The 1930′s Forgotten Economic Lessons

The 1930′s Forgotten Economic Lessons

'Too big to fail' and getting bigger | Bloomberg

'Too big to fail' and getting bigger | StarTribune.com

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'Too big to fail' and getting bigger

• Article by: DAVID J. LYNCH , Bloomberg News 
• Updated: April 16, 2012 - 9:36 PM

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BigTwo years after President Obama vowed to eliminate the danger of financial institutions becoming "too big to fail," the nation's largest banks are bigger than they were before the nation's credit markets seized up and required unprecedented bailouts by the government.

Five banks -- J.P. Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks' assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008 with the Fed-assisted rescue of Bear Stearns Cos. by J.P. Morgan and with Citigroup and Bank of America after the Lehman Brothers bankruptcy, the largest in U.S. history.

"Market participants believe that nothing has changed, that too-big-to-fail is fully intact," said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

Eroding faith

That specter is eroding faith in Obama's pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis. Since then, J.P. Morgan, Goldman Sachs and Wells Fargo have continued to grow internally and through acquisitions from European banks, reeling from government austerity measures related to the rising cost of public debt in Greece, Spain, Portugal, Ireland and Italy.

The industry's evolution defies the president's January 2010 call to "prevent the further consolidation of our financial system."

Simon Johnson, a former chief economist of the International Monetary Fund, blames a "lack of leadership at Treasury and the White House" for the failure to fulfill that promise. "It'd be safer to break them up," he said.

The Obama administration rejects the criticism, citing new safeguards to head off further turmoil in the banking system. Treasury Secretary Timothy Geithner said in remarks on Feb. 2 the U.S. financial system is "significantly stronger than it was before the crisis." He credits new regulations, including tougher capital and liquidity requirements that limit risk-taking by the biggest banks, authority to take over failing big institutions and prohibitions on the largest banks acquiring competitors.

The government's financial system rescue, beginning with the 2008 Troubled Asset Relief Program, angered millions of taxpayers and helped give rise to the Tea Party movement. Banks and bailouts remain unpopular: By a margin of 52 percent to 39 percent, respondents in a February Pew Research Center poll called the bailouts "wrong" and 68 percent said banks have a mostly negative impact on the country.

Riding out turbulence

The banks say they have increased their capital backstops in response to regulators' demands, making them better able to ride out unexpected turbulence. J.P. Morgan, whose chief executive officer, Jamie Dimon, acknowledged public "hostility" toward bankers in a March 30 letter to shareholders, boasted April 13 of a "fortress balance sheet." Bank of America, which was about 50 percent larger at the end of 2011 than five years earlier, says it has boosted capital and liquidity while increasing to 29 months the amount of time the bank could operate without external funding.

Today's 6,291 commercial banks are less than half the number that existed in 1984, according to the Federal Deposit Insurance Corp. The trend intensified during the crisis as J.P. Morgan acquired Bear Stearns and Washington Mutual, Bank of America bought Merrill Lynch and Wells Fargo took over Wachovia in deals encouraged by the government.

"One of the bad outcomes, the adverse outcomes of the crisis, was the mergers that were of necessity undertaken when large banks were at risk," said Donald Kohn, vice chairman of the Federal Reserve from 2006 to 2010. "Some of the biggest banks got a lot bigger and the market got more concentrated."

In recent weeks, at least four current Fed presidents --Esther George of Kansas City, Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Richard Fisher of Dallas -- have voiced similar worries about the risk of a renewed crisis. Five" banks now hold assets equal to 56 percent of the U.S. economy.

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OpEdNews - Article: Is Fukushima's Doomsday Machine About to Blow?

OpEdNews - Article: Is Fukushima's Doomsday Machine About to Blow?

opednews.com

Mounting troubles at Japan's hobbled Fukushima Dai-Ichi nuclear power plant now pose a real threat to human survival. If the area in which Unit 4 is struck by another 7.0 magnitude earthquake, there's a 70 percent chance that "the entire fuel pool structure will collapse" and massive doses of lethal nuclear radiation will be released into the atmosphere. The disaster would release approximately "134 million curies is Cesium-137 -- roughly 85 times the amount of Cs-137 released at Chernobyl as estimated by the U.S. National Council on Radiation Protection (NCRP)." Experts believe that the amounts are sufficient to "destroy the world environment and our civilization," which makes containment "an issue of human survival." ("The Greatest Single Threat to Humanity: Fuel Pool Number 4," Washington's blog)

The structural integrity of Unit 4's cooling pool was greatly compromised by the earthquake and following tsunami which struck the facility over a year ago. At present, the pools are not adequately protected or reinforced, which means that a sizable tremor could "cause a disaster worse than the three reactor meltdowns." If such a disaster were to occur, "people should get out of Japan, and residents of the West Coast of America and Canada should shut all of their windows and stay inside," says nuclear expert Arnie Gundersen.

While the danger to life and the environment pose the greatest single national security threat the United States has faced since WW2, the Obama administration has provided little aid to the emergency effort. Japan is largely "going it alone" trying to cobble together a plan to safely store the spent fuel and minimize the risks to public safety.

On March 8, 2012, Dr. Hiroaki Koide, Research Associate at the Research Reactor Institute of Kyoto University, gave his bleak assessment of the situation on the Japanese a news program called, "Morning Bird." Koide explained how 1,500 rods are presently located in a "fuel pool" that has been severely damaged. The rods have to be cooled constantly or a "huge amount of radiation contained in the spent fuel will be released outside." If an earthquake hits and undermines the pool, the coolant will exit the pool, the rods will melt and radioactive plumes will rise into the atmosphere. Koide explained that the rods could not be safely removed from the existing pool because "if you hoist them up in the air, huge amounts of radiation will come out from the spent fuel and people nearby will die."

One of the journalists on "Morning Bird" asked Koide what would happen if the Unit was struck by another earthquake?

Koide answered, "That will be the end."

"The end?" the journalist asked, visibly shaken.

"The end," Koide repeated emphatically. ("Fukushima Dai-Ichi No. 4: An earthquake before spent fuel rods are moved to safe storage would be "the end," Lambert Strether, Naked Capitalism)

Now, check this out:

"Japan's former Ambassador to Switzerland, Mr. Mitsuhei Murata... strongly stated that if the crippled building of reactor unit 4 -- with 1,535 fuel rods in the spent fuel pool 100 feet (30 meters) above the ground -- collapses, not only will it cause a shutdown of all six reactors but it will also affect the common spent fuel pool containing 6,375 fuel rods, located some 50 meters from reactor 4. In both cases the radioactive rods are not protected by a containment vessel; dangerously, they are open to the air. This would certainly cause a global catastrophe like we have never before experienced. ... Such a catastrophe would affect us all for centuries." ("Fukushima Daiichi Site: Cesium-137 is 85 times greater than at Chernobyl Accident," akiomatsumura.com)

Murata's concerns have been brought to the attention of the UN Secretary General Ban Ki-moon, to high-ranking officials in the Obama administration and EU, and to leaders around the world. The reaction has basically been the same everywhere, which is, "It's Japan's problem. Let them deal with it."

There is no way to overstate the media's complicity in concealing critical information about the tragedy that is presently unfolding at Fukushima. If there is another earthquake, the media will certainly be every bit as responsible as the government officials who saw the danger, but chose to do nothing.