Outrage: Some Banks Are Too Big to Prosecute
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The Campaign for a Fair Settlement, of which the Campaign for America’s Future is a partner, has called on the president to repudiate Holder’s statement, and to direct the Justice Department to prosecute those who violated the law. But Holder’s position forces a bigger issue.
Too Big to Be
So big banks operate above the law. And as the conservative head of the Dallas Federal Reserve Bank Richard Fischer and many others have argued, they are not disciplined by the market. They know their losses are covered, while they pocket their winnings. They have multi-million dollar personal incentives to leverage up, use other people’s money to make big bets on high risk operations that offer big rewards. Their excesses blew up the economy, but they got bailed out and emerged bigger and more concentrated than ever.
And, of course, since investors know the big banks can’t fail, the big banks can attract money at much lower rates than smaller banks, a subsidy worth about $83 billion a year according to recent calculations by Bloomberg News.
Clearly, institutions that are above the law and beyond the discipline of the market cannot exist in their current form. The Congress has only two choices. The big banks can be nationalized and treated as public utilities. The public would pocket their profits and cover their losses. Or the big banks can be broken up, and be accountable to both the law and the market.
Senators Sherrod Brown and Jeff Merkley have spearheaded the drive to break up the big banks. This takes remarkable courage. Brown had to overcome torrents of big money poured into the effort to defeat him when he ran for re-election last year.
Now they are gaining unlikely allies. George Will has called on conservatives to follow Brown to the barricades. Republican Senator David Vitter has joined in calling for study of the subsidy big banks enjoy. Retired bankers like John Reed, former president of Citibank have joined with Dallas Fed President Fischer and others to call for breaking up the banks.
Can the big banks be held accountable? Wall Street is a leading source of funds for both parties. The revolving door between Wall Street and Washington spins no matter what administration is in power. The Obama administration has opposed every effort to break up the big banks. Republicans in Congress have shamelessly offered themselves as Wall Street’s protectors in exchange for campaign money.
But Holder’s admission makes action – however improbable – imperative. A nation of laws and markets cannot abide huge private financial institutions that are accountable to neither.