In 2008, the Bush and Obama administrations both argued that they had a duty to transfer more than $700,000,000 of American taxpayers' money to the largest banks in the country, because these banks were "too big to fail" and allowing them to collapse would do much more harm than a mere $0.7 trillion subsidy.
But of course, that wasn't their only option. As Matt Taibbi argued persuasively in his brilliant history of the crisis and its aftermath, The Divide, a bank that is on the verge of collapse, come begging to the US government for hundreds of billions to stay afloat, is a bank that is intrinsically regulable.
If the bank needs government aid to survive, it will accept any terms that the government offers. It is over a barrel. And a perfectly obvious, legitimate demand that governments can make of banks that are "too big to fail" and that need hundreds of billions to keep them from tanking the real economy is that they get smaller. As in, "Here are the billions you need, and you'll get them just as soon as you make a binding promise to divest yourself of all those competitors you gobbled up, breaking up the giant bank that poses a systemic risk to the nation into a bunch of smaller banks whose mismanagement will not destroy the country."
Bernie Sanders has spent his whole political career warning that relaxation of financial rules would make banks too big to fail: in 1994, Sanders was the only No vote on the Riegle-Neal Interstate Banking and Branching Efficiency Act, which fired the starter pistol on financial mergers and acquisitions. Read the rest
