How To Prevent The Next Global Financial Crisis

From Cognoscenti
By Mark T. Williams
September 13, 2013

It was the financial world’s 9/11. First, on September 15, 2008, Lehman Brothers collapsed. Next came taxpayer bailouts, and efforts to trim the sails of the big six U.S. banks we’d previously considered “Too Big To Fail” (TBTF). The Dodd-Frank Act was meant to be cutting shears, but got watered down to the point that those banks have since grown in size and power, taking more financial risk than ever before.

Call it the Great American Stick-Up. But with those TBTF institutions back on top of their game, now is the time to consider ways to cut them down to a safer size.

Unfortunately, we still haven’t learned the lessons of the Lehman debacle. In 2013, the risk that one or more of these TBTF banks could trigger another global financial crash is greater than ever before. The assets of the big six — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — top $9.5 trillion, or two-thirds of domestic GDP and control over half of all customer deposits. These megabanks are holding the U.S. economy hostage. Emboldened by the knowledge that the government won’t let them fail, the big six have added incentive to gamble with depositor funds.

In 2008, Lehman Brothers and many other banks lost billions on risky derivative bets. Last year, JPMorgan, the country’s largest bank, lost over $6 billion to a single derivative trading strategy, was implicated in interest rate fixing, and involved in a multi-million dollar electricity price manipulation scheme. Bank of America, Citigroup, and others have also been called out for unseemly banking practices. Before and after the crisis, the biggest U.S. banks still seem to believe that placing out-sized bets or breaking laws remain within their purview.

Meantime, the multi-million dollar compensation packages that directly contributed to the unsafe activities that crippled the global economy and cost millions of jobs, are still very much intact…

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