Rahm Emanuel’s Too Big To Fail Lie
- Joshua M Brown
- September 5th, 2012
Rahm Emanuel, likable and appealing as he seems to be, stood on stage at the DNC and told a huge lie within the first few paragraphs of his speech. He made it sound as if his former boss didn't blow the biggest opportunity of all time to remove systemic banking risk from our national nightmare...
From the text of his speech:
Banks are slowly but surely lending again, and never again will taxpayers foot the bill for Wall Street's excesses. In case we forgot, that was the change we believed in. That was the change we fought for. That was the change President Obama delivered.
Actually, the next time one of the Systemic Six banks blows up - and one of them certainly will - taxpayers will without a doubt be at risk. Who else could possibly be counted on to absorb the shock that would come along with one of these monsters collapsing again?
And the numbers involved have only gotten bigger! Because instead of serious regulation and a real unwind of these stupid giants, we got Dodd-Frankenstein, the bastard stepchild of a pair of lame duck senators who spent their entire careers in captured copulation with the finance industry's lobbyists.
There was a chance for us to break up big banks for the good of the country but we tackled healthcare instead. We came up with a healthcare bill the nation wasn't ready for and most business people hate. Well-intentioned but stupidly timed and horribly executed. It didn't even actually pass, they had to put it through the same trick door in the floor as the Bush tax cuts were shoved through in 2002-2003.
And this was done at the expense of what could have been accomplished during this crucial window with the banks. In this once in a lifetime moment, and with a mandate to fix the banking system that other presidents could only have dreamt of, Obama could've undone the entire excessive risk culture and brought back a return to normalized financial institutions in this country.
He did not. He allowed them to get bigger. Simon Johnson reminds us that "In 1995, the Big Six - JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs Group and Morgan Stanley - had assets worth only 17% of US gross domestic product. As recently as 2005, their collective balance sheets were valued at less than 50% of GDP. Today, the Big Six are much bigger, with combined assets of 60% of GDP."
According to the Federal Reserve, the five largest banks in the US are now bigger than they were headed into the 2008 Credit Crisis. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs now hold $8.5 trillion in assets (as of 12/2011), equal to 56 percent of the U.S. economy. This is versus 43% five years ago.
They're even Too Bigger To Fail now and this is in large part because the Obama administration punted on breaking them up, even despite the advice of Paul Volcker and others who have his ear. Robert Rubin's early influence appears to have won out. And now the will simply isn't there anymore, opportunity blown.
So contrary to whatever Rahm had to say at his lectern last night, Obama did not remove the taxpayers' risk. In fact, we're even allowing the i-banks to pose as commercial banks, thus giving them the nipple of FDIC-insured deposits to suckle on. All in all, it's a fucking joke how well these institutions came out of the crisis that they themselves helped bring about.
And all of us are sponsoring their continued metastasis, paying for it through financial repression while the very banks we rescued use dollars earned from low interest rates to lobby against our protection from them. Obama changed nothing and in some ways he encouraged this.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.