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Tags: Johnson | banks | break up | Citi

Simon Johnson: Big Bank Breakups Could Become 2016 Campaign Theme

By    |   Monday, 29 December 2014 11:34 AM

The 2016 presidential candidate who most convincingly runs on a platform of breaking up the big banks could become the likely winner, according to economist Simon Johnson.

Johnson, a professor at MIT's Sloan School of Business and former chief economist at the International Monetary Fund, said that megabanks are playing with fire in pushing for ways to weaken financial regulations aimed at curbing their reckless behavior.

He noted that earlier this month, Citigroup's lobbyists successfully convinced Congress to repeal some of the 2010 Dodd-Frank financial reforms in pet provisions attached to a last-minute spending bill.

"At a stroke, Citi executives demonstrated both their continued political clout in Washington and their continued desire to take on excessive amounts of financial risk (which is what this particular legal change permits)," Johnson wrote in a column for Project Syndicate.

That same risk-taking had "catastrophic consequences" for the U.S. economy from 2007 to 2009, he said.

"As a result, breaking up Citigroup is under serious consideration as a potential campaign theme," said Johnson.

"From the perspective of anyone seeking the nomination of either of America's political parties, here is an issue that cuts across partisan lines."

Johnson pointed out that Sen. Elizabeth Warren, D-Mass., capitalized on the Dodd-Frank assault with a well-received speech blasting the big banks, but that Republicans like Sen. David Vitter, R-La., and Sheila Bair, former chair of the FDIC, are also on board against the clout of big banks like Citi, Bank of America, JPMorgan Chase and Goldman Sachs.

"From the left, the emphasis has been on the megabanks' abuse of power and the great rip-off of the middle class. From the right, the stress is on the hazards of crony capitalism, owing to the massive implicit government subsidies that these banks receive," he noted.

"But both left and right agree on the fundamental asymmetry that the recent 'Citigroup Amendment' implies: Bankers get rich whether they win or lose, because the U.S. taxpayer foots the bill when their risky bets fail," Johnson wrote.

In Johnson's view favoritism — if not outright corruption — now defines the relationship between Washington and Wall Street in the minds of many Americans.

"'Break up Citigroup, end dangerous government subsidies, and bring back the market.' The U.S. presidential candidate who says this in 2016 — and says it most convincingly — has a good chance of winning it all," he predicted.

The New York Times Editorial Board suggested the Federal Reserve is another institution that bends when it comes to giving advantages to the megabanks.

"The challenge for the Fed is to hold rates low without inflating bubbles. The way to do so is to control speculation through stepped-up regulation of banks and other financial institutions.

Instead, the Fed has been inclined to ease up on regulation," the Board noted.

According to economist Peter Morici, Democrats want to break up big banks while saddling the nation with even more government regulations.

"The GOP should take a page from Republican Teddy Roosevelt — become trust busters. Advocate breaking up the big health insurance, drug and cable companies — and the worst offenders, Wall Street's banks — to reinvigorate growth and make essentials such as healthcare affordable again," Morici wrote in a guest column for Fox News.

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The 2016 presidential candidate who most convincingly runs on a platform of breaking up the big banks could become the likely winner, according to economist Simon Johnson.
Johnson, banks, break up, Citi
Monday, 29 December 2014 11:34 AM
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