Point: Yes, regulation isn’t enough
Last week, a column by Steve Eisman ran in the New York Times titled “Don’t Break Up the Banks. They’re Not Our Real Problem.” This comes on the heels of a heated political sprint toward nominations on the both the left and the right, each side’s candidates affixing metaphorical badges of antiestablishment to their campaigns and the more radical of them heralding their crowd-funded campaigns as evidence of keeping Wall Street interest out of their pockets.
Furthermore, Sens. Elizabeth Warren, D-Mass., John McCain, R-Ariz., Maria Cantwell, D-Wash., and Angus King, I-Maine, introduced a bill in 2015 that would essentially resurrect the Glass-Steagal Act, cementing separation between commercial banking and investment banking.
In the wake of the economic crises of 2008, the concern about dismantling “too big to fail” banks seems to be an issue worth consideration.
In his Times column, Eisman writes “by the spring of 2007, subprime mortgage credit losses were soaring and the securitization market froze. In this macabre game of musical chairs, whoever was left holding the loans was dead. Among the biggest holders were large banks and brokerage firms and later “regulators had been oblivious to the coming disaster. Before the crises, bank regulators had two jobs: regulating the safety and soundness of the banks and protecting the consumer. They did a horrendous job of both.”
Eisman later goes to write that regulation has been vastly improved. Perhaps it has, but the statement remains, one that he made himself in that very article: Regulators can do a horrendous job. He then writes, “It’s no longer accurate to say that the large banks pose a systematic danger to the American economy.”
But given the history of behemoth banks to behave recklessly, as seen in the Great Depression of the 1930s and what has been called the Great Recession that hit at the end of 2007, would it do any harm to break them apart?
If there is one, it has yet to have been made explicitly clear. Dean Baker, a cofounder of the Center for Economic and Policy Research, writes “plans for breaking up the big banks have gained support from both ends of the political spectrum. Unfortunately, the more centrist figures in both political parties continually stand in the way. This is a clear case where the ability of banks to buy politicians is obstructing the will of the American people” and asks the question, “In what ways are the mega-banks of today serving us better than did the banks of the 1980s?”
It seems to me that just because regulation of the banks has been improved doesn’t mean that those same improved regulations can’t be upheld in one way or another when those large banks become a collection of smaller ones, and frankly, the logic of not dismantling them for the sole reason that regulation has been improved just isn’t there.
— by Jack Dugan
Counterpoint: No, that won’t fix the root problem
Wall Street reform has been brought to the forefront of the political consciousness following the economic meltdown that has been called the Great Recession and for good reason. In the wake of such an economic disaster, the rhetoric applied to the corporate big shots responsible for torpedoing the nation’s economy and miring countless Americans in debt they can’t pay is understandable. Candidates in the upcoming presidential election such as Sen. Bernie Sanders have been outspoken in their disapproval of the nation’s monolithic corporate institutions, but is the solution really to dissolve them?
The first solution that comes to mind when dealing with financial institutions that have been allowed to run rampant and wreak havoc on the economy would be to disband them and thus reduce their capacity to inflict damage. It’s a no-brainer. If big banks cause problems, then we should have smaller banks. However, that solution addresses a symptom and not the underlying malady. An institution is easier to topple than an ideology, and when the ideology is an inescapable fault in human nature, the strategy to counteract becomes infinitely more difficult to find. The factors that resulted in the Great Recession varied and included fault in not only the practice of banking institutions but also the institutions entrusted to regulate the market and protect from human greed and negligence.
The necessity of large-scale corporate institutions does not mean we should have no control over the practice and culture carried out by them. The easy solution would be to try to disband the entities we feel responsible for a culture of poor business practice, but that mentality will only clear the way for similar evils to spring up in their place. Size contributes to the extent of the problem but not the cause of the problem.
Like it or not, according to the same column by a column Steve Eisman in the New York Times, “Don’t Break Up the Banks. They’re Not Our Real Problem,” our banking institutions are “global, complex, integrated institutions.” The desire to apply a quick fix encouraged by the political climate could prove to do more harm than good. If solutions are applied on the individual and root level, they will grow and correspond to the fully formed institution, but trying to apply radical top-down adjustments have the potential to be “incredibly difficult, long, and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.”
Any business is a conglomerate of individuals with the united purpose of creating a profit. The faults we attribute to the Wall Street echelon are the result of individual intention combined and conflated to levels high enough to affect the nation’s economy as a whole. The enemy is not the size of the banking institution but rather the borderline-sociopathic greed and reckless indifference toward consequences practiced by the individuals that comprise the entity. Big or small, if business culture is not reformed and regulations adhered to, the same problems faced in the housing bubble meltdown will still be allowed fester and grow like a cancer until the we are faced with a similar quagmire.
— by Marcus Brown