Friday, April 16, 2010

13 Bankers Book by James Kwak and Simon Johnson Explains the Banking Crisis Better than Most

Tags: Johnson and Kwak, 13 Bankers, Stop Another Financial Meltdown,, Moyers, Senator Sherrod Brown, Need Law rather than Regulation

Senator Sherrod Brown of Ohio is turning out be one of my favorite senators who is not afraid to call a spade a spade. Do not trust regulators because they need a job after they leave government with a change in administration. With so few banks owning everything worth owning, we are asking too much of regulators to do the right thing. Summers as Treasury Secretary got rid of the woman who wanted to regulate derivatives in the late 1990s. We must have laws on the books that regulate the regulators! Kwak and Johnson's website is quite good. They are superb in explaining the financial system to mainstreet.

Jim Kawakami, April 16, 2010,

Simon Johnson and James Kwak

April 16, 2010

The White House and Democrats in Congress have begun pushing in earnest for a package of financial reforms. But will it be enough to stop Wall Street from causing another meltdown?

To find out what real financial reform needs to look like, Bill Moyers turns to Simon Johnson and James Kwak, the co-authors of 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN.

The problem, according to Kwak, is that the legislation currently doesn't address the central problem of the crisis, that America's banks have grown 'too big to fail.' In fact, the problem has gotten worse, with just six banks holding assets in excess of
63% of the U.S. Gross Domestic Product. Kwak explains that the crisis actually made the surviving banks more powerful, "I think what's remarkable is that it used to be maybe eight or nine banks. But what's happened over the last two years, as Simon is saying, is that these banks have gotten bigger, because they've bought each other. They've become more powerful. And they have an even stronger market position in some key markets like credit cards, mortgages, equity underwriting, and derivatives."

Johnson argues that for reform to work, policy makers and regulators must reject the belief that Wall Street knows what's its doing, that its interests are always aligned with the nation as a whole, "The idea that we need Wall Street with its current structure — and a disproportionate economic power that implies — to somehow make this economy work and drive entrepreneurship, that idea is nonsense. This is why we wrote the book, all right? There's plenty of evidence on this issue. We go through it. If you want a faith based economy in this regard, you can disregard the evidence."

Senator Brown and the 'Volcker Rule'

Johnson and Kwak believe Congress should pass a law capping the size of the banks, to keep them from becoming so large that their failure threatens the world economy. This approach has been dubbed the 'Volcker Rule,' after Paul Volcker, the well-respected former Federal Reserve chairman who has pushed hard for its inclusion. Senator Sherrod Brown from Ohio has introduced an
amendment to the bill that would do just that, reading in part that, "No bank holding company may possess non-deposit liabilities exceeding 3 percent of the annual gross domestic product of the United States."

The Six Big Banks

The names of the six banking behemoths are no doubt familiar to most Americans. The four largest by assets — Bank of America, JPMorgan Chase, Wells Fargo and Citigroup —
hold 39 percent of American's deposits.

The six biggest commercial banks by deposit:
  • Bank of America, $817.9 billion
  • JPMorgan Chase Bank $618.1 billion
  • Wachovia Bank $394.2 billion
  • Wells Fargo Bank $325.4 billion
  • Citibank $265.9 billion
  • U.S. Bank $151.9 billion

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