Last Friday night, the lights went out for four “too-small-to-save” banks. They faced the ultimate in resolution authority. I knew the bank presidents of two of the four banks. They were good people caught in miserable economic circumstances. Not only were their careers and reputations wiped out, their family income and equity, and that of their investors, were also wiped out. The 26 banks that have failed this year faced REAL “resolution authority.” They were totally leveled—in the same way the Roman military would raze the entire city-state of an enemy—total devastation, nothing left.
In contrast, we have the Wall Street mega banks and financial firms—you know those firms that received hundreds of billions of taxpayer dollars so they would not fail as the result of the greed, mistakes and massive miscalculations of their managers and investors.
There was no Friday night “lights out” for Citibank, Bank of America or any of the 19 other reckless Wall Street mega firms that caused our nation to slip into the heart of financial darkness. In fact, far from having their managers and investors wiped out or even chastened, Wall Street has prospered as the result of taxpayer largesse, and the “too big to fail” have gotten even bigger and harder to fail.
Now come some well-meaning members of Congress who want to pass laws to make right a massive injustice—the injustice of good community banks being wiped out, and towns being shattered, while those firms that caused this financial catastrophe go skipping down the financial path—actually getting richer—WITH YOUR MONEY!! But these well-meaning members of Congress are having a very difficult time enacting real, meaningful resolution reform for the “too big to fail.”
Why can’t Congress fix “too big to fail,” you ask? Because the massive Wall Street lobbying machines are convincing members of Congress that trying to impose a strict resolution authority (the kind community banks face every Friday night) can’t be done on mega firms. They are too big and too complex, they protest. The Wall Street lobbying firms say Congress is too shallow to fathom the damage that could be done to mega financial firms if they are subjected to community-bank-like resolution authority. They throw up the specter of Lehman Brothers and say, “Do you want another Lehman?”
It sounds frightening until you peel back the mask of deception. When I hear the Wall Street lobbyists saying these things I want to retort: “Oh, you mean if your mega financial firm is subjected to a similar Friday night resolution that nearly 8,000 other banks in America are subject to, the people of this nation will suffer as a result? As if they did not suffer during the past three years keeping your failed firms open? As if millions of Americans have not been grievously hurt by the calamity your firms caused and will cause again if we just let Wall Street firms grow ever larger and too big to fail?”
Perhaps the “resolution” of a Wall Street financial firm will cause our nation to suffer financially, but at least we will all be in the same financial ship—the taxpayers, the failed managers and the reckless investors. At least the only losers won’t be the American taxpayer, as we watch the Wall Street managers and investors prosper with OUR money.
Wall Street financial firms should face resolution authority in the same way that America’s 8,000 other banks must face it every Friday night.