The experts agree: the banks that survived the financial crisis are too big to fail. And too big to bail out should they fail. Thus, they are too big to succeed, since they will eventually cause another financial crisis.
Why? Because the banks are even bigger than before, and are subject to minimal additional regulations. And they have the incentive and means to undo what few regulations and little regulatory oversight are imposed. Just as they did before.
So, when asked, the experts assembled by the New York Times, come to one conclusion: holy shit!
All of them, of course, except the two neoclassical economists whose only argument is “well, big is not necessarily bad—and a few more controls should do the trick.” That’s their dogmatic insistence on the magic of markets. Any kind of market. All markets. Notwithstanding recent history in which, first, bank successes and, then, bank failures took the world economy to the edge—and continue to exact their toll in Europe, the United States, and elsewhere.
And why are the now-larger banks allowed to continue to grow? Lynn Stout provides an answer:
This happened because executives at megabanks like Citigroup, J.P. Morgan, or Bank of America have plenty of money, and they are eager to donate it to keep their firms from being downsized, because their pay and prestige is tied to the size of their companies. Knowing this, candidates and political parties see banks and banking executives as easy fundraising targets: there is no better way to become popular with Wall Street contributors than to suggest you’re thinking about ruining their business model. As for regulators, big banks offer wonderful opportunities for revolving-door jobs and other perks. (Recall Larry Summers’ $135,000 speech at Goldman Sachs shortly before he was appointed, as expected, to be the president’s economic adviser.)
Politicians and regulators may act as if they’re thinking about reining in giant banks, but this seems to be just a political head-fake. From their perspective, actually breaking up the megabanks would only make fundraising and job-seeking harder. It’s much more difficult and time-consuming to raise $5,000 from 20 small banks, than it is to raise $100,000 from one enormous bank. And big banks can’t hide. Because they clearly suffer most from threatened regulation, a big bank can’t afford to refuse to take a senator’s call.
This view is admittedly cynical. Sometimes, however, cynicism is appropriate. If American taxpayers want to convince the banking industry that small can be beautiful, the first folks they may need to convince are their own elected lawmakers.