware of the following:

1. Corporate America literally finances your nation with their tax income dollars. They have provided many times more funds to your nation then the amount used to bail them out. Or the fraction of income that 80% of middle class or lower class Americans provide with their taxes. Ever wonder how the government affords anything? Thank corporate America.

2. In the next decade these corporations will earn trillions. Once again, many times more then was provided to bail them out. And once again, this will go to the taxes that keep your country running.

3. These corporations (and banks) can leave America at any time, for a nation which appreciates them better. This is why any threats to “make them pay” are quite hollow. Considering you already owe them for everything, empty bluster just makes it all the worse.

4. Look at a corporation. Compare the amount they took from TARP, against how much that corporation is worth. Your PUBLIC money is just pocket change, a bribe to stop these corporations from laying you off at a time when they would be justified in doing so.

5. Insulting people on forums is not civil. The moderator must be off for the weekend.

Posted by Haha | Report as abusive

Very interesting perspective; I believe such plutocratic thinking has historically proved invitation to violent revolution. Moreover, corporations rarely pay their fair share of taxes–ask any corporate tax attorney worth his or her weight in salt.

Posted by jb | Report as abusive

Revolution occurs when people are oppressed and enslaved. Not when they are employed and paid.

As I said, those corporations may one day decide to leave for another nation. Then where will all America’s riches go? Talk of revolution is empty, especially when you refer to people who are dependent on the system.

This isn’t like a petty king sitting on a throne looking out a window. These corporations and banks actually finance your country. They actually employ you, they actually loan you money and they actually sell goods to you.

This isn’t a perspective of the world. This is the reality of the world. Whether you choose to ignore it is up to you. At any rate, the corporations care very little if you like them or not. Either way, you are still dependent on them.

Regarding your comment on tax lawyers? Look up the words “tax evasion” and “tax avoidance”. There is a subtle difference.

Just as you no doubt attempt to minimise your tax liability, so do corporations.

Posted by Haha | Report as abusive

I agree, though trust when a corporation’s notion of “employed and paid” is tantamount to debt peonage, the conditions of “oppressed and enslaved” are in due course satisfied. Moreover, the very survival of a corporation is dependent upon the willingness of a population to serve it. Your argument reads as though an employee is a liability, when in fact that same employee is the very lifeblood of a corporation itself. He gives his time to work for an equitable wage, uses that wage to purchase goods and services, and, when his wage proves inadequate, borrows at peril to his own economic standing money predictably benefiting the corporations you seek to defend. Though a corporation is not inherently corrupt, its inevitable devaluation of those it employs makes it so.

Furthermore, a report released in 2008 by Congress confirms two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, despite having collectively reported trillions of dollars in sales, according to GAO’s (Government Accountability Office) estimate.

Whether named Caesar, king, or corporation, a tyrant comes to know the brutal machinery of rebellion. That, my monetarist friend, is the reality of the world.

Posted by jb | Report as abusive

Workers are a resource, JB. A factor of production. Just check your economic theory.

And as they are a resource, their value is determined by economic forces. Consider how much a third world nation worker is paid. Could it be that the developed worker is overvalued as a resource? Current trade with China would say yes.

Revolution requires a transfer of power. Those who rebel need a means to gain power over themselves. But what is it exactly that you believe Americans can rebel from?

The power the corporations have over you is dependence. You need them for everything. Money, finance, employment, trade and prosperity. They barely need you at all.

It is absolutely true that the workers are the lifeblood of the economy. But there is no requirement that those workers need to be *American* workers.

There are millions in Europe, Africa, China, and South America who would be willing to take the place of American workers. It’s all about standard of living, you see.

Ask Africa if it would enjoy living in a corporate state, in exchange for giving up their crippling third world poverty. They will trade places with America anyday. Will you make the trade with them?

If America ever found a way to rebel against corporations, this is exactly what would happen. Most people know this already, which is why it never will happen.

In fact, I would say the majority of Americans are happy with the status quo. Or at least content. So if there was a way to rebel, I don’t think it will happen soon.

That, my idealist friend, is the reality of the world.

Posted by Haha | Report as abusive

Thank you for the clarification, though I must correct you on one point—I am not an idealist, but a social pragmatist. Relativism, it seems, divides us; that I am a proponent of both cyclic history and autarchic survivalism is perhaps why we differ regarding individual determination.

I do not refute your explanation of corporatism, but ultimately your abandonment of the resolve necessary to change it. “The way things are” is the coward’s mantra, crooned by the benefactor of others’ misery, or the man who for need of determination disavows his own. These words find no refuge among honorable men. So I ask you now, what anthem do you choose to sing?

Posted by jb | Report as abusive

I consider myself a pragmatist above all. Hence my previous statements.

I have never abandoned the desire to change the system. This is because I have always supported the system as it stands. Make of that what you will.

Perhaps you look down on those who say “It can’t be changed”. You probably also look down on those like me who say “the system is perfect as it is”.

But I look down on those who say “The system must change” without any idea of how they will change it, or what they will change the system into. If it isn’t idealism, then what? It certainly isn’t pragmatism.

People can say they want the system to change. But until they have the means to do it, it is just empty complaint. And while people have a god-given right to complain, it rarely has the practical effect needed to change things.

Posted by Haha | Report as abusive

Wasted time waiting for the govt to do anything. Power belongs to the people. Deposits are what makes these banks grow. I decided months ago that Chase no longer served my best interests and moved my money to a smaller, local bank. Will be eliminating all credit cards as they are paid off since banks want to use “cashless society” against the people. Convenience is not always simpler, everyone must wrest back control of finances from these despots.

Posted by cle | Report as abusive

Bichler and Nitzan have written great stuff on all this. At . Look for things on ‘differential accumulation’, ‘monopoly capitalism’ etc.

Theoretically, one of their original contributions is the argument that capital is not money but power in terms of both market share, political influence/control and cultural influence/control.

Secondarily that the typical business cycle involves alternating periods of general expansion versus contraction. That is normal, however in some of their papers they offer detailed historical analysis showing how during contracting phases, corporations ‘gain’ by maintaining or increasing relative market share and/or capital/influence viz. others in the same or related fields. So although their net income etc. may be declining, they are declining less than their competitors, many of whom either get wiped out or absorbed. Once this contraction phase is over, a smaller and relatively stronger group of leaders emerges (exactly as we are seeing in the banking and probably auto sectors right now for example), general expansion picks up again during which time startups can enter the fray, but when the next contraction comes along only the strongest survive and so on.

There is also evidence suggesting that the big players – who indeed increasingly become a more cohesive oligarchy over time – deliberately blow up the end of the expansion phases to bloat weaker players with too much credit in order to keep up with their competitors, and are also very savvy in terms of consolidating their power and influence during the hard times of severe contractions.

In other words, the trajectory of large-scale ‘capitalism’ is an inevitable one that consolidates power increasingly in the hands of a more and more condensed oligarchy. This process, they argue well, IS capitalism, not an aberration of it. By de-linking ‘capital’ from a largely monetary or investment-related definition (amount of $$ used to build factory etc.), they have revealed the true cultural and political dynamic of the beast.

It won’t go away unless force is met with force. There is no force organised in the current Republican Democracy system in the US to counter-act it.

The recent revelations from Sybel Edmunds detailing some of the techniques involving blackmail, bribery etc. to ‘hook’ dupes in the political, military, judicial and fourth estate, not to mention the Executive branches, show how widespread the systemic corruption/control is at this point. Voting in one or two honest Congress members won’t make any difference at all. Even a bona fide Third Party President would probably get nowhere, and if he did threaten to dismantle the oligarchy’s power overmuch, his life would be drastically and permanently shortened.

Posted by Ash | Report as abusive

Semantics. It’s C R I M I N A L! There, one word, one meaning. Educate yourselves about the central banks history and the Bank of International Settlements and find out who, what, when and why.

Only until the global community wakes up from the fog of prevarication can we return to asset based economies and abundance for the masses.

Posted by Epiphany Hoskins | Report as abusive