Wednesday, May 05, 2010

Taking Down the "Too Big To Fail" Banks Ourselves

by Charles Hugh Smith


No additional legislation or oversight is needed to reduce the concentrations of power held by the "too big to fail" banks; individuals need only transfer their accounts from TBTF banks to community banks and credit unions.

Frequent contributor Harun I. observes that the takedown of "too big to fail" banks requires no additional legislation or regulation--all that is required is for everyone with an account at a "too big to fail" investment or commercial bank to move their money elsewhere.

Regarding the looming showdown with the big banks: Perhaps someone has had this thought already but it comes to mind that there need be no legislation to break up the "Big Six". The people have the power to do so... if they choose. The first thing that hit me was: why is the general public doing business with these institutions or their affiliates? GS and JPM only bought assets (window dressing) to legitimize themselves as "bank holding companies". The only way to meet the requirements of being a bank holding company is to have deposits.

Everyone's attention has been diverted to whether to "walk away" from my mortgage and this is valid. But no one that I know of is calling for a popular revolt against these banks and their affiliated interests. Is that because no one has the courage to be held responsible for a bank run? Oh, I see. But we have the courage to launch unmerited wars of aggression.

It is as simple as taking our business (deposits) elsewhere to a non-affiliated, healthy banking institution. Real returns are negative and the TBTF are speculating not lending, so what is the purpose of maintaining an account with them? The simplest method of shutting them down is each individual doing business with them choosing to do business elsewhere. Reputable local and regional banks will be flush with reserves and be able to undertake prudent lending and support the needs of the community. The TBTF speculative houses will either go back to or become hedge funds or go out of business. Radical reform without firing a shot.

This does not mean that there will not be consequences. Should they have to be taken over by FDIC their derivative bets would have to be unwound and FDIC would likely need a bailout. The damage to defined benefit and defined contribution pension plans would be enormous, and it is likely that the economy would crash. But this will happen anyway.

What we all need to realize is that no business has a right to exist. It should only exist in our community (local or national) when it serves the interest of that community. Would we continue to do business with the butcher who all too often sells rancid meat? The answer is obvious, the butcher would either sell good meat or face going out of business as his/her customers went to competitors who sold a superior product. If no such competitor exists then it will surely arise out of popular demand and entrepreneurial spirit.

This is where the well-intended Credit Reinvestment Act (CRA) went wrong. There was no need to make banks lend to people in the community in which it existed. What was necessary was for the people in the community to ask themselves why are they doing business with an institution that did not serve their interests. Banks refusing credit to the communities in which they exist would quickly close down as clients withdrew their deposits and placed them elsewhere. The CRA and legislation like it, however well-intended, is disempowering.

But this concept is much more broad. If any entity is not behaving as it should, the people can change this by simply refusing to do business with or invest with that entity. But there are the old paralyzing mind game excuses against "boycott" like "it will hurt the people employed by that company and the economy". This argument is just a distraction if not outright extortion. Either we want to be rid of the usurpation of our government by large corporate and bank interests via their undue influence on elected officials or we want plutocracy. We cannot have both.

Either "we the people" demonstrate our innate power by sending a very clear message that we are the government and will not tolerate rogue interests in our community or sit paralyzed as it collapses of its own weight. Both choices have messy initial consequences but in the latter we can be sure of attempts at greater power grabs which may move us further along the continuum toward totalitarianism.

RE: Efficacy and the burden of knowing:

In human relationships, when we know or should know the nature of a thing, that it continues to exist in our community is because we allow it. And when that thing is known to be egregiously injurious it continues to exists only by virtue of cowardice.

“'Tis the business of little minds to shrink; but he whose heart is firm, nd whose conscience approves his conduct, will pursue his principles unto death.” --Thomas Paine

Thank you, Harun, for your explanation of how we can collectively take down the predatory cartel/banks ourselves, as autonomous individuals.

Some readers have asked for my view on the the Gulf oil spill:

While I do not yet have sufficient information or expertise to form much of an integrated understanding of the situation or the consequences, correspondent Rhone M. submitted this reader post from George Ure's urbansurvival.com as one sobering point of view:

(The media is) totally missing the boat on how big and bad of a disaster this is.

First fact, the original estimate was about 5,000 gallons of oil a day spilling into the ocean. Now they're saying 200,000 gallons a day. That's over a million gallons of crude oil a week!

I'm an engineer with 25 years of experience. I've worked on some big projects with big machines. Maybe that's why this mess is so clear to me.

First, the BP platform was drilling for what they call deep oil. They go out where the ocean is about 5,000 feet deep and drill another 30,000 feet into the crust of the earth. This it right on the edge of what human technology can do. Well, this time they hit a pocket of oil at such high pressure that it burst all of their safety valves all the way up to the drilling rig and then caused the rig to explode and sink. Take a moment to grasp the import of that. The pressure behind this oil is so high that it destroyed the maximum effort of human science to contain it.

When the rig sank it flipped over and landed on top of the drill hole some 5,000 feet under the ocean.

Now they've got a hole in the ocean floor, 5,000 feet down with a wrecked oil drilling rig sitting on top of is spewing 200,000 barrels of oil a day into the ocean. Take a moment and consider that, will you!

First they have to get the oil rig off the hole to get at it in order to try to cap it. Do you know the level of effort it will take to move that wrecked oil rig, sitting under 5,000 feet of water?

We're so used to our politicians creating false crises to forward their criminal agendas that we aren't recognizing that we're staring straight into possibly the greatest (environmental) disaster mankind will ever see.

Clearly, the rig's destruction and the apparently inadequate emergency capping/safety features at the wellhead have led to an environmental disaster. The timing of this catastrophe so soon after the politically popular "drill, baby, drill" Federal policy announcement is tragically ironic. While I understand the unique qualities of petroleum, I continue to wonder what size solar array could have been built (along with an overhaul/upgrading of the nation's electrical grid to handle the additional loads) in the Nevada desert with the $3 trillion that has been squandered on saving the "too big to fail" banks. (Or was it actually $13 trillion if we toss in AIG, Fannie Mae and Freddie Mac?)

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