Cleaning up Wall Street Oligarchy

Interesting ideas from the Atlantic on cleaning up the detritus of large banks looming over on Wall Street.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole. This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy. Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations. This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

(via James Kwak of Baseline Scenario)

So true...

From the March 2nd, 2009 issue of the New Yorker.

We need more of this...

"At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes” (From here)

- John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division after the U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 U.S. customers with secret Swiss accounts.

Greed is good (also addictive)

The adjustments to life made by the spouse of a Wall Street banker after the banker's bonus was reduced (noticed in comments made on the DABA blog).

We’re looking at just enough money to make our mortgage payments, paying none of the principle down. So we aren’t going to lose the house yet, but we aren’t going to think about THAT until NEXT January. Meanwhile: My own dinky-by comparison salary, which had been my own since I went back to work so I could have the company of grownups, is no longer my own. It all will be spent on family expenses. The sitter’s hours are cut, both the family and my private credit card are cut in half, and I’m switching from having my facials and massages in my earthy, yoga-and-wine serving downtown spa to a midtown been-in-business-forever place with ladies in cubbies wearing pink jackets and lots of make-up giving facials only. I know, I know, only old people and gay men go there these days, but congested skin isn’t an alternative for me, so I have to go someplace. I’ll do it once every 6 weeks instead of monthly, and it is 1/3 the price of the facials at the spa. And I remember from the 80’s that they do a good job.

It gets worse. I’ll now be doing my pilates with others, in class, on the mat instead of on the machines with my private instructor. This truly frightens me. I could hurt myself competing with you 20-30 yr-olds. Private was so much less humiliating. And yes, cooking at home. We had been enjoying the new Whole Foods to-go foods section so very much. Oh well - hello Associated Market. Did you know you can sauté’ an entire bag of frozen spinach in a large frying pan with a bit of onion and olive oil, chop a bit of domestic feta into and serve it to your whole family with a squeeze of lemon, and it’s a healthy and cheap alternative to pasta as a main dish? It is so good for you and the kids love it. And we’ll need the alternative because there will be a lot of pasta. Cooking pasta sauce on the weekends isn’t my idea of a good time, but that’s what we will be doing because I’m not ready to do something original every day. I have always been a great appreciator of other people’s cooking.

Comment

Left a little unsure on what might be the greater of two evils: Outsized bonuses on Wall Street or an outsized stimulus bill for Main Street. Cartoon ripped from Slate.