Matt Taibbi on Deluded Tea Partiers, Ayn Rand and How the U.S. Is Like the Soviet Union
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MA: And the Commission may propose solutions. Have you heard anybody propose worthwhile solutions?
MT: There are a lot of solutions out there that make sense. And a lot of them were proposed during the argument over Dodd-Frank, the Wall Street Reform Bill. The biggest one, the most important one to me was the Brown-Kaufman Amendment, which was Sherrod Brown and Ted Kaufman. Their idea was the mandatory breakup of companies when they get over a certain size, when they’re over 10 percent of national deposits or something like that. We have to break them up, I think, because the biggest problem is this too-big-to-fail issue because it places government in a position of being subservient to these companies. Also when they get that big, they have no incentive to behave responsibly because they know they’re going to get bailed out.
The other problem is that when you have a too-big-to-fail company, it allows them to borrow money more cheaply because if you’re lending to two banks, one that is too big to fail and one that isn’t, well the one that’s too big to fail knows it’s going to get its money back because the government’s never going to let it go under, so you’ll charge Goldman Sachs less than you’ll charge your local bank. That gives them an inherent competitive advantage. Cost of capital is everything in banking, so these companies are going to get bigger and bigger; small banks are going to get smaller and smaller, and it’s just going to increase the problem. So breaking the banks up is the biggest thing we have to do.
Maria Armoudian is a journalist, singer/songwriter and legislative consultant whose articles have been syndicated by the New York Times and the Los Angeles Times syndicates. She has written for Salon.com, Daily Variety, Billboard, the Progressive and Business Week among others.