Whatever the final form of federal financial services reform legislation, one thing is now certain: The biggest of the big banks will still be calling the shots.
That was confirmed Thursday evening, when the Senate by a 61-33 vote rejected a move to eliminate the danger posed to both the federal treasury and the U.S. economy by “too-big-to-fail” banks.
Democratic Senators Sherrod Brown of Ohio and Ted Kaufman of Delaware had proposed an amendment to limit the size of the nation’s largest banks as a means of reining in the financial sector.
They lost. And so too did the prospect that the federal government might establish meaningful control of the banking sector.
What does the defeat mean? The "financial oligarchy," as economist Simon Johnson described the big banks, will remain in place. And, to further quote Johnson, the federal government will remain "helpless, or unwilling, to act against them."
“The (financial-services reform) bill put forward by Senator Christopher J. Dodd, the chairman of the Banking Committee, has some sensible proposals — and is definitely not an approach that supports “bailouts” — but it does not really confront the problem of the half-dozen megabanks,” argues Johnson. “In the American political system — where the power of major banks is now so manifest — there is no way to significantly reduce the risks posed by these banks unless they are broken up.”
Johnson was a leading advocate for the Brown-Kaufman amendment, which would have broken up banking firms such as Goldman Sachs, Morgan Stanley, Bank of America, JPMorgan Chase and Citigroup that, because of their size, are characterized as “too-big-to-fail.” When a bank is so categorized, it is in a position to demand federal bailouts if it gets in financial trouble, since the failure of just one of these banks could bring down the entire banking system and wreck the real economy – perhaps striking an even bigger blow than the financial meltdown of September, 2008.
Of course, the Senate has backed window-dressing amendments that are designed to foster the fantasy that protections have been establisged to avoid additional bailouts. But the only way to guarantee that there will be no more bailouts is to break up the big banks.