Treasury Secretary nominee Jack Lew made a stunning and fantastic claim at his confirmation hearing, namely that the Too Big To Fail or systemic risk threat from the mega banks no longer existed. That the problem had been solved by the Dodd-Frank legislation.
You may not have heard this utterly amazing news. Neither has anyone else. But according to the man now poised to be in charge of monitoring our country’s finances and the stability of the financial markets “nothing to see here.” All is well.
Senator Sherrod Brown: It really is federal policy that subsidizes these megabanks by the implicit Too Big To Fail policy. But we can debate that later.
Jack Lew: That’s why Senator I mentioned the responsibility fee, we think that Dodd-Frank dealt with Too Big To Fail and on top of that we think there should be a fee on large money-center banks to approximate the risk they presented in the past.
For those that have been paying attention and are not in the beltway bubble this statement almost qualifies as performance art. Is Lew lying or just – no he’s lying. Too Big To Fail has not only not been solved it is actually worse now than before the crisis as the megbanks have gotten bigger.
As recently as last month establishment figures have called for breaking up the Too Big To Fail Banks.
It is a prevailing myth in Washington: big bailouts are over for good. Never again, the line goes, could giant financial institutions imperil the nation’s economy.
This is nonsense, of course. Whatever regulators and lawmakers say, the Dodd-Frank financial overhaul lacks any guarantee that taxpayers won’t have to come to the rescue again.
So it was refreshing to hear a Federal Reserve System official debunk the bailouts-are-gone theory last week.
The official was Richard W. Fisher, the president of the Federal Reserve Bank of Dallas and a longstanding truth-teller about too-big-to-fail banks. On Wednesday, in a speech in Washington, Mr. Fisher laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.
To be fair to many of the politicians in Washington they are not saying the megabanks do not pose systemic risk, they are affirming their commitment to not authorize another bailout. Lew is saying something quite different – that the problem is solved, go back to sleep.
It was hard to imagine anyone more dangerous for the middle class in Treasury than Tim Geithner, not anymore.