In a recent interview with PBS’s Frontline, Lanny Breuer – head of the criminal division at the Department of Justice – appeared to admit that some financial institutions were too big to prosecute. In the “too big to fail is too big to jail” controversy that ensued, lobbyists and other supporters of big Wall Street firms tried all kinds of complicated ways to spin Mr. Breuer’s words.
Their job got a lot harder yesterday when Eric Holder, the attorney general, stated clearly to the Senate Judiciary Committee,
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” (Watch the video for yourself.)
According to Mr. Holder, speaking as the top enforcer of the country’s laws, “some of these institutions have become too large.”Putting aside the rhetoric of capitalism and the sanctity of private enterprise, the function of the financial system is to create money to be used in the economy and to allocate capital to the most productive uses.
Read the full blog post at:
“Some Of These Institutions Have Become Too Large” | The Baseline Scenario
I guess my biggest question that arises from this is, how did we let them swell to this level? I understand that in the free market we do not want to limit businesses and infringe upon their operations to much, but it does seem like we allowed these firms to obtain monopoly powers. We have broken up big firms in this country before and everything seemed to work out fine, perhaps it is time to do so again.
ReplyDeleteI agree 100% with Travis. It seems as if these financial institutions have complete control over these markets if they are "Too big to fail." It seems as if "Survival of the fittest," no longer exists. I think the US should have let one of these institutions fail in 2008 to show that making risky decisions will not be rewarded. What we now have are companies who made bad decisions supported by US tax dollars.
ReplyDeleteWhile the banks themselves may be "too-big-to-fail"--and as a group it may make no sense to prosecute them (as the U.S. would have to bail them out afterwards)--stricter enforcement on, and examination of, trades may do some good. This is to say, we should come down harder on individuals in the banking and finance system. Holding individuals more accountable is a necessary first step.
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ReplyDeleteYes, I know banks today are too big to fail. I get it, that is why the FED has to engage in quantitative easing. Though letting big banks fail would be detrimental to our economy, we can still hold individuals accountable. As David highlighted, stricter regulations on the financial sector is needed.
ReplyDeleteThe problem with prosecuting individuals (ie. CEOs of big banks that have gone corrupt) is that the executives at these institutions are the first people to know about a problem and usually have other options. I am going to use former CFO at Lehman brothers Erin Callan as an example. When things got hot on Wall Street in 2008, she was demoted from her position. Instead of being cut out of the financial industry she was offered an executive advising position at Credit Suisse! The people who should be held accountable have other options and the ability to continue their work at other organizations.
I agree with Travis. One of the companies should have been broken up in order to make an example for other companies. These companies chose to make extremely risky loans and don't have to face the consequences. That would be like betting $100 on a sports game. If your team wins, great, you just made some money. But if they lose, you get your $100 back. This logic is pretty messed up.
ReplyDeleteI think the reason these companies could make risky loans is the restriction is not tight enough. They keep doing it with no penalty and who suffer from it is people. I believe the regulation on baking must be tightened and the government need to step in to control " these too large institutions".
ReplyDeleteThere were times during last few decades, where US could have made the decision whether to pursue "too big to fail" logic or letting the big corporation collapse. US chose to pursue with the logic "too big to fail" so now it must bear the consequences. The power which few people got from this logic is ridiculous and now they can play with the market however they want because they know they don't have anything to lose. Had US chose not to bail them out, how would the things turn out to be? I am not entirely sure. But since we are already in this mess, we need to find a way out. Like David said if stricter regulation could change something, then lets try it.
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