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CRF Blog » Blog Archive » Too Big to Fail and Too Risky to Exist

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Too Big to Fail and Too Risky to Exist

by Bill Hayes

In Too Big to Fail and Too Risky to Exist for The American Scholar, William J. Quirk argues that banks today are behaving more recklessly than ever.

What have we learned in the four years since the financial crisis? The story of the crisis, in broad terms, is simple enough: in 2008 the banks were stuck with $2 trillion of bad, “toxic” assets. The challenge posed by the crisis was plain as well: how could the banks shift that loss to the taxpayer? The government, under both President George W. Bush and President Obama, agreed to help the banks, telling the public that there was no choice. It was necessary — even though the government had to borrow the money — to bail out the banks. In a quarterly report to Congress, the special counsel for TARP reported that the government committed an astounding $23.9 trillion to support the banks. Otherwise, the government said, the sky would fall. Polls said that the people hated the bailout. They did not think it was necessary to prevent a catastrophe, and they would oppose it even if a catastrophe were to result. Today, 71 percent of the public thinks the government should let banks too big to fail, fail. The people feel that the no-choice bailout was extortion. They saw the banks bailed out with cheap loans and then watched the bankers pick up where they left off. Our four biggest banks now hold more than $7 trillion of assets, up 50 percent since the crisis. As bank profits doubled, the wealth of American families plummeted. House values dropped, and almost a quarter of mortgages are now underwater. Median income has dropped. By almost every measure, ordinary people are worse off. The sky has fallen — on them. The cause of the crisis, the people believe, was simple greed together with a complicit government willing to take on illegitimate debt. Treasury Secretary Geithner told The New Yorker’s John Cassidy in March 2010, “We saved the economy, but we kind of lost the public doing it.” Seeing that nothing much has changed, many Americans believe that we will be back in another crisis within a few years. [more]