home
edited
Too Big to Succeed
THE world has experienced a severe financial crisis and economic recession. Th…
Too Big to Succeed
THE world has experienced a severe financial crisis and economic recession. The Treasury and the Federal Reserve took actions that saved businesses and jobs and may very well have saved* the economy itself from ruin. Still, the public seems ungrateful, expressing anger at these institutions that saved the day. Why?
Americans are angry in part because they sense [Instructor Note: omit analysis for this noun clause] that the government was as much a cause of the crisis as its cure. They realize that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are “too big to fail.”
During the 1990s, Congress, with encouragement from academics and regulators, **repealed** the Glass-Steagall Act, the Depression-era law that had barred commercial banks from undertaking the riskier activities of investment banks. Following this action, the regulatory authority significantly reduced capital requirements for the largest investment banks.
Less than a decade after these changes, the investment firm Bear Stearns failed. Bear was the smallest of the “big five” American investment banks. Yet to avoid the damage its failure might cause, billions of dollars in public assistance was provided* to support its acquisition by JPMorgan Chase. Soon other large financial institutions were found* to also be at risk. These firms were required* to accept billions of dollars in capital from the Treasury and were provided* hundreds of billions in loans from the Federal Reserve.
In spite of the public assistance required to sustain the industry, little has changed on Wall Street. Two years later, the largest firms are again operating with bonus and compensation schemes that reflect success, not the reality of recent failures. Contrast this with the hundreds of smaller banks and businesses that failed and the millions of people who lost their jobs during the Wall Street-fueled recession.
There is an old saying: [Omit analysis] lend a business $1,000 and you own it; lend it $1 million and it owns you. This latest crisis confirms that the economic influence of the largest financial institutions is so great that their chief executives cannot manage them, nor can their regulators provide adequate oversight.
Last summer, Congress passed a law to reform our financial system. It offers the promise [Omit analysis]that in the future there will be no taxpayer-financed bailouts of investors or creditors. However, after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.
How is it possible that post-crisis legislation leaves large financial institutions still in control of our country’s economic destiny? One answer is [omit analysis]that they have even greater political influence than they had before the crisis.
Identifyingtensesinnewsarticles created
10:29 am
