Catastrophe - Dick Morris [41]
Roubini even worries that, by forcing sales of some banks to others, we may inadvertently have created even larger zombie banks. “We started,” he says, “with banks that were too big to fail.” But when the feds arranged that series of shotgun marriages—in which J.P. Morgan took over Bear Stearns and Washington Mutual, the Bank of America bought Countrywide and then Merrill Lynch, and Wells Fargo merged with Wachovia—the resulting conglomerates were just overgrown zombies. “It doesn’t work!” Roubini insists. “You can’t take two zombie banks, put them together, and make a strong bank. It’s like having two drunks trying to keep each other standing.”133
Instead, he says, the solution is to nationalize the banks, clean up their balance sheets, and then break them up and sell them, creating “three or four regional or national banks” out of each one. Ultimately, he says, this will make the banks “stronger.”134
But that approach leaves one major factor to chance: Once Obama got his hands on the banks, would he clean them up and sell them off as the Swedes did? Or would he use them as tools to manage an increasingly socialist economy?
From the current, modest pressure the U.S. government is putting on banks—using the leverage the TARP program provides—we can see how eager it is to exercise an increasing degree of control. Right now, the liberals are lashing out at corporate bonuses, demanding greater consumer lending, and trying to influence credit policies.
In Obama’s mortgage rescue plan, for example, banks that receive TARP money are obliged to participate in the loan restructuring program the president has proposed. (More on the rescue plan in the next chapter.) And Obama used his TARP muscle to get Chrysler bond holders to accept 29 cents on the dollar. If the feds are using their TARP leverage this aggressively, imagine what they’d do if they owned the banks!
It’s easy to see the government demanding more affirmative action in bank hiring, less redlining of impoverished neighborhoods, more emphasis on minority businesses in lending, and the curtailing of lending to companies that employ foreigners or outsource or hire illegal immigrants. It’s exactly this kind of meddling that led Fannie Mae and Freddie Mac to go so disastrously wrong! Politicians, egged on by their constituents, can’t help themselves.
And once the politicians give themselves this kind of power over the banks and financial institutions of this nation, can you really imagine them giving it up that easily? Can you envision the bureaucrats who are hired to oversee the nationalized banks relinquishing their sinecures this quickly?
Forget about it. They’d have to be pried out of their cold, dead hands.
THE DAY THE DECLARATION OF INDEPENDENCE WAS REPEALED
It’s not just that Barack Obama wants to nationalize the backbone of our nation’s system of private enterprise, the financial institutions of America. He also wants to inter nationalize a power that was once considered a core element of our national sovereignty: the right to regulate these financial institutions.
At the G-20 summit in London on April 2, 2009, President Obama pledged U.S. support for a “framework of internationally agreed high standards” in the regulation of financial institutions.135 In the name of “greater consistency and systematic cooperation between countries,” he agreed to submit our regulatory organs—such as the SEC and the Federal Reserve—to oversight by a newly created international Financial Stability Board (FSB), which would “collaborate with the IMF (International Monetary Fund).”136
Here’s what the international regulators could do:
THE POWER OBAMA IS GIVING INTERNATIONAL REGULATORS OVER OUR ECONOMY
“provide early warning of macroeconomic and financial risks”
“reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudent risks
“extend regulation and oversight to all systemically important financial