Too Big To Fail? Too Big To Exist

2009-03-30
By DeAngelo Starnes

Treasury Secretary Geithner rolled out a plan to regulate the financial system.  Some noble words were professed when providing his outline of the plan but lost with the devil were many details.  He promised to expand and expound on them in the future.  We need to make sure that he does.  And we need to make sure that those details are provided in plain language instead of double-talk, euphemisms, and sales-speak.  Tell us what the regulations are, what they are designed to do, why, and the past problems leading to the need for the regulation.  One theme of his remarks is that Wall Street just got too big and too complex to control.  One of the reasons for that is because Deregulation Godfathers Henry Paulson, Robert Rubin, and Lawrence Summers encouraged it.

You know what I can’t stand?  Okay, maybe you don’t care but I’m going to tell you anyway.  Wall Street acting like a spoiled, petulant brat every time the People and/or the federal government requests more regulation, or require better oversight, or demand more accountability, or holler for transparency.  It’s our money they came begging for, right?  Don’t comply with their credit or loan terms and watch how quickly they get Goldie the Mack on you.

So because folks want Wall Street to knock off deregulated derivatives and hedge funds, eliminate credit default swaps, reintroduce the uptick rule, abolish marked to market assets, and expect it to tell the taxpayer how it’s using our tax ducats, the banks stop providing credit and loaning cash to the Everyperson.  And please don’t use the excuse that they’re not loaning to each other.  They’ve been making money in wink-wink deals backed by no cash while paying cash bonuses on ghost earnings.  They are not suffering financially while withholding the purse-strings in the same manner the rest of us suffer.  They’re mad because folks want their geese to stop laying golden eggs that aren’t “trickling down” to them. 

The Media tell us we don’t understand the complexity of the transactions.  We may not understand how Wall Street kept complicating Bernie Madoff’s Ponzi schemes, but we do understand the basic concept of gambling.  We do understand stealing money.  And many of us have had to bail out close friends and relatives from jail for their sins. 

But now Geithner, as the new sheriff in town, says all that is about to change.  Truthfully, I’m pulling for him.  I found it very interesting that a common theme in his remarks were that these troubled institutions had become too big.  That’s a switch because I seem to recall that when told the sky was falling last fall, Wall Street needed $700 billion yesterday because its financial institutions were “too big to fail.”  Politicians supporting the Wall Street welfare program repeated the same mantra. 

Unless you are talking about the Sun, anything too big to fail is too big to exist.

While we were hearing that argument, mergers and acquisitions of the same were being orchestrated.  Why encourage them to become even bigger?

I could nitpick some of Geithner’s comments and actions.  I’m not going to do that until I see more details from his plan.  I will say regulations are a step in the right direction.  But … what exactly are they going to regulate?  I know he spoke of derivatives, hedge funds, insurance companies helping out investment bankers (notice how Goldman Sachs used AIG to get some bail-out money?), and so forth.  But if we all agree that complex financial transactions gone awry are at the heart of the current economic crisis, shouldn’t we get some disclosures on the record?  Shouldn’t there be some investigation into the cause of the current crisis.  I’m not necessarily saying that interviews and documents have to be public, and there may have to be some immunity granted in limited instances.  But I think Wall Street refugees and objective economists need to pair with government investigators to get to the root of the problem.  At the end of the investigation, there needs to be a public report with recommendations.  And then we would have better footing for effective regulations.  Promulgating regulations before there is a record of the issue being regulated is a little premature.

One thing’s for certain, no plan should continue to subsidize these gamblers’ losses with more tax dollars via purchase of preferred stock and non-recourse loans.  Let’s stop talking in code using terms like “toxic assets.”  Explain to us what those toxic assets are.  If we are all complicit in the creation (which I don’t believe), then come up with a plan that covers everyone going forward.  Here’s one I like from Brent Budowsky.

Finally, let us eradicate the notion that a financial institution is too big to fail.  Break that sucker up then.  Reagan did it with Ma Bell. It can be done again.

Can you hear me now?

DeAngelo Starnes is a writer and attorney living in Denver with his wife and son.