Saturday, April 7, 2012

Still "Too Big to Fail"

The TBTF [Too Big To Fail] institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism. It is imperative that we end TBTF. In my view, downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Only then can the process of “creative destruction”— which America has perfected and practiced with such effectiveness that it led our country to unprecedented economic achievement— work its wonders in the financial sector, just as it does elsewhere in our economy. Only then will we have a financial system fit and proper for serving as the lubricant for an economy as dynamic as that of the United States.

Now that and post-Enron financial regulations have been rendered largely useless by passage of the so-called JOBS act, we really should see what we can do about salvaging what we can of Dodd-Frank before the Wall Street lobbyists decimate what little good it can do. As you may recall, its original intent was to end the threat of "too big to fail," but somehow the biggest banks remain TBTF and only continue to get larger.

Hence, it is interesting to note that the quotation above is from Richard W. Fischer, president of the Federal Reserve Bank of Dallas — considered among the most conservative of the Fed branches. It comes from his introduction to the Dallas Fed's 2011 annual report, most of which consists of an essay by Harvey Rosenblum entitled Choosing the Road to Prosperity: Why We Must End Too Big To Fail— Now.

Download it here. It's neither too long, nor too technical. It's definitely worth fifteen or twenty minutes of your time.

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