But just like our Republican and Democratic counterparts in the Senate, Troy and I may be a lot closer to agreement on financial reform. Jones wants to break up the megabanks so no one is "too big to fail." I'm all about that idea. So is Robert Reich, who lists these three big things the pending financial reform bill really really needs to do:
1. Require that trading of all derivatives be done on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong. The exception in the current bill for so-called “unique” derivatives opens up a loophole big enough for bankers to drive their Ferrari’s through.
2. Resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks. The current bill doesn’t go nearly far enough. Commercial banks should take deposits and lend money. Investment banks should be limited to the casino we call the stock market, helping companies issue new issues and making bets. Nothing good comes of mixing the two. We learned this after the Great Crash of 1929, and then forgot it in 1999 when Congress allowed financial supermarkets to do both.
3. Cap the size of big banks at $100 billion in assets. The current bill doesn’t limit the size of banks at all. It creates a process for winding down the operations of any bank that gets into trouble. But if several big banks are threatened, as they were when the housing bubble burst, their failure would pose a risk to the whole financial system, and Congress and the Fed would surely have to bail them out. The only way to ensure no bank is too big to fail is to make sure no bank is too big, period. Nobody has been able to show any scale efficiencies over $100 billion in assets, so that should be the limit [Robert Reich, "A Short Citizen's Guide to Reforming Wall Street," blog, 2010.04.20].
Now if we can get Congress to listen to a bipartisan coalition of Troy Jones and Robert Reich, we've got a winner of a bill!
- Mr. Jones forwards this NYT article noting growing support among Dems and the GOP for breaking up banks. It also notes that, since the 2008 credit collapse, our policies have made the banks that are too big to fail even bigger. The six biggest banks—Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley—now have assets equal to 63% of the U.S. GDP, compared to 17% back in 1995.
- Jones also forwards this fruitful series of NYT essays from some folks with serious econ chops on what's missing from the financial reform bill.
- Robert Reich also notes that Senator Dodd's bill does go the wrong direction, giving big banks even more advantages over small banks. Let's fix that! Remember: community banks are the best place for your business!