Obama’s Plan To Be Judged By A Goldman Breakup

Zero Hedge
Friday, January 22nd, 2010

Commentary by Simon Johnson, first appearing in BusinessWeek

At the broad level, there was much to applaud in yesterday’s announcement from the White House regarding potential new constraints on the scale and scope of our largest banks.

After more than a year of tough argument, Paul Volcker has finally persuaded top aides to President Barack Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis. Unfortunately, in their scramble to announce this major policy shift ahead of Wall Street’s bonus season, the administration didn’t line up all relevant details.

In particular, the White House background briefing yesterday morning — while somewhat ambiguous — gave listeners the strong impression that these new proposals would freeze the size of our largest banks “as is.” This makes no sense. Why would anyone regard 20 years of reckless expansion, a massive global crisis, and the most-generous bailout in recorded history as the recipe for creating right-sized banks?

There is no evidence, for example, that the increase in bank size since the mid-1990s has brought anything other than huge social costs in terms of direct financial rescues, the fiscal stimulus needed to prevent another Great Depression, and millions of lost jobs.

The administration has most evidently not done a great deal of other preparatory work. How will off-balance-sheet activities be treated? Should some hedge funds also be regarded as too big to fail? And why would merely controlling proprietary trading be enough to de-risk out-of-control behemoths, such as Citigroup?

Still, we should treat the next few weeks as the public- comment phase for potentially serious principles and an opportunity to press for workable details.

Pushing Back

The big banks, naturally, are already hard at work pushing in the other direction. This is actually good and exactly what we need. The banks have hidden behind their lobbyists and disinformation managers for too long. The administration has decided to take the fight to them, face-to-face, with the full backing of a president at last willing to press for change. The goal should be to flush both the big bankers and their Republican — and Democratic — backers into the open.

There are sensible people on both sides of the political aisle on this issue. But there is also Senator Richard Shelby of Alabama, the ranking minority member of the Senate banking committee, who has been arguing that the morass of massive financial institutions can be handled through minor modifications of our bankruptcy code.

Full article here

“When the people find they can vote themselves money, that will herald the end of the republic.”Fall Of The RepublicBuy the DVD here

Obama’s Plan To Be Judged By A Goldman Breakup  FOTR 340x1692 

View the original article at Prison Planet

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