
Greenspan Says U.S. Should Consider Breaking Up Large Banks - Flemlord
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJ8HPmNUfchg
======
hristov
Now he starts having ideas. I did not hear him make a peep when the largest
and most problematic of these banks (Citigroup) was created and when they had
to have a complete overhaul of the nations banking laws to create that
particular bank. No, he actively supported the new laws intended to create
citigroup and which also resulted in another bunch of oversized financial
institutions including AIG.

And later he guaranteed bank profits by lowering interest rates whenever banks
were in just a little bit of trouble. The inevitable result was an asset
bubble and rates so low that when we had an actual crisis, the fed could not
do anything.

But now, when he is out of power, he finally figures out that the existence of
banks that are so large and powerful that they can get the government to
ensure their profitability might not be good for the free market after all.
Good job!

~~~
unalone
He _did_ apologize profusely and say that his beliefs had been proven
irrevocably wrong. I'm willing to cut the guy some slack, even if he did fuck
up on a level most people aren't allowed to fuck up on.

~~~
sown
He never really apologized

This blog sums it up:

[http://greenewable.wordpress.com/2008/10/23/greenspan-
about-...](http://greenewable.wordpress.com/2008/10/23/greenspan-about-as-
close-to-an-apology-as-well-probably-get/)

and

[http://sanders.senate.gov/newsroom/news/?id=bc863544-b90f-4e...](http://sanders.senate.gov/newsroom/news/?id=bc863544-b90f-4eda-
bafb-ecd9ae0f77ef)

------
Flemlord
Agreed. If it's too big to fail, it's to big to exist.

~~~
anamax
And the truth of that statement is not bank-specific.

For example, it applies to financial regulators and even govts....

~~~
redcap
You really want governments to start failing?

I mean California is getting close, but that's mostly because it hamstrung
itself early on by allowing citizens to promote legislation.

While there are a few governments that I would like to be changed (Chinese
Democracy anyone), the general trend towards democracy and liberty has been a
good thing.

If saw a govt does get too big to fail, having it fail could well lead to
chaos or a dictatorship.

I know there is a lot of whinging by Republicans in the US about 'small'
government, but really you're not going to get decent change in your country
overall unless the federal government acts as the states aren't up to it
(seatbelt laws anyone?)

~~~
cvg
I don't think Anamax is saying that he wants appropriate governments to fail,
but rather that ginormous governments should be split as well. If a country's
failure leads to chaos, perhaps the size of that government should be
rethought.

We should step back and realize that a government isn't some sacred perpetual
institution but rather a means to represent people. If a government fails to
represent it's people, it must be changed.

~~~
anamax
I thought that that's what I wrote. Thanks.

------
jeromec
Wow, Greenspan just won a bunch of points in my book.

> 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.

I have the same sentiments.

> “Failure is an integral part, a necessary part of a market system,”

I agree.

> “If you start focusing on those who should be shrinking, it undermines
> growing standards of living and can even bring them down.”

I think his proposal is one we should act on.

~~~
mcantelon
That's kind of like an airplane pilot getting drunk and crashing a plane,
killing hundreds, then saying publicly that pilots shouldn't be allowed to
drink.

~~~
roundsquare
Although, to make the analogy complete, you have to start with the assumption
that people didn't know airline pilots shouldn't be drunk while flying. It
seems obvious in hindsight but at the very least, _this_ pilot thought
drinking on the job was ok.

~~~
mcantelon
Pretty much every bubble in modern financial history, including the great
depression, resulted from easy credit with nothing behind it.

------
pelle
Isn't it better to just let them fail next time instead. That would force the
big banks to split up themselves.

~~~
barrkel
At the cost of devastating the economy for possibly a decade or more, sure,
that's a fine way to do things.

Something like a proper second depression, with a collapse in confidence in
almost all banks resulting in massive hoarding, head up north of 20%
unemployment. Perhaps we could throw in a world war too.

~~~
warfangle
California already has an unemployment rate of around 25%- among 18-25 year
olds.

In fact, if we still calculated unemployment like they did in the thirties -
we're ahead of the Great Depression's schedule by about four years (we have
the same - adjusted for rule changes enacted by jfk to make the nation's
numbers look better - unemployment rate now, one year into the 'recession' As
was had five years after the great crash that preceeded the Great Depression)

food for thought. (I'm mobile at the moment, or I'd provide sources)

~~~
berlin-ab
Move somewhere else. You might find there is more work elsewhere.

~~~
warfangle
I don't live in California, I live in Brooklyn. But my point still stands: a
year into this and our unemployment is about the same as it was five years
into the great depression. People make light of it because the government's
numbers are fudged.

~~~
fnid
What does this mean? We are moving 5 times faster? We are almost through it?
We still have much worse times ahead? This will last at least 5 times as long?

------
chris123
Greenspan is the poster boy and enabler of this thing. Way back in June 2005 I
registered <http://AlansBubble.com> to memorialize him. Sadly, but not
surprisingly, this same "bubble ==> crash ==> bailout" will happen again in
the not too distant future, except it will be bigger.

What can be done? Here are some ideas from Nassim Nicholas Taleb: "Ten
Principles for a Black Swan-proof World":
[http://chrisco.wordpress.com/2009/06/10/ten-principles-
for-a...](http://chrisco.wordpress.com/2009/06/10/ten-principles-for-a-black-
swan-proof-world/) (see also the Nouriel Roubini links there)

------
jorgem
The problem is that they will be broken up "poorly". The bigwigs will keep the
good parts, and give the crappy, debt-ridden parts to the government, or let
them fail.

Kinda like GM (although I'm not sure there were any good parts).

~~~
tmsh
Another problem is that a former Fed chairman should know how to break up the
banks instead of simply saying 'break up the banks'. There's already a clearly
defined line in which to break up each bank. It's called the Chinese wall.

<http://en.wikipedia.org/wiki/Chinese_wall#Finance>

However, by converting the major investment banks to bank holding companies,
Paulson basically got rid of this division. There should be risk-taking
investment sides of large investment firms which do not have the luxury of
being bailed out (i.e., people who trade CDSs, etc.), but equally there should
be large commercial banks that form the backbone of our financial industry and
provide the largest channels of liquidity. And these two sides of the company
(buy side and sell side) should always be separate companies.

But obviously there need to be people with actual investment banking
experience or who know enough of how the industry works, but also have an
interest (which to most financiers would appear highly irrational) in fairness
for the general public.

Such people just don't exist yet. Hopefully in the future they will tho.
Anyhoo.

~~~
roundsquare
I respectfully disagree with using the Chinese Wall (only a little bit
though).

Seems like it would work in general, but I believe there are groups that sit
on top of the Chinese Wall.

Stil, its a reasonably good place to start.

~~~
tmsh
Good point. Like you say there are those who oversee both sides. It is
inherently problematic to have anyone oversee both sides.... But people always
assume that the worse case scenario is that if the sell side gets screwed,
well that means some corporations (which are clients on the buy side) have
dumped stocks on some poor, unsuspecting semi-wealthy retirees. Or if the buy
side gets screwed, some investment adviser has leaked information to one of
his or her clients about a company's new issue of shares or something.

But where the American public gets screwed is in the case where financial
instruments are developed that, like the occasional large-scale computer bug,
get into some sort of perfect storm / infinite loop. The markets have a way of
dealing with that though, but they can't deal with it when the sell-side is
attached to the buy-side -- and can't be afforded to fail. Anyway, just
thoughts off the top of my head. Lots of people interpret buy side / sell side
in different ways. But there is definitely a tendency to overlook how these
banks are structured. The structure is not all that complicated, but of course
it's not really in the bank's interest to analyze and fix it -- not unless you
have a very long-term interest in the health of the industry or something.

------
known
I strongly believe it is time now to regulate market capitalization to twice
their quarterly revenue. I have petitioned SEC which is actively considering
it.

------
3pt14159
Every time I hear or read what Greenspan says I become more and more convinced
that his goal is to bring down the system ala Atlas Shrugged style. These are
not the words of an objectivist, they are the words of a statist. Or, at very
best, an extremely pragmatic capitalist. Dude is trying to bring down the
whole Money as Debt and Corporatism system in on swoop.

Note to the strikers: Bring me with you.

~~~
philwelch
While it's true that Greenspan was a close associate of Ayn Rand for years, it
rises to the level of conspiracy theory to suppose that Atlas Shrugged was
meant as some sort of blueprint for real world action crafted in the 1950's
and slowly implemented over time by Rand's associates. Right up there with the
theory that Rand is a member of the Illuminati and Atlas Shrugged is the
Illuminati game-plan to take over the world.

------
ComputerGuru
Honestly, I'm more than happy with my bank (JP Morgan/Chase) staying as one
big conglomerate. They certainly proved they knew what they were doing during
the crisis and have managed to stay on top of things. The government doesn't
have the right to punish private corporations for being too good, too smart,
and too successful; though they have a huge track record of trying to do so.

~~~
ComputerGuru
I'd appreciate someone pointing out any incongruent remarks in my statement
above. It's a fact that JP Morgan succeeded where the others failed during the
recession, it's a fact that their customers are happy with what they're doing,
and it's NOT a fact that the government knows their business better than they
do.

