Bernie's Dystopia: Part I

The Federal Reserve system may be our country’s second greatest achievement after the Northwest Ordinance.  But each of the twelve districts have their own personality.  Of all of them, and probably typical of the Nordic influence of its environs, the Minneapolis Fed is probably the most taciturn.  It is also one of the most scholarly.  Much of the information on this and following blogs is taken from their April symposium: Ending Too Big to Fail. 

While the Republicans are busy with their circular firing squad, I thought I would look at what the Democrats are offering up as an alternative to this meager repast called “election year.”  I think it is time to take a look at Bernie’s constant comment (the bromide, not the tea) about banks.   Sanders the Socialist Simpleton loves to talk about breaking up the banks.  It is a trite rallying cry dating back to Jacksonian times and always appeals to the ignorant, the jealous and those who want simple answers to complex problems.

 

First, since leaders in both the Bush and Obama administrations (polar opposites in almost every respect) have rejected the idea of breaking up the banks one has to ask why the socialist in the race should be given any serious consideration.  But let’s take a look at Bernie’s dystopian future anyway.  Chapter one will be the break-up of those nasty banks. 

But how to do that?  Well, you could cap the size of any single bank.  In that case millions of Americans would be forced to switch banks.  And who would pick who has to go and who gets to stay?  The banks would want their biggest and best to stay, but Bernie would undoubtedly tell them that they must keep as many small, overdrawn and erratic customers as good ones.  Either way, millions are still going to get the short straw and will have to go to a different, smaller, local bank.  There would be transfer fees of course, smaller ATM networks, fewer locations of branches and reduced services.  If you like to find a branch bank no matter where you travel, you may find yourself paying an “out of network” fee at the only available ATM.   But less is more, right?

Of course, you could also separate commercial banking from investment banking and insurance.  All of this breaking up is hard to do and would require constant regulation.  One look at the IRS shows how good a bureaucracy works.  Socialists love bureaucracies.  They ossify change and obfuscate responsibility.  They don’t work, but power grubbers consider them indispensable tools of mass control.  

It is popular among the great unwashed to hate success, but people are increasingly banking at large banks.  Americans have been choosing big banks for a reason.  According to the Bipartisan Policy Center, “This preference reveals that consumers perceive real value from these banks. This value may be growing as a result of technology, particularly in the Internet, mobile, and ATM network space.”  Breaking them up sounds like you are spanking the bad boys, but in fact you are interfering with consumer choice.  Or did you see those “other” guys as the ones being punished while you get to keep on with your bank unmolested by change?

We haven’t even gotten to Glass-Steagall (1930), Dodd-Frank (2010), investment banking and lots of other aspects of the problem, but we will.  I love economics.  I despise socialists.  Someone has to educate the electorate; it is for sure the candidates and the media aren’t interested in the job. 

Break up the banks or keep the faith?