#marrinerkeynes

[marrinerkeynes]

Dear Republican candidates: You are campaigning on talking points that do not actually appeal to us. Why are you doing that? Who told you we want these things?

Dear Rick Perry: We don’t want our troops in Iraq. We don’t think President Obama was too quick to get them out. We think he was too slow. We don’t want to go back into Iraq militarily. We don’t care if Iraq’s Shiites like Iran’s Shiites and we don’t think that 18-year-old young men from Alabama and Louisiana with guns can convince them not to. And, the Iraqis don’t want them there. President Obama did not err in his negotiations. There is *no* majority in the Iraqi parliament that would vote for having US troops on Iraqi soil. Would it be the Islamic Mission (Da’wa) Party of Prime Minister Nouri al-Maliki? The Sadr Movement of Shiite cleric Muqtada al-Sadr, who has threatened violence against US troops if they remained? Would it be the Islamic Supreme Council of Iraq of Cleric Ammar al-Hakim, which is close to Iran? Where are you getting this majority? Or are you just going to invade the place again?

Dear Rick Santorum: We don’t want a war with Iran right now. We are tired of wars. Only 16% of the population says it is all right to attack Iran in the short term.

Dear Mitt Romney: We don’t want tax cuts for the wealthy. Most Americans back raising taxes on the rich

Dear Rick Santorum: We don’t want birth control banned. We’re so out of step with you that we not only want birth control for ourselves, two-thirds of us just want the schools to provide birth control to our teenagers and have done with it. Even our American Catholics mostly reject the ban on birth control. We think we do have a right to privacy, which you want to take away from us. Why do you think we would like you better for this?

Dear Newt Gingrich: Actually, we don’t like virtually any of your campaign promises. But that isn’t the point. It is you that we don’t like. We think you’re a hypocrite and that you got rich off influence peddling, including to Fannie Mae and Freddy Mac. Please stop it now.

[jakke]

Thanks for posting. The loans were not even close to the right thing. We should have nationalized the banks, guaranteed the deposits, broken the banks up and then privatized them again. This is what the european governments did and this is what we did with the smaller banks. This would have spurred more growth by creating more competition, and the government would guarantee lending keeping the credit markets liquid, and prevent the banks from continuing their risky derivatives practices.

Thanks for your reply! I'm guessing you're referring to this post, where I linked to Bloomberg's awesome release of all the data from the Federal Reserve's 2007-2009 emergency loan program.

Going to entirely agree that a banking sector with many smaller banks would encourage competition and benefit consumers, hands down. No disagreement there. However, mentioning deposit insurance is super misleading, since deposits at banks in the US are already covered by the Federal Deposit Insurance Corporation. This covers most accounts up to $250,000, and under the Dodd-Frank financial reforms it temporarily covers unlimited deposits in chequing accounts. (We will not discuss why anyone would ever want more than $250,000 in a chequing account, because that's not really the point of this post.)

Unfortunately, there's ultimately no way to guarantee all the deposits in the US through the FDIC or anything like it in the event of nationalization. Even with the bank failures that did happen, the FDIC was over $20 billion in debt at the end of 2009, and over $7 billion in debt at the end of 2010. The total bank deposits in the United States are well over $6.2 trillion, and if banks were actually being nationalized then the government would actually need to pay out trillions in deposits, because banks were really heavily leveraged in the period leading up to the crash and if they hadn't been preserved as a going concern then deleveraging would ensue. There's just no good way for a government to cover all the deposits with Citi or Bank of America.

Moreover, there are many really strong reasons why it's profitable for banks to get as large as possible as quickly as possible after any such breakup. There are big returns of scale on assessing possible investments, and there's substantial convenience to consumers if they can find their own bank's ATM anywhere they go, and the relatively expensive top-level administration doesn't need to expand proportionately. And once you're big enough, you have market power, and can start cranking up the fees! So there's a really strong incentive for the banking sector to converge to just a few big players. I live in Canada, where there are basically only five domestic banks in most of the country.

What can be done to keep the banking sector competitive? I'd argue that encouraging something like credit unions would make more sense. Because they're structured as not-for-profit corporations controlled by their depositors, they're not really motivated by profiting off their own customers (because those customers are electing the board that sets the priorities). Moreover, because their boards can't be financially compensated in most jurisdictions, there's not the steep overhead associated with paying tens of millions to board members.

Addressing the use of derivatives, though? That just needs tougher regulation, or steeper taxes on holdings of risky assets. That's not even particularly tricky. Forcing banks to make less risky investments doesn't require any drastic overhaul of the system, and so if that's the main concern you don't need to go around breaking up the banks.