Tuesday, May 31, 2011

Big Banks Screw Tax Payers Redux?

According to this recently released IMF paper big banks have gotten bigger and we might get screwed again.  They use terms like "Too Important to Fail" and "Systemically Important Financial Institutions," but we can say politically connected banks that take advantage of their size to pay big bonuses when times are good and still pay big bonuses when times are bad—read bankrupt— thanks to an ability to stick the check to the government, to tax payers.  
The number of these monster banks has grown when looking at absolute size, interconnectedness and substitutability:



The assets of these "Too Important to Fail" banks have grown as well since the 2008 financial crisis along with their convoluted structures. Let's use a cooking analogy to sum up: you put these bank's political power, huge size, complicated structure and greed all in a bowl without adequate regulation and you'll get the same scrumptious delicacy we enjoyed so much in 2008 and 2009.  The banks are busy lobbying up to avoid the full bite of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Let's hope they don't succeed.