The Myth of "Too Big To Fail"

[Photo Courtesy of Mother Jones]

We all remember in 2008 when the new term of "Too Big To Fail" came into the political spectrum with the bailouts of the investment firms and banks to "prevent a second Great Depression".  Most notably was that of AIG in which people cried foul over the $112 billion which was doled out to this company from the Federal Reserve and the US Treasury which was then being used for multi-million dollar bonuses for CEOs (because they did such a great job running that company into the ground) and the executive retreats to exotic resorts which most people only see when looking out the window of their Best Western they are staying at.

We were all told that by dumping billions of dollars in corporate welfare to these banks, we were saving the American banking system and the American economy in turn.  But taking a closer look at the situation more and more people are realizing that the idea of "Too Big to Fail" has been in development for years.  In the period between 1930 and 1960, there were a total of 13 major banking acquisitions (8 of which involving the now JP Morgan Chase).  From 1960 to 1980, there were 7 major acquisitions (5 including the now JP Morgan Chase).  But then came 1980.  For the next decade there were 33 major banking transactions, and then from 1990 to 2000 there were 62, then 2000 to present day there have been 43 acquisitions of banks.

Quite literally cutting regulations

So what happened?  What we saw during the period of Reagan was a massive decrease in banking regulations including the people at the SEC who were to be monitoring these various mergers between banks.  This however was not taking place.  At this time we were seeing a greater influx of investment bankers into politics and given direct positions in the Treasury Department and in various bodies which regulate mergers and acquisitions.

Then came 2007.  Jobs were being cut, and foreclosures were on the rise.  Economists, and anyone who reads the news, could see an imminent recession.  First we saw the collapse of Bear Stearns which was bought out by JP Morgan Chase, who then also bought up Washington Mutual.  As banks were failing, the major banks of JP Morgan Chase, Citibank, Wells Fargo, and Bank of America were buying them up.  Much easier to buy a bank than build new branches in communities.  One investment group was allowed to fail however, Lehman Brothers.  The top CEOs of these banks were brought in and various banks associated with Lehman were split and sold off to those top bankers.  The mortgage investments however were too toxic for the other companies to take among themselves which led to the bankruptcy filing of Lehman.

by Robert Mankoff

Too big to fail is a myth which became reality after the collapse in 2008.  Banks which have never been considered sacred ground which must be saved, became that over the past 30 years.  What we see here is a chain of events much like bigger fish eating up smaller fish.  The only problem is, we only have about 5 huge fish in the ocean looking at plankton wondering what else they can gobble up.  

People now, through the Occupy movement, are looking at these various practices and trying to educate the public about the various rules which have major loopholes in the law.  So do we have a population which is willing to make a stand and say enough is enough?  Do we have people willing to take on the political battle much like the battle against Standard Oil in 1911?  All I can say is that I hope so.  The American people wont stand for another bailout, and the next crash of these banks could never be allowed to happen because of how large the government has allowed them to get.