Although I agree with Robert Kuttner’s assessment of a flawed and inadequate process to rescue the banking system in Collateral Damage and Double Standards , I stongly disagree with his suggestions of Machiavellian motives on the part of President Obama. I believe that the efforts to shore up big banks are sincere but tragically flawed by the severely limited perspectives of Larry Summers and Tim Geithner— men who have worked exclusively with large organizations and see fixing big banks as the solution to all banking problems- just as surgeons see performing surgeries as the solution to all medical ills.
Obama’s economic team, though in some ways better than any before it, simply lacks breadth and depth to develop solutions that equally support larger and smaller institutions. This is further exacerbated by a universal size bias: all institutions prefer to deal with institutions of similar size because they are as challenged by asymmetric business as the military is by asymmetric warfare. Big government is more comfortable dealing with big business; there are fewer decisions to make and fewer local subtleties to deal with.
Larry Summers may be Obama’s General George B. McClellan…. technically competent in the field of economics but with too narrow a perspective to fight and win the war at hand, and not humble enough to realize that he needs help. Banks that are too big to fail must not be resuscitated, now or next fall. Instead, they must each be broken into at least 5 pieces which can then succeed or fail strictly on a competitive basis. In addition, obstacles must be placed in the way of re-growth that even approaches too big to fail for these and other banks so that poorly managed large banks cannot dominate better managed small ones simply due to the advantages of scale.
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You said it all. Now how can we as consumers help this process. Gee I have it. Do as I have done. Take all you money and accounts away from Bank of America. The laws of economics will apply and the Bank will fail as it should have. Those who move fastest to move there money to the smaller regional banks will be the winners!! The others who don’t make it out will be FDIC insured. Its a WIN WIN for the consumer.
May the best small bank win and may the last big bank standing be dismantled by the Feds
PS this applies to banks who have been “nasty” lendors too. Doubling payments and interest rates — like Cass Commercial Bank — treat them the same. Take it outside and let the consumer win
Dean:
Thanks for your comments. Large banks, or large competitors in any market, have the advantages of scale which enable them to win against better managed smaller banks and to hide bad management decisions. To solve the problem, the large organizations should be broken into pieces that are small enough to compete and succeed or fail based on competitive merits. Tax, merger and acquisition policies should pro-actively prevent any business institution from becoming large enough to prevail simply on its size.
Ed