For anyone still believing the Too Big To Fail Banks are helping the country

 Here is a portion of a great article posted on Washington's Blog.  It goes into great detail to reveal numerous financial experts have stated that the economy will not recovery unless TBTF is takin off the table.  You can read the full article at Washington's Blog " The only way to save the economy: Break up the giant, insolvent banks"


The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Former chairman of the Federal Reserve, Alan Greenspan

• Former chairman of the Federal Reserve, Paul Volcker

• Former Secretary of Labor Robert Reich

• Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard

• Simon Johnson (and see this)

• Former 20-year President of the Federal Reserve Bank of Kansas City, who was today nominated to be FDIC Vice Chair Thomas Hoenig (and see this)

• President of the Federal Reserve Bank of Dallas, Richard Fisher (and see this)

• President of the Federal Reserve Bank of St. Louis, Thomas Bullard

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout (and see this)

• The head of the FDIC, Sheila Bair

• The head of the Bank of England, Mervyn King

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Leading British economist, John Kay

• Economics professor, Nouriel Roubini

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Economist Dean Baker

• Economist Arnold Kling

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.
Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.
This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

And as I noted in December 2008, the big banks are the major reason why sovereign debt has become a crisis:

BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.

In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don’t have, central banks have put their countries at risk from default.

Similarly, a study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.