Sunday, March 22, 2009

"Breaking up the banks" is an inapplicable and stupid theory

Olbermann seems to think that small is beautiful and that you should just break up banks into banklets for no other reason that large banks have too much power. It isn't that simple. Here's Olbermann's comment:

""... Mr. Pandit's corporation [Citigroup] should be cut up into little pieces. And when he and the other ultra-millionaires wonder what hit them, we should make sure they are easily reminded. Our representatives should entitle the legislation that ends their moral ponzi schemes, 'The Punish Vikram Pandit Act of 2009.''

The truth of the matter is that by cutting up banks into little pieces you create competing fiefs that magnify the inefficiency that the banking system experiences by several orders of magnitude. Decentralization of this sort is a cop out; the true question isn't whether or not banks should be big or small but who controls them. If they stay in private hands they become massive, authoritarian entities; if they're nationalized and put under public control that same structure can be transformed in a rational way to be more democratic, without losing control.

Bottom line is that if banks are broken up they will still be in private hands, and bankers will still have undue influence over things while giving themselves large salaries, even if they're regulated "within an inch of their lives", is also being suggested by parties. You won't have changed the fundamental power balance, only made it more complex. Nationalization and public control are the ways to truly hold banks accountable. Breaking up banks and busting the trusts has always been a stop-gap strategy, and one that's meaningless in today's world.


Tristan said...

No - nationalise them and they become even tools for the politicians even more than they already are.

The massive size and power of banks is a direct result of state subsidy and regultion (to prevent competition).
A free market in banking (and currencies) would act against this trend, as well as a myriad of other benefits for the ruled classes.

Anonymous said...

No, you both miss the point. Breaking up the banks would contain a crises so that no one player could bring down the whole system. Notice that there was no 2007-08 crises in Canada. Smaller banks and more regulation and the reason. Would you want a virus in all the cells of your body or a few contained cells? Sic Semper Tyrannus