Paul Krugman: Why We DON'T Need To Break Up The Big Banks

nytimes.com:

Breaking up big banks wouldn't really solve our problems, because it's perfectly possible to have a financial crisis that mainly takes the form of a run on smaller institutions. In fact, that's precisely what happened in the 1930s, when most of the banks that collapsed were relatively small -- small enough that the Federal Reserve believed that it was O.K. to let them fail.

Read the whole story: nytimes.com

Comments

[humanbeing-rick]

06:00 PM on 04/05/2010

Some one spiked Paul's kool-aid! I normally agree with Paul, but not on this one.
Too much concentrated wealth and power are inherently dangerous.
TBTF must be broken down to size, in order for small businesses to be competitive in America, the backbone of our economic engine.

[peaceandfreedom]

05:21 PM on 04/05/2010

"In fact, that's precisely what happened in the 1930s, when most of the banks that collapsed were relatively small -- small enough that the Federal Reserve believed that it was O.K. to let them fail."

And that was the plan.

Let the little ones fail. Let the big ones get bigger.

Worked. Now we're paying the price.

[ADunafraid]

11:34 AM on 04/05/2010

"This rescue was necessary, but it put taxpayers on the hook for potentially large losses."

We will continued to be screwed until we can get past the idea that giving trillions of dollars to 6 big banks somehow saved the economy. If we let those 6 banks fail based on selling crap with no value and spread out the money by bailing out thousands of small regional banks by offering liquidity and incentives for refinancing bad loans we would be in much better position than we are now.

[KingBatguano]

11:27 AM on 04/05/2010

No we don't need to break them up, we need to imprison them .

[ipogo]

09:46 AM on 04/05/2010

I strongly suspect that if I were unfortunate enough to have my pants fall down in front of a large group of influential people, I would spend the rest of my life wearing a belt, and suspenders, to make sure it doesn't happen again.

There is no reason strong regulation AND making the largest banks smaller, could not be part of needed financial reform. Better to be safe than sorry.

[Emerson Crossjostle]

03:23 PM on 04/03/2010

TITF - too insolvent to fail - 2i2f

[GlobalOne]

07:59 AM on 04/03/2010

Krugman is wrong, very very wrong.

Monopolies and cartels of super large banks and the like are the enemy of competition, innovation and accountability. Competition causes corrections in the system.

Would we have had the global financial crisis if didn't have these giant insurance companies, banks and investment banks like Goldman Sachs, JP Morgan, AIG and so forth? Gaming the system, cheating on their own clients? NO!

It was the massive size of companies that enable the creation and massive growth in sub primes and the now hundreds of trillions in outstanding derivatives.

JP Morgan should be left to fail. Goldman Sachs should be nationalised and broken up. Full Stop.
That is the only solution to regaining America for Americans.

[tompoe]

11:45 PM on 04/03/2010

Very good points. Let's take Krugman one step further. Assuming he's right, let's make sure everyone we know understands that we can move our money (moveyourmoney.org). Watch the big banks fail, and local community banks, credit unions prosper. It's that simple.

[givesflack]

01:45 AM on 04/03/2010

Its easy to see that yours truly, Krugman, has had a recent change of heart: And his article explains nothing new. He is becoming part of the problem as much as he is pointing to solutions. TBTF has and continues to; Exert exponential political influence here and around the WORLD, undermine national economies around the world, keep us in a long and sustained "re"depression, 8 million plus unmitigated job losses, profit from the 0% interest while we borrow at 6 - 35% interest, Wall Street continues to grow while we lose savings, pensions, jobs, homes, personal wealth. Explain that without it's direct correlation to TBTF. What is really shameful is excusing their behavior as unrelated to their size with 1930's rhetorical evidence. Wasn't the economy in the hand of a minor few oligarchs who owned most of the production and banks then too? YES! I mean where the hell does Krugman get off with his airhead analysis? I don't care where he went to school or what prizes he's one. sssssscrew hi s bank talk and Wall Street too. They're full of sh_it and we know it.

[DAE]

12:30 AM on 04/03/2010

Nationalize the damn banks and throw the banksters into jail. Confiscate their ill-gotten wealth and reimburse the American tax-payer and home owner. We don't need these jerks making billions of dollars off the backs of the shrinking, nearly non-existant middle class. I'm sick and tired of the Demoncats faking their concern for the common people. There needs to be a left-wing counterpart to the Tea Party, out in the streets demanding a redress of grievances, with a program to take back the wealth of this country stolen by the fat cats.

[loki]

09:16 PM on 04/02/2010

wish they forced full disclosure of just how much Krudman was paid to push the Ivy greed Capitalist propaganda. It just amazes me that since the time of the train-wreck policy created by the un-great Reaganomics every Rethuglican and Dumbocrap has been kissing the behind and fulfilling the wishes of every Ivy Greed Capitalistic ,Death to America for fun and profit group leader leader(CEO's), and betraying the American Citizens. But yet, we have people , masses of people who will insist that their traitor is better than the other groups traitor. [IE: Repugs v Dumbos] The stupid people are fighting over , the same horrible personality traits that infect all of the political parties in our country, and fighting with each other only empowers the Ivy Greed Capitalist who have destroyed our country. Dont get me wrong, I am not against Capitalism at all. Im against Ivy Greed Capitalism, which is nothing like real capitalism.
But I wish that someday the people of America will start to wake up and see that fighting over political parties is only making it worse for all of us, and playing right into their hands. We need to fight the disease, not the symptom.

[HMDMSR]

10:11 PM on 04/02/2010

It's the economy--or, really, it's the economic model. Capitalism is crisis prone. No president or Fed chairman can do anything about that.

[DAE]

12:32 AM on 04/03/2010

How come we can't talk about alternatives to this blood sucking capitalist system we live under. No one will even broach the subject of fundamental social, economic and political change.

[GaBulldog10]

07:10 PM on 04/02/2010

Oh, no. Looks like Obama and the Goldman Sachs boys got hold of Krugman.

[MuchMadness]

06:25 PM on 04/02/2010

Break them up, and then strongly regulate the smaller pieces. And strongly regulate all the existing small institutions, too. Make the existence of shadow banking illegal.

Cap the total compensation of all bankers, brokers, investment gurus, and all other financial industry professionals at 100K per year. Tell them if they want to earn more than that, then they need to learn a useful trade. If they are not willing to do useful work, then they can always become Republican politicians.

[vino22]

07:07 PM on 04/02/2010

I guess you havent seen the campaign donations for most democrats

[cyclejerk]

05:56 PM on 04/02/2010

photo

Great vid

http://www.conservativeblogwatch.com/2010/03/28/howard-dean-obamacare-is-redistribution-of-wealth-video/

[tadbark]

01:06 AM on 04/03/2010

We have been redistributing wealth to corporations and the wealthiest Americans since Reagan.

[JBS]

03:47 PM on 04/02/2010

I think some are arguing at cross purposes here and ignoring what's really being said. And others are actively miss-characterizing what's being said.

Krugman says breaking up banks without financial reform won't solve our problems. He's right about that.

He goes on to say the problem is not with the banks, but with the SHADOW banking system; those non-banks outside of financial regulation who will continue their shenanigans if left un-regulated. That's where I think the confusion exists, in the inter-mingling of the banking system and the shadow banking system. Merely breaking that connection will not bring the shadow banking system under regulation which should be the real goal of any reforms.

And Krugman states that while inadequate, the proposed reforms are at least "a step in the right direction". It's the old argument that the perfect is the enemy of the good, and that by holding out for perfection, we will lose the opportunity to achieve the good.

But nowhere do I see Krugman saying we should not break up the big banks, only that breaking up the big banks is no substitute for real financial system reforms.

[delta7777]

03:34 PM on 04/02/2010

"The solution, say people like Mr. Volcker, is to break big financial institutions into units that aren’t too big to fail, making future bailouts unnecessary and restoring market discipline.

It’s a convincing-sounding argument, but I’m one of those people who doesn’t buy it."

You totally miss the point of prohibiting banks from becoming "too big to save"...

The real problem lies elsewhere:

The control of money that these banks
have been allowed to amass and control
have given them absolute political power.

Absolute power corrupts absolutely.

These Megabanks now have the the absolute power to,
and do run the US government.

Absolute corruption has become rampant-and obvious.
In this, the US must be the envy of every third world country.

Breaking up the Megabanks is not required for the reason
that "they have become "too big to fail".

The Megabanks must be broken up so that
US citizens may regain their rightful power to govern the US.

[EllenD]

03:45 PM on 04/02/2010

Absolutely dead on. Ignoring the influence of these huge banks together is deadly to the country.

[stfuman]

03:56 PM on 04/02/2010

Yup.