Eric Von Berg - Newmark Realty Capital - 595 Market Street, Suite 2550, San Francisco, CA 94105 - for loan quote: 415 956 9922

April 3, 2012

Time to wake-up the Great Sleeping Middle and end Too-Big-To-Fail

Where the Tea Party meets the Occupy Wall Street Movement
The power of Wall Street and a few mega-banks in Washington incenses the Tea Party movement on the right, and the Occupy Wall Street movement on the left. Both extremes demand that the Too-Big-To-Fail (TBTF) financial giants be curtailed. The right is incensed by the corruption of capitalism created by the bailouts and the Federal Government’s on-going involvement in propping up the big banks. The left is incensed by the failure of government to regulate for the consumer’s interest.

As voters we all feel insignificant compared to the political power amassed by the top 5 banks that were allowed to grow and control over half of all banking assets; both parties feed off their political donations. Congressional staffers and regulators feel productive as they regurgitate the legislation and regulations written by these banks’ lobbyists. Wall Street’s movement to “Occupy K Street” has succeeded for years.

The two political extremes agree that the United States financial system is broken and holds no promise of being fixed if the primary focus of the Treasury and the Federal Reserve is directed toward the health of a few mega banks. People on all sides are angry. Tax payers are angry about the bailouts. Retirees and savers are angry about a manipulated yield-curve that taxes savers and investors to benefit a handful of giant mismanaged or unmanageable banks.

The financial collapse of the Great Depression saw people marching in the streets to demand financial reform. That crises was not wasted. Meaningful legislation broke up banks, insurance companies and investment banks and curtailed the size of banks through interstate banking restrictions.

The anger from the current financial crises is being wasted.
Most of the regulations mandated by the Dodd Frank Bill are not even written yet and these rules are being crafted by regulators who are camped out with Financial lobbyists. (If you want to hear about the sausage-making going on to write the rules for the CMBS industry, give me a call.) Dodd Frank does almost nothing about TBTF. The “living wills” required of TBTF Banks under Dodd Frank will only work if a single institution falters in isolation. These TBTF institutions are too interconnected. Another major financial crises will hit all the big banks at the same time. This Too-Many-To-Fail (TMTF) scenario will force the government into another round of bailouts.

A voice from the middle
I am excited by the annual report from the Federal Reserve Bank of Dallas, “Choosing the Road to Prosperity: Why We Must End Too-Big-to-Fail Now.” This is not a political document written by extremists. It is an easily readable, persuasive argument from a frontline regulator. The message: TBTF is “A Perversion of Capitalism” “Capitalism requires the freedom to succeed and the freedom to fail.” Bank of America and Citibank were mismanaged and went bankrupt. When faced with its potential legal liabilities inherited from it Countrywide and Merrill Lynch acquisitions, BofA is probably still bankrupt. The Fed’s ongoing effort to throw profits to the big banks to earn their way out of insolvency has hurt the economic recovery.

We still need meaningful reform. Meaningful reform will require or incentivize the break-up of TBTF institutions. Dodd Frank does not do it. It is time to wake up the Great Sleeping Middle!