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Federal Reserve Bank of Dallas Advises We Must End Too Big to Fail - Now!
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Even the Fed is admitting that Dodd-Frank perpetuates rather than regulates
the "Too Big To Fail" banking corporations that continue to rape and plunder
America and the global economy.
FEDERAL RESERVE BANK OF DALLAS ADVISES WE MUST END TOO BIG TO FAIL - NOW!
The following is a letter from Richard W. Fisher, President and CEO of the
Federal Reserve Bank of Dallas:
If you are running one of the "too-big-to-fail" (TBTF) banks - alternatively
known as "systemically important financial institutions," or SIFIs - I doubt
you are going to like what you read in this annual report essay written by
Harvey Rosenblum, the head of the Dallas Fed's Research Department, a highly
regarded Federal Reserve veteran of 40 years and the former president of the
National Association for Business Economics.
Memory fades with the passage of time. Yet it is important to recall that
it was in recognition of the precarious position in which the TBTF banks and
SIFIs placed our economy in 2008 that the U.S. Congress passed into law the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)
[Public Law 111-203]. While the act established a number of new
macroprudential features to help promote financial stability, its
overarching purpose, as stated unambiguously in its preamble, is ending
TBTF.
However, Dodd-Frank does not eradicate TBTF. Indeed, it is our view at the
Dallas Fed that it may actually perpetuate an already dangerous trend of
increasing banking industry concentration. More than half of banking
industry assets are on the books of just five institutions. The top 10
banks now account for 61 percent of commercial banking assets, substantially
more than the 26 percent of only 20 years ago; their combined assets equate
to half of our nation's GDP. Further, as Rosenblum argues in his essay,
there are signs that Dodd-Frank's complexity and opaqueness may even be
working against the economic recovery.
In addition to remaining a lingering threat to financial stability, these
megabanks significantly hamper the Federal Reserve's ability to properly
conduct monetary policy. They were a primary culprit in magnifying the
financial crisis, and their presence continues to play an important role in
prolonging our economic malaise.
There are good reasons why this recovery has remained frustratingly slow
compared with periods following previous recessions, and I believe it has
very little to do with the Federal Reserve. Since the onset of the Great
Recession, we have undertaken a number of initiatives - some orthodox, some
not-to revive and kick-start the economy. As I like to say, we've filled
the tank with plenty of cheap, high-octane gasoline. But as any mechanic
can tell you, it takes more than just gas to propel a car.
The lackluster nature of the recovery is certainly the byproduct of the
debt-infused boom that preceded the Great Recession, as is the excessive
uncertainty surrounding the actions - or rather, inactions - of our fiscal
authorities in Washington. But to borrow an analogy Rosenblum crafted, if
there is sludge on the crankshaft - in the form of losses and bad loans on
the balance sheets of the TBTF banks- then the bank-capital linkage that
greases the engine of monetary policy does not function properly to drive
the real economy. No amount of liquidity provided by the Federal Reserve
can change this.
Perhaps the most damaging effect of propagating TBTF is the erosion of faith
in American capitalism. Diverse groups ranging from the Occupy Wall Street
movement to the Tea Party argue that government-assisted bailouts of
reckless financial institutions are sociologically and politically
offensive. From an economic perspective, these bailouts are certainly
harmful to the efficient workings of the market.
I encourage you to read the following essay. The TBTF institutions that
amplified and prolonged the recent financial crisis remain a hindrance to
full economic recovery and to the very ideal of American capitalism. It is
imperative that we end TBTF. In my view, downsizing the behemoths over time
into institutions that can be prudently managed and regulated across borders
is the appropriate policy response. Only then can the process of "creative
destruction" - which America has perfected and practiced with such
effectiveness that it led our country to unprecedented economic achievemen -
work its wonders in the financial sector, just as it does elsewhere in our
economy. Only then will we have a financial system fit and proper for
serving as the lubricant for an economy as dynamic as that of the United
States.
Source of this letter:
dallasfed.org/assets/documents/fed/annual/2011/ar11a.pdf
The entire essay, "Choosing the Road to Prosperity: Why We Must End Too Big
to Fail Now", by Harvey Rosenblum:
dallasfed.org/assets/documents/fed/annual/2011/ar11b.pdf
Public Law 111-203:
www.gpo.gov/fdsys/pkg/PLAW-111publ203/content-detail.html
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TIME TO END TOO BIG TO FAIL! TIME TO END THE FED AS WELL!
IronBoltBruce via VVV PR ( veritasvirtualvengeance.com | @vvvpr )
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Old National Bank Building, Downtown Evansville, Indiana
Image by Lori SR
This is the Old National Bank Building in Evansville, Indiana along the Riverfront.
