Some of the fixes for the banks are within the general overall fixes that are needed for the economy and corporations. For instance, in the early 1980s when Ronald Reagan championed lowering personal earned income tax rates to a level below that of corporate taxes, it made it possible for corporate owners and executives to remove large amounts of money from the corporations and pass it through to themselves without a tax penalty.
Prior to Reagan's tax cuts, the person paying themselves $25MM would have had to pay 70 percent of everything above $215,000 in taxes to the US government. This dramatic change fueled the record transfer of wealth upward. It enabled CEOs to eliminate jobs and salaries by various means and pass the resultant profits to themselves in salary and avoid the 70 percent tax penalty. Previously they had to circumvent this tax penalty by investing for long-term capital gains which was good for the general welfare.
A flood of mergers and acquisitions that followed consolidated markets, money and power under a select few CEOs who became more and more powerful. This consolidated power could support political candidates and lobbying in order to keep the revolving door between private business and government moving. Offshore shadow banks filled quickly with money that was outside of the boundary of the US legal reach. The banks were consolidated with the other corporations leaving us with five large banks controlling the majority of the US banking market.
"Too big to fail" does not highlight the fact that these giant banks exert a monopoly over the US economy. A successful entrepreneur who builds a better mouse trap needs increased capital to keep up with growth in market demand for his product. Before he could have contacted savings banks, commercial banks, finance companies and insurance companies for loans, or investment banks for investment and possible public financing. Now all of these sources have been combined under one management in a giant bank.
This entrepreneur and the millions of others like him are at the mercy of a handful of banks who may decide not to engage in this type of business because they can make risky loans at usury rates with high fees by using derivatives under the current system. A small group of CEOs and stockholders can control the economy in a very practical sense. They have too much power and by their actions have shown that they are not working for the greater good. These few facts highlight that someone has a plan and it is not Congress. Slowly corporations have been consolidating and increasing their power with respect to the government and corporately funded think tanks and lobbying have been replacing the voice of the people.
Congress should act forcefully to prevent this creeping corporatism by breaking up the banks. The functional parts of the banks should be separated and pitted against one another as profit entities, because currently they limit competition and increase risk to the public. They should ban banks from being able to hold derivative CDOs as assets in exchange for dollars, because dollars and derivative assets are not an equality. The government of 300 million taxpayers is the payer of last resort to uphold the trust that guarantees the dollar. The con is that derivative CDOs equal dollars. It is what enabled our numerous assets to be disappeared.
William J. Hague
Nov 16 2009 - 4:01pm