A two-part report from The Real News Network featuring Jessica Desvarieux in conversation for former federal banking regulator William K. Black, who teaches economics and law at the University of Missouri Kansas City focuses on the continued jeopardy embodied in the American banking system.
From The Real News Network:
Five Years After Lehman Brothers Fall, Big Banks Even Larger Pt. 1
From the TRNN transcript:
BLACK: Okay. So these are the systemically dangerous institutions that the administration insists on calling systemically important. But they are dangerous. The administration tells us that when the next one fails, it’s likely to cause a global financial crisis. So the obvious answer was to get rid of them, and the administration has completely refused, as did the Bush administration, as do the other governments in the world, to get rid of these giant institutions.
Why are they bigger? They’re bigger because when the other banks failed, they were–other large banks failed, they were typically acquired by the largest banks. That’s one reason.
Second is that banks this large have an implicit federal subsidy in the U.S. context, or national subsidy in other contexts, that allows them to outcompete their competitors because of the unfair advantage of that guarantee. So a group of very conservative economists, their metaphor for this is that it’s like bringing a gun to a knife fight, and they say that there’s nothing free about free markets–and, again, these are folks that worship free markets–because there are no free markets when you have this implicit federal subsidy.
So it’s critical to fix it, they’ve refused to fix it, Dodd-Frank doesn’t even begin to address fixing it is the answer on that part of the problem.
Second part of the problem is modern executive compensation. And modern executive compensation is bigger and badder than before we went into the crisis, and it is typically even more short-term weighted (which is a very bad thing) than before the crisis, and it’s much larger.
And this is why you’ve seen that virtually all of the income gains since the crisis in the United States have gone to the top 1 percent of the population, and the top 1 percent is actually heavily driven by the top 0.001 percent, which got the overwhelming amount of those gains, and they are overwhelmingly folks in big finance and CEOs of major corporation.
And the second half of the conversation:
Five Years After Lehman Brothers Fall, Big Banks Even Larger Pt. 2
From the transcript:
I’ve mentioned that we haven’t ended the systemically dangerous institutions, but it’s far worse than that, because think of the big entities in the United States that failed. So that would be Wachovia, Washington Mutual, Merrill Lynch, Countrywide, Bear Stearns, those types of entities. Every single one of those that I mentioned was acquired by a bank that was already systemically dangerous. And this made them much larger.
And in the initial piece, you gave statistics on what a massive percentage of the global GDP these banks are. But here’s the bad news. That’s only talking about–that figure you gave was only based on the banks’ assets and the banks’ reported assets. The banks’ reported assets do not include, in general, massive positions on financial derivatives. And those positions on financial derivatives are not a 58 percent of the world’s GDP; they are more like five times the GDP of the world. And they are growing massively and they are overwhelmingly concentrated in just a few of the largest banks.
The further bad news is: even when we caught the systemically dangerous institutions in just unbelievably egregious fraud after fraud after fraud, murderous frauds, you know, doing the money laundering for one of the most violent drug cartels in Mexico for an entire decade to the tune of over $1 billion–that was HSBC, one of the largest banks in the world, and not a U.S. bank, right? So, politically you would have thought that would have been the great opportunity to cut one down to size and say, you must shrink to the point that you no longer pose a systemic risk. They not only didn’t do that; they didn’t prosecute HSBC, they didn’t prosecute a single officer of HSBC, and they even refused to prosecute former officers of HSBC.