A few days ago on TV, Barney Frank and Robert Reich were set up as Point/CounterPoint on the topic of “too big to fail”. Actually, shilling for Reich’s new book, but anyway.
Frank ended up completely embarrassing himself by stridently asking “how do you determine what is too big? The size of the bank is not in itself a problem. Where do you set the limit? $500M? $50B?” etc.
Unfortunately, Reich did not respond with the obvious answer:
Breaking up banks does not have to be and should not be based on the dollar amount of revenue or profits. It should be based on vertical and horizontal combination of lines of business. This has a long history in anti-trust. In fact, the foundation of Glass-Steagal was to prohibit any company from participating in banking (e.g. deposits and loans) and speculation (e.g. investment banking, trading, etc.). Similar rules were applied to Standard Oil, Swift, ATT, etc.
In the past, “too big to fail” was known as “too big for fair market conditions” and companies were broken up and prohibited from doing multiple lines of business — e.g. no drilling, refining, transporting/distributing and retailing all at once.
This model should be what is applied to the current finance companies. No banking/loans, stock underwriting, leveraged buy-outs, speculation, trading in the same company. These activities should be split out as separate and independent companies. That would be the appropriate first step to reducing the so called “systemic risk” from the concentration of wealth and power.
It should not stop with the finance industry. Since the late 80s/early 90s, nearly every industry in the US has undergone ruinous consolidation — media, food production, etc. Are now at near monopoly concentrations. The corporate rationale has been “synergy” and efficiency — however, the overall net result is restraint of trade, barriers of entry to new competitors and self serving dealing.
Bernie Sanders is a very modest version of the Teddy Roosevelt that we really need.
Shame on Barney Frank for back stopping concentrated power by providing the smoke screen.