Bust the financial trusts

One year ago, the biggest institutions — Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and PNC — controlled 30 percent of the deposits in the country, according to Fortune magazine. They have tightened their grip in the year since the bailout.  According to James Surowiecki, writing in The New Yorker, “Thanks primarily to a series of government-sanctioned mergers, they now control almost forty percent of the country’s total banking deposits and two-thirds of its credit cards, and issue half of all mortgages.”

In our region, PNC has achieved virtual control power over pricing in western Pennsylvania and eastern Ohio, having gobbled up Cleveland-based National City Corp.  PNC’s vice chairman, Bill Demchak, while working for JPMorgan Chase, led the team that invented the credit derivative. Now his bank is on the prowl.

The giant firms have already shown us they are impervious to regulation. They exploit loopholes almost before Washington has created them.

The FBI told America in 2004 that fraud was rampant in the mortgage sector. Fraud takes many forms, including control fraud. That is why I have introduced legislation, H.R. 3995, which would authorize the use of funds for the FBI to muscle up with 1,000 additional agents who would be assigned to mortgage, corporate and securities fraud investigations. We need 1,000 agents, not a few hundred, to untangle what might well be the largest financial swindle in U.S. history.

“Too big to fail” is by definition inimical to the competition upon which genuine capitalism depends. The biggest institutions are gobbling up our money and then killing off their smaller competitors. Congress and the administration are just letting them get away with it.

The number of banks in America has shrunk from 14,000 20 years ago to approximately 8,000 now. Rather than address this by breaking up the biggest banks so that none is “too big to fail,” many in Washington dance around the fantasy of better regulation only. If you believe that will work, then you haven’t been paying attention to the power relationships on the playing field of finance.

Authoritative voices are supporting fundamental reforms in the wake of the failure of deregulation. Mervyn King, the governor of the Bank of England, notes that the Wall Street bailout has effectively created “the biggest moral hazard in history” and supports breaking up the megabanks. Gov. King is not a populist, either; he’s a member of the Group of Thirty! He also understands the threat that megabanks pose to our economic system.

Paul Volcker, former chairman of the Federal Reserve, advocates restoration of the Glass-Steagall Act that forced a separation between commercial banking and investment banking.

While Congress focuses on a side issue — executive compensation — the giant banks are growing larger by the day. They are being less accountable and less susceptible to effective regulations. They have almost untrammeled power to socialize their losses (last year) and privatize their profits (this year).

As many have said, including Gov. King, the giant banks are too big and too unaccountable. New rule: Any institution that is too big to fail is actually too big to exist.

The culture of greed and excess must be renounced if America is to survive this terrible meltdown. The big banks should be taken into receivership, their books resolved, and their burden taken off the rest of us. Our financial system and economy can be restructured by recognizing the good actors in it.

Nothing else should be acceptable to the president, the Congress, and this country. It is long past time to stop the billion-dollar bonuses and restore finance at the community level across our country. It is time to end the seize-up of credit due to the abuses by the biggest banks in our country.

Kaptur is the senior Democratic woman on the House Appropriations Committee.