OLD  Rule: The big banks are too big to fail.

NEW Rule: All banks are too strong to fail.

Global bank losses hit $4.5 TRILLION. $2.7 TRILLION is from loans and assets originating in the United States. The biggest losers are the biggest banks, which the U.S. taxpayer has bailed out with direct infusions of money. The latest plan is to start giving the banks money for their bad loans. Heads they won; now it’s tails, and we lose. And, the U.S. taxpayer has backstopped the FDIC, which simply closes the smaller banks. Just this week, the FDIC closed 4 banks at a cost of $700 Million. In 4 months this year alone, the FDIC has closed 29 banks; last year, 25 banks. Who wants to see failures of this magnitude? And, who wants to keep paying for this disaster? Do you?

The American bankers have so mismanaged their business that they threaten the stability of the U.S. The most worn and tiresome phrase is to hear politicians and commentators talk about the big money center banks as being “too big to fail.” So what’s at the core of the problem? The banks just didn’t have the reserves to make it through a downturn and/or to cover the outrageous losses due to speculation with the credit default swaps. Framing the problem is to identify the solution. But, I have not seen a long-term solution proposed.

The common-sense solution is thus to require the banks to increase their reserves quarterly and yearly. Slowly perhaps, but surely. Additions to reserves should exceed dividends until the long-term reserve requirement is met. Unless a bank can get stronger, it would be imprudent and unwise for that bank to pay out any dividends at all. (And, forget any stock options, political contributions, etc.) That’s one way to maintain the advantages of a capitalist system. By the way, an alternative would be to break up the big banks so we can let them fail later as small banks. To simply expect the government to rescue banks of any size is to invite nationalization. We can take our choice.

The above is the best solution I’ve seen. The heart-breaking observation is that the political leadership hasn’t offered any solution. The silence is deafening. The politicians close their eyes and borrow more money to give to the bankers. What will it take to get the members of Congress to do their job?

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials. Tell them you want a permanent fix for American banks and bankers.

– Byron

References:

New York Times, April 21, 2009.
I.M.F. Puts Bank Losses From
Global Financial Crisis at $4.1 Trillion .

CNNMoney.com, April 24, 2009.
Bad year for banks:
Failures surpass 2008.