6 Financial Monsters That Have Only Gotten Bigger After Destroying the Economy
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Before the crash of September 2008—the worst economic downturn in the United States since the 1929 crash that marked the beginning of the Great Depression—most Americans had never heard the term “too big to fail.” But that term became all too familiar when hundreds of billions of dollars were set aside to bail out the nation’s largest financial institutions. And many of the mega-banks that caused the panic of 2008 have become even larger.
In November, Democratic Sen. Elizabeth Warren of Massachusetts warned that “the four biggest banks are 30% larger than they were five years ago” (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo). Warren isn’t the only one who is worried. Many other proponents of financial reform, from economists Dean Baker (co-founder of the Center for Economic and Policy Research), Joseph E. Stiglitz (a professor at Columbia University) and Simon Johnson to politicians like Democratic Florida Rep. Alan Grayson, have been warning Americans about the ongoing threat too-big-to-fail banks pose.
Johnson and Baker have both said one benefit of breaking up mega-banks would be decreasing their political influence, while Stiglitz has warned that mega-banks are “ too big to manage and be held accountable” and that the bigger banks are allowed to become, “the greater the threat to our economies and our societies.”
Apologists for the bankster bailouts and the Troubled Assets Relief Program (TARP) like to point out that most of the major recipients of bailout money paid back everything they owed. But economist Robert Reich, former secretary of labor under the Clinton administration, frequently responds that those apologists neglect to mention the long-lasting damage those banks did to the U.S. economy and all of the poverty, unemployment and home foreclosures they caused. Also, in November 2011, Bloomberg News revealed that the Federal Reserve had secretly loaned the U.S.’ largest banks an estimated total of $13 billion (the loans had not been disclosed to Congress, and that information was obtained via the Freedom of Information Act).
Although Federal Reserve officials have said all of that money was repaid, critics of the Fed have said the Fed’s loans were detrimental to the U.S. economy because they encouraged mega-banks to grow even larger and more reckless. Reich has warned that because those banks have grown even bigger than they were half a decade ago, future bailouts could be even more costly. According to Reich: “The danger of an even bigger cost in coming years continues to grow….In fact, now that they know for sure they’ll be bailed out, Wall Street banks—and those who lend to them or invest in them—have every incentive to take even bigger risks.”
Below are six too-big-to-fail banks that should have been reined in back in 2008, yet continue to pose a major threat to the U.S. economy.
1. Bank of America
Originally Bank of Italy, BofA has been around since 1904. And a company that had about 100 branches in 1926 now has more than 5,300. BofA played Russian roulette with the economy prior to the 2008 crash, robo-signing countless mortgages on expensive homes for low-income people it knew wouldn’t be able to handle them. After the U.S. economy went into cardiac arrest in September 2008, BofA received $45 billion in bailout money. But instead of being reined in, the company was allowed to continue growing.
BofA presently controls a whopping 17% of all home mortgages in the U.S. (almost one in five) and at least 12% of U.S. bank deposits. BofA’s total assets, according to the Comptroller of the Currency (OCC) in Washington, DC, now total $1.4 trillion. The mega-bank’s exposure to derivatives now exceeds $50 trillion (in finance, a derivative is a type of financial contract whose value is derived from an underlying financial instrument). In a scathing article he wrote for Rolling Stone in 2012, journalist Matt Taibbi asserted that with BofA, “the FDIC, and by extension you and me, is now on the hook for as much as $55 trillion in potential losses.”