There continues to be a groundswell of support among the political class that too-big-to-fail (TBTF) banks are in fact a problem.
Elizabeth Warren has been talking about it a lot lately, including her comment in February that “too big to fail has become too big for trial.”
Two weeks later, Warren asked why the banks were receiving $83 billion each year in subsidies. (We now know that that the subsidy might be ten times that amount.) At the time, Fed chair Ben Bernanke agreed with Warren that the subsidies were a problem and should be ended.
Elizabeth Warren: So I understand that we’re all trying to get to the end of “too big to fail.” But my question, Mr. Chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they are getting?…It is working like an insurance policy. Ordinary folks pay for homeowners insurance. Ordinary folks pay for car insurance. And these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. And I’m just saying, if they are getting it, why shouldn’t they pay for it?
Chairman Bernanke: I think we should get rid of it.
And Bernanke continues to talk about the problems of too-big-to-fail banks, see video below.
Bernanke has been the driving force behind the free money being thrown at Wall Street the last few years (via the quantitative easing policy), which has helped prop up Wall Street artifically. To thank the American public for this free money, Wall Street has fought bitterly against reform while continuing to hand out high paychecks and bonuses, despite not really making money on their own (even the smaller subside estimate of $83bn/year is equal to the banks’ annual profit), and their ongoing efforts to avoid paying their fair share of the very tax money that simply gets recycled to them as bailouts and subsidies.
Will this change now that Ben Bernanke is coming on board with criticism of too-big-to-fail? I’m still not convinced, Washington has the ability to put Wall Street in its place, and these words from the Federal Reserve chief certainly help the forces of reform.