The American people have frequently been called upon to bail out big companies in the financial sector, despite the record profits these companies have posted before and after such bail-outs. That has to stop, and the way to get there is to recognize that a number of regulations once in place were put there in order to prevent the sort of risky behavior that makes intervention necessary. The first step is to enact a 21st-century version of the Glass-Steagal act, separating investment banking, commercial banking, and savings & loans. Wall Street should not be gambling with the money of ordinary people; this was a lesson of the Great Depression, and forgetting that lesson is what brought about the 2008 recession. Those who refuse the lessons of history will continue to repeat its mistakes, and the Clinton administration’s decision to repeal Glass-Steagal was a historic mistake that must be undone.
In addition, one of the major factors driving the need for bail-outs is the fantastic size of many financial corporations, and their inability to keep enough liquid assets handy to accommodate major failures. Simply put, if a bank is “too big to fail”, then it is too big to exist. Removing the barriers to major mergers is another mistake we must undo. And along the way we should summon the trust-busting ghost of Teddy Roosevelt and break up the largest banks and insurers. This will leave corporations small enough that existing rules on liquidity would allow them to weather the normal downturns of the market on their own, without needing the middle class to dip into their own wallets to subsidize Wall Street. It is time for the financial sector to stand on its own two feet, and not on the backs of the taxpayer.
Photo by Carlos Delgado; CC-BY-SA