In a recent interview, a high ranking official in the Justice Department conceded that “some financial institutions are too large and too complex to be held accountable before the law.” (Reprint of Simon Johnson article, Bloomberg.com in, The Week, 2/15/13 pg. 34) The source claims that powerful executives and their companies get a “get-out-of-jail” pass because changing the system would have a negative effect throughout the economy.
Frankly, I find the Justice Department’s way of thinking scary. What’s more it “aint” so says, Anat Admati, co-author of a new book, The Bankers’ New Clothes. And Admati should know. She’s a professor of Finance and Economics at Stanford University. The banking business, she contends, isn’t complicated but even if it were, that doesn’t mean it should be treated differentl. In an interview with Darren Gersh of Nightly Business Report, Admati explains that banks get too big, not because size is a requirement of the global economy, but because banks have a financial incentive to do grow, largely because they are allowed to borrow at favorable rates and if they fail, the American tax payer, through the FDIC bails them out. She explains:
They can be big, maybe, but what about if they fund themselves with 30 percent equity and the not 5 percent equity. (NBR interview 2/11/13 with Darren Gersh)
Asked about the safeguards provided in the Dodd-Frank measures, Admati admits they do give regulators greater authority. The problem is federal agents, like those in the Justice Department, lack the political will to enforce them.
If she’s right, and judging from Johnson’s interview, she is, then public opinion will have to weigh in. Reading Admati’s new book may be the first step in preparing for that battle.
(Courtesy of www.squidoo.com)