Tags: Reich | TARP | bailouts | TBTF

Robert Reich: TARP Is Done, but Bailouts Will Continue

Wednesday, 09 Jan 2013 12:43 PM

By Michael Kling

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Although the Troubled Asset Relief Program that bailed out Wall Street is over, bailouts are not, asserts former Labor Department Secretary Robert Reich.

Bailouts will continue until the big banks are broken up - and Washington knows it, says Reich, a professor at the University of California at Berkeley, arguing that Washington is finally realizing that the banks must be broken up.

The big Wall Street banks are larger than they've ever been and keep getting bigger, Reich writes on his blog.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The largest Wall Street banks are much bigger now than they were four years ago when they were considered too big to fail (TBTF). In fact, the five largest have nearly 44 percent of all U.S. bank deposits, up from 37 percent in 2007 and 28 percent a decade ago.

In an unvirtuous cycle, they keep growing because they can borrow at lower rates than can smaller banks. Investors believe they'll be bailed out if they get into trouble because the government views them as TBTF, he says.

At least some regulators, business leaders and Congressmen indicate they support breaking up the largest banks and limiting their size, Reich notes.

Dan Tarullo, the Fed governor specializing in bank regulation, proposed capping the size of banks’ balance sheets. Even Sandy Weill, who created Citigroup, has agreed the largest should be broken up.

Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, Sens. Sherrod Brown, D-Ohio, and Elizabeth Warren, D-Mass., are important players who may support a plan to break up the banks.

"In other words, the timing is right," Reich writes. "The oven is ready. All we need is another multi-billion dollar banking loss — like JPMorgan Chase’s last year — and the biggest banks are cooked."

Richard Fisher, president of the Federal Reserve Bank of Dallas, also argued forcefully for breaking up the megabanks in the bank's 2011 annual report.

"The TBTF institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism," Fisher states.

"It is imperative that we end TBTF."

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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