Bad Ideas From Vermont: Too Big to Exist

by Matthew Glans on October 13, 2010

Can a business be too important to the economy to exist? Bernie Sanders thinks so. According to The Hill, Senator Sanders, from the State of Vermont (a state that could be described as too small to exist) is planning on re-introducing a bill that would require the Treasury Department to break up any financial institutions, including banks and insurance companies whose failure would have a catastrophic effect on the economy or would require a bailout to save. Launched in response to his outrage over high bonuses paid to executives in recently rescued companies, Sanders titled his bill the “Too Big To Exist Act.”

“Sanders states that three out of the four largest banks in America (JP Morgan Chase, Bank of America and Wells Fargo) are now larger then before they received taxpayer bailout funds. The four largest banks in America have assets equal to more than 50 percent of the entire annual U.S. gross domestic product and now issue two-thirds of all credit cards, half of the mortgages, and control nearly 40 percent of all bank deposits.

Five American banks (JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley) own 95 percent of the $290 trillion in risky derivatives held at commercial banks, according to the senator.

His bill, the Too Big To Exist Act, would require the Treasury Department within one year to break up commercial banks, investment banks, hedge funds and insurance companies that have grown so large that a failure would have a catastrophic effect on the financial system or the U.S. economy without the government supplying another bailout.”

“Properly” applied, Sanders’ new law could have… interesting effects on the economy. Given the important role that banks and insurance companies have on the economy both locally and nationally, perhaps it is best that Sanders’ law outlaw ALL financial firms. No more savings accounts or insurance policies, how does a bartering economy sound to everyone?

Interestingly, Sanders’ law could harm his own home state. Vermont Mutual and National Life Insurance Company of Vermont are two large Vermont insurance companies that appear to fit his criteria, companies whose dominant role in the market could lead to market destabilization. Still sound like a good idea Bernie?

Sanders’ bill is yet another attempt by the federal government to control risk and tame the free market system. Instead of trying to eliminate bailouts, the government should decouple itself from becoming entangled in private business. Preventing fraud and corruption is a proper role for government, but deciding winners and losers in the market while arbitrarily breaking up companies is decidedly not a role for government regulators.

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  • http://robertwilson19@gmail.com Robert Wilson

    thanks for the post

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