[Sherlock]

When banks go down they take down the economy with them; that's what 'too big to fail' means.

It's not worth all the human suffering caused by a depression instead of a recession just to prove that the banks should be more cautious.

[gregorias]

This is a false dichotomy and sugarcoating. The article is not just about banks being reckless, but about criminal fraud committed wilfully and with intent by Chase's high ranking personnel. And they not only got away with it, but also profited from the aftermath.

So the real situation here is the opposite. People with money and power get even more while everyone dependent on them suffers from their actions. It's outrageous and what should happen is criminal persecution of responsible individuals, not fines for corporation which don't touch people in charge and as you say "take down the economy".

[GVIrish]

> It's not worth all the human suffering caused by a depression instead of a recession just to prove that the banks should be more cautious.

It's not about proving a point, it's about preventing this situation from happening again. If the financial industry knows that outright financial fraud on a massive scale will never be punished, it ensures that outright financial fraud will continue unabated in the future. Millions of people will be hurt again because we didn't want the pain of dealing with the problem now.

HSBC got caught laundering money for drug cartels and escaped with a fine. If we're just going to let corporate malfeasance go unpunished, why even have the laws on the books at all?

[Lawtonfogle]

"If we're just going to let corporate malfeasance go unpunished, why even have the laws on the books at all?"

Because the point of laws is not to punish the elite. They may be written to appear fair to the common reader, but they are intended and designed to not apply to the elite.

[georgemcbay]

That's why you bail out the banks, realize "Oh shit, this whole deregulation thing was a bad idea because left unchecked people are prone to selfish greed at a scale which threatens the world economy" and then start to regulate them again, slowly breaking them up into businesses that aren't too big to fail lest you run into the same issue in the future.

Instead we bailed them out, did basically nothing regarding new regulations and the banks are still growing and complaining about too much government regulation and some of them who gladly took bailout money even have the nerve to complain about the 'moral hazard' of government mandated mortgage refinancing.

[nulltype]

Then don't allow large banks.

[josefresco]

Cat's already out of that bag on that one. The issue now is regulation and passing laws to control and reign in power on those large banks.

Unfortunately the public doesn't get excited about passing complicated financial regulations.

[msandford]

Break them up then. Not directly, but indirectly by changing the incentives to be big. Also define a "bank" semi-recursively so even a company which merely owns 20 banks (or a company which owns a company which owns a bank, etc) is still considered a bank for the purposes of these laws.

Banks with holdings of over 0.5% of GDP lose all FDIC protection, while still paying.

Banks with holdings over 1% pay quadruple FDIC premiums while still receiving no coverage.

Banks over 2% also pay double-tax on every tax they pay either directly or indirectly, so all the payroll taxes are doubled and so are corporate profit taxes.

Banks over 3% pay all above but instead of double taxes, quadruple taxes.

Banks over 5% pay everything and get taxed at 5% of assets per year.

Very smart folks would immediately start figuring out how to fairly cleanly break the banks up while simultaneously not destroying themselves or the entire economy. Why? Because there'd BE MONEY IN IT.

[zzalpha]

"Cat's already out of that bag on that one."

I'm sure you would've said the same about Standard Oil or Bell back in the day.

Breaking up large corporation can and has been done before. It could be done again if government was interested in doing it, but unfortunately a combination of captured regulators and a revolving door between government and business more or less ensures that won't happen.

[bmmayer1]

The regulations are what created large banks in the first place. It's virtually impossible to start a bank today because of the web of regulations; thus new banks don't get started and the big banks don't get competition.

[Andrew_Quentin]

And if you can't punish them for breaching those regulations what worth are they?

[dmckeon]

Among the choices of:

    a) minimize a current financial crisis
    b) avoid future financial crises
    c) penalize the law breakers responsible

The feds have done fairly well on a), avoiding a complete collapse of depositor confidence, but the politicians and rabble-rousers seem to be focused on c), arguing about exposure and punishment instead of figuring out how to prevent another collapse.

Structuring a system that is more resistant to fraud and other behaviour that puts the national economy at risk would help. Either effective oversight or more exposure to market forces might help. Merely punishing individual or corporate wrong-doers will not prevent another collapse.

A firm, banking, investment, or trading, that is considered "too big to fail" is also not sufficiently exposed to market forces for the market in its shares to reflect the actual risks to the firm. In other words, the taxpayers are covering a TBTF bank's risks.

We would benefit far more from finding a way to move banking away from consolidation than we would from jailing or fining the guilty.

The country should be able to suffer the complete failure of any single bank or firm without much more than a small hiccup in our economy. FDIC rates should reflect risk for depositors per-institution, and be public, the way bond ratings are. Stock-holders and bank creditors would be on their own.

A nation whose banking industry is dominated by 10 banks cannot be secure, with around 100 banks of size is at risk, and with 1,000 banks may be able to cope with a few percent of them failing every year.

Finding a market solution to counterbalance the ongoing wave of consolidation would help.