Too big to fail
Too big to fail is used to describe financial institutions that must be bailed out when they reach insolvency. One way to reduce the risk is to break up the large institutions into smaller ones, but the government seems to be merging them instead of dividing them which – in the case of banks – negates the ability of the FDIC to cover a bank run, much less insolvency, without calling on Treasury or the Fed for cash. FDIC funds are made up of contributions from member banks amounting to only about 2% of their deposits.
Risk is a real consideration in today’s volatile market and reducing risk would seem like a reasonable consideration. Instead of downsizing to reduce risk, the Obama administration has taken the first step to pool the U.S. economy with those of the G-20 nations. In the G-20 Pittsburg meeting of September 25, he agreed to turn over scrutiny of our financial sector to the consensus of the G-20 regulators. While the final details have not been adopted, the conditions of the agreement include debt reduction, which is a good thing, but quarterly reporting on such things as capital requirements, executive salaries and bonuses is an absolute abdication of our national sovereignty and an invasion of private enterprise by a quasi-established world authority on economic regulation. The enforcement aspect is by peer pressure only and therefore moot.
It is however, a clear signal from President Obama as to his intentions to combine the U.S. economy into a socialist dominated world authority where we all share in the ups and downs of other nations. It also demonstrates the power gained by the U.S. Government when it took an equity position and voting share in the affairs of financial institutions. Work on the final framework will begin in November. Commentator Dick Morris has called this move “the repeal of our Declaration of Independence.”
To boot, the Obama administration persuaded European partners of the G-20 nations to increase the poorer nation’s ownership in International Monetary Fund from a 42% to a 48% share, without any increase in their contributions to the IMF funding. Obama’s stated objective was – by giving a more equal ownership of the IMF to developing nations it will give the Fund a better standing among the non-industrialized nations so it will not appear so much as a tool of U.S. foreign policy. This sounds like another apology to me for being the single largest aid giver to the Third World.
The current recession and falling dollar has given the government special economic powers for a while, just as did the Great Depression. Notwithstanding, I am amazed at the audacity of this president who never seems to consider if his acts are constitutional, only if he can get away with it. It is a question of possible, not permissible, as says J. T. Young who served in Treasury and OMB.
During the great Depression, Franklin Delano Roosevelt moved in the same extra-constitutional fashion during his administration only to have the Supreme Court overturn his National Reconciliation Act and the Agricultural Adjustment Act. Roosevelt retaliated by trying to increase the number of chief justices and stack the court. His failed attempts to circumvent the Constitution are largely overshadowed by WWII, but many progressive programs of the New Deal remained.
While Obama continues to trade our sovereignty for safety within a combined world economy and debase our dollar through spendthrift government programs, many test lie ahead which the High Court will no doubt resolve as they did for F.D.R. The lingering question is will it be too late?
Tags: FDIC, G-20, IMF, Too big to fail
You can comment below, or link to this permanent URL from your own site.