The six biggest banks in America?
Wells
Fargo.
Citibank.
Bank
of America.
JP
Morgan Chase.
Morgan
Stanley.
Goldman
Sachs.
Together,
they control assets equal to about 65 of GDP.
Twenty
years ago, that number was about 15 percent of GDP.
Simon
Johnson is the former chief economist at the International Monetary Fund.
He's
a Professor of Economics at MIT's Sloan School of Management.
And
he's co-author of the book 13 Bankers.
He
says that these six banks are too big to fail.
Soon,
they might be too big to save.
As
in Ireland.
Bank
fails.
Government
rushes in to save it.
Government
fails.
Johnson
has a solution.
Break
up the big banks.
And
impose a hard cap on their size.
No
bank should have assets of more than four percent of GDP.
Johnson
has conservative support for this idea of breaking up the big banks.
Most
notably, Alan Greenspan.
During
the financial crisis, Greenspan defended the idea of breaking up the big banks.
"In
1911, we broke up Standard Oil," Greenspan said. "So what happened?
The individual parts became more valuable than the whole. Maybe that's
what we need."
The
hard cap on banks has lukewarm support in Congress.
During
the debate over financial reform, the measure garnered 33 votes in the Senate
(it was called the Brown-Kaufman amendment.)
Johnson
doesn't know whether we are approaching a populist moment similar to 100
years ago when Teddy Roosevelt led a charge against large industrial organizations
- a charge that led to the break up of Standard Oil.
But
don't try to put the populist label on Johnson.
He
rejects it.
"I'm
not a populist of left or right," Johnson told Corporate Crime Reporter
in an interview last week. "I'm a centrist. I'm a technocrat.
I'm a person who works on crises. And that's been my work for 20
years. And the way in which the banks were treated in the last crisis was not
best practice. It was very far from best practice. We set ourselves up for further
trouble because we bailed them out so completely and protected all of the powerful
people. So, my point is not a populist one at all. It's a reformist point."
"Roosevelt
is the tradition we are trying to tap into here," Johnson said. "Roosevelt
had a populist element to him. But he was also a very mainstream character.
What he really did was shift the mainstream view. In 1901, most mainstream business
people and lawyers thought that big business was good business - more
efficient and so on."
"By
1911, when it came to break up Standard Oil, most people thought that big business
could easily become too big for the social good. And in general, it needed to
be broken up."
"So,
Roosevelt picked up some ideas from the populists, but he also mainstreamed
them."
Does
Johnson see any evidence that we are approaching a populist moment in America?
"There
is a lot of reaction to inequality in American society," Johnson said.
"Inequality has gotten worse over the last 25 to 30 years. Part of that
is about finance. Part of it is not. There is a similar disquiet about what
is happening, with various reactions - some coherent, some incoherent
- just like was seen in the 1890s."
"And
that movement by the way never directly elected anyone. William Jennings Bryan
got the Democratic nomination, but he repeatedly failed to become President."
"But
that movement did have a big effect on broader mainstream thinking."
"So,
we'll see what happens. It's still early. And people only now are
waking up to the fact that America - as it has become less equal -
has also become more dangerous to ordinary people - in terms of their
livelihoods and their lives. And many people are very uncomfortable with that."
Johnson
says that had we not bailed out the big banks, there would have been world economic
catastrophe.
"You
come to the moment when they could fail - let's say September or
October 2008 - that's my assessment," Johnson said. "We
followed these things very closely. We have a web site called baselinescenario.com
- where we track these kinds of events day to day. If you had allowed
those banks to fail at that moment, there would have been a global economic
catastrophe."
"But
the point is to prevent such a moment from happening again. To create a situation
where large financial institutions are small enough to fail."