Tuesday, April 12, 2011

Volcker: You Can't Break Up the Big Banks

Long time Rockefeller operative Paul Volcker, (he was at one time chief financial economist at Rockefeller's Chase Manhattan Bank and played the revolving door game between government positions and Rockefeller positions throughout his career and currently, at the age of 82, serves as Chairman of the Board of Trustees of the International House a Rockefeller operation), says you can't break-up the big banks.

"I don't like these banks being as big as they are," Volcker told a conference at Bretton Woods in New Hampshire on Sunday night. But "to break them up to the point where the remaining units would be small enough so you wouldn't worry about their failure seems almost impossible," he said, according to Richard Blackden of The Telegraph.

Just why banks shouldn't be allowed to operate in a free market and allowed to reach their optimal level that way, when it is done in every other industry from retailers and media to airlines, Volcker did not explain.

Bottom line: Without the implicit backing of the Federal Reserve, these banks would never survive in their current shape and size. Volcker's comment should have been:
It's seems almost impossible to keep these dinosaurs alive, without the U.S. government's central bank backing them up. Without government backing, they would most assuredly disintegrate into smaller separate units.


  1. I may be reading out of context (until I see video, unfortunately) but while everyone seems to agree TBTF banks have gotten even bigger and more systemically important, a major negative for the strength and stability of the financial system. Perhaps Volcker is more saying that politically, and possibly legally, breaking up the Too Bigger To Fail banks is going to be a very difficult endeavor.

    Also, where do Airlines operate in a free market? They've survived (died, been reborn, etc) time and time again just like banks and automakers.

    The Analyst
    Stone Street Advisors

  2. It is hard to see what breaking up the banks would achieve. If you did that, the only banks that could safely go to the wall without serious systemic consequences would be commercial banks. The counter-party risks are all in the investment banks that we would love to see fail; but if they fail, it's financial Armageddon for us all. And I don't think the public understands this.

  3. The TBTF banks have already failed - DOA. They are going to collapse. If you don't understand this, you are not paying attention. The question is not "if" but "when".

    To think this is the end of the world is simply incorrect. It's just the end of our current system, which is clearly not working.

    What we are experiencing now is the current system "protecting it's rice bowl". Volcker is protecting his. The changer over will be a very difficult time because they will make as painful as possible. But ultimately the system will reboot into what comes next.

    I would humbly suggest that what comes next is going to be amazing and transform our world for the better - the ending of war and poverty and hunger. We have never been short on resources, merely short on the will to allocate them properly.

  4. If they're not allowed to fail, i.e. be liquidated, bought up etc. and carved up according to market standards, they will just be bloated with more and more cash (not real resources) until it reaches even more explosive levels than now. They made bad bets, the government provided them with the credit to do so, now they're in danger of keeling over. LET THEM. No amount of artificial stimulation will alter these facts one iota.