Greenspan Suggests Breaking Up "Too Big to Fail" Banks

Just over a year after a wave of bailouts for financial institutions that the American people were told were “too big to fail,” Wall Street's addiction to legalized greed and to crony capitalism continues. Worse, the White House and Congress are complicit in allowing this perversion of America's free market system to continue.

Today, Bloomberg reported that former Federal Reserve Chairman Alan Greenspan spoke to the Council on Foreign Relations and called for leaders to consider the breaking up of “too big to fail” banking institutions.

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

“If they're too big to fail, they're too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that's what we need to do.” "

"The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.

“If you don't neutralize that, you're going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

Greenspan's statements are not entirely new. He admitted to Congressman Henry Waxman during hearings in the fall of 2008 that he had found a flaw in his philosophy that markets are self-adjusting, that they are self-regulatory.

One has to wonder if Greenspan makes this suggestion because he feels like he bears some responsibility for the economic collapse in 2008. As chairman of the Federal Reserve, Greenspan did help inflate the housing bubble and he did nothing about the risks derivatives posed to America's economic system.

A person also must wonder if Greenspan's suggestion will fall on deaf ears in Congress. Will Congress take this super capitalist's suggestion and take necessary action against “too big to fail” institutions?

Currently, a consumer protection bill is moving through Congress. Barney Frank, a Democrat, has, on behalf of the banking industry, its lobbyists, and market fundamentalist Republicans in Congress, removed many of the provisions that would have benefited poor, working class, and middle class Americans and imposed restrictions on "too big to fail" institutions.

Financial institutions are being allowed to exactly what Democrats let the health insurance industry due to health care reform: Democrats are removing provisions that would seriously reform any part of the economic system.

So, how should Americans be responding? When leaders lack the political will or the courage to risk their position in power, how do we as a people in this society respond?

The vast inequality of the economy is tearing this country apart at the seams. And Wall Street is capitalizing off of income inequality and doing all it can to ensure that it continues to own more than a third of the nation's wealth.

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