Occasionally there is an opinion piece in the papers so clear in its analysis of a problem, so convincing in its argumentation, and so authoritative in its judgment that, on finishing it, a reader is tempted to just stand up and cheer.
That's what I felt like after reading "How to Shrink the 'Too-Big-to-Fail' Banks" by Richard W. Fisher, the president of the Federal Reserve Bank of Dallas, and Harvey Rosenblum, its research director, in the Wall Street Journal the other day -- Monday, March 11, 2013.
Both of those bankers/thinkers seem well aware that there is no argument more powerful than a fact. And as old John Adams pointed out long ago, facts are stubborn things. They cannot be wished away. Here are a couple of facts Messrs. Fisher and Rosenblum point out at the very beginning of their case for downsizing the country's biggest banks:
Fact No. 1 -- A dozen mega-banks control almost 70 percent of the assets in the American banking industry.
Fact No. 2 -- These huge banks constitute only 0.2 percent of the country's banks, but because they've been deemed Too Big to Fail by the federal government, they're not subject to the same rules and regulations as the other 99.8 percent.
So much for Equal Justice Under Law, the admirable sentiment engraved atop the columns of the classical Supreme Court building in Washington -- if only for ornamental purposes.
These two facts add up to one inescapable conclusion: These favored banks, complete with their far-flung subdivisions, auxiliaries, and wholly owned subsidiaries and assorted tentacles, claws and appendages spreading out in all directions national and international, have been immunized against the usual risks in a free market -- like going broke.
The big boys' debts get an implicit government guarantee. Result: The whole American banking industry becomes dominated by a handful of banks-cum-hedge funds that operate without meaningful regulation -- and stifle competition.
The effect is to deny this critical sector of the American economy the benefits of what Joseph Schumpeter dubbed creative destruction -- the "perennial gale ... that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Schumpeter called creative destruction the essential fact about capitalism.
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