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Special on the future of the banking industry on which generally -- probably -- and he really comes down to this phrase we hear so much right too big to fail.
Our banks too big to fail should something be done about it going -- And a lot of different ideas on that and we bid to hear about as you mentioned really -- the most over the last year right we're nearing this anniversary of this period where.
We wonder how far I've become really new -- -- we are going to cover a lot of ground stable and talked a few different economists including a seven Johnson and James Galbraith.
-- talked to use some people -- -- money at work as well find out what they're thinking.
And what they're seeing them both on Wall Street and -- -- -- Washington but what is -- -- here first.
We're gonna welcome Mindy -- -- I've rocked -- securities she's joining us from my Florida.
It -- to talk a little bit about.
What's going on here and what his thoughts are said Dick first of -- how would you define it this time at least too big to fail.
By soon from the standpoint the United States government to -- to fail -- any bank that could in fact.
Draw upon the F taxpayers' resources.
To keep it in business in other words wherever bank when it got into difficulty.
You know required the use of taxpayer funds.
The government is concerned about it and there are those banks.
That are so big at the present time that they will from time to time require assistance from the government.
Are you know it's interesting.
Dick in a lot of ways because we're gonna have guests on -- said throughout the hour.
Some of whom say hey we gotta do something about this -- we head into the end of 2009 to -- 2010.
Regulatory wise we're in terms regularly say we can't have this we can't have banks that are too big to fail.
It just doesn't work is what got us into this mess is all could happen again.
Now I know you are talking about it and you disagree why do you think it's okay to have banks that are essentially too big to fell.
Well let's let's take a look at it from two perspectives number one let's take a look at it from a domestic perspective you know about.
Twenty years ago we had 101000 to more banks in the United States that we have at the present time -- 181000 banks in the United States.
And now they're about 8100 so we've lost 101000 banks.
The reason that we lost those 101000 banks is because they weren't economically viable in other words the program the business model that they were executing.
Was obsolete and it didn't work any longer.
As a result of that within the United States we've seen you know the four biggest banks now having 54%.
Of the assets of the American banking system.
-- if you take all the banks about twenty billion in size.
They've got about 74%.
Of the assets of the American banking system.
So from an economic standpoint it is clear that we've moved to its big banks because they work best book the purchases of this services.
Take a look at it from another standpoint at the present time everybody's -- deeply concerned about the number of banks.
That the FDIC will put out of business okay who's going to pay for that.
Well it's not the FDIC.
The FDIC charges.
That deposit premium and that deposit premium is paid by the biggest banks in the main.
And that deposit premium will pay for the banks are being put out of business so the big banks have in fact assisted.
You know if you will this solutions of getting rid of these weak banks take a look at -- -- -- nationally.
It's -- nationally the United States is dropping rapidly as -- financial power.
I do believe that five years from now there will be multiple reserve currencies in the world.
Because you've got Britain you've -- I'm sorry you've got Russia.
You've got China you've got France and Japan Brazil.
All of whom believe that they should be a currency -- created in the Far East and they have more money than we do.
So therefore they can create a reserve currency.
-- will compete with the dollar we -- -- a tremendous competition to maintain our position worldwide in the financial sector.
And instead of doing what these other countries are doing which is supporting their big banks.
And there are a lot of big banks out there.
We're trying to kill our big banks it makes no sense whatsoever.
-- -- -- On that you know you mention some really provocative reasons about why the model it's too big to fail is actually the one that exists right now if we want except that term that definition which is about Lebanese loosely in the -- But it does mean -- reasons that you -- are precisely the same reasons that -- say this is why this model.
Should not exist is because it makes -- system to vulnerable not only are these banks these these very very large institutions.
Really stringing together or.
That the platform which the US economy stands they're also really important for the world economy still one fails then -- only.
All of us are at a huge amount of risk what's your response to that.
Well you know basically speaking that's always been true in other words there are guys like Charles -- -- who is now.
Passed away who has a Nobel prize -- you wrote a book pro.
-- -- panics and crashes.
And what he did in that book was he showed what happened if financial crisis and he he he -- -- over 200 of them going back to 16100.
Financial -- is our normal part of capitalism they always occurred they always will occur.
And therefore in financial collapses you'll be demands on governments to assist the financial system in order to stay.
Healthy if we choose to walk away from that -- become.
A third rate financial power and we could be the next Austria Hungary US Spain or France of written.
All of whom had banks too big to fail in -- period when they controlled the world.
Financial system we can be one of those countries if we choose.
But if we choose to compete financially we're going to have to have banks which are too big to fail we're gonna have to have periods in which the government will have to assist.
The banking industry.
Or we can simply take that the time.
-- to China and walk away and say hey you've got the game will now a minor -- we are now minor power you run with a.
Okay you're making some key points here -- that a lot of people quite frankly are afraid to say in other words people that.
Follow the industry or or are people that analyze -- don't come out and say what you just said in -- -- to be the most competitive country in the world.
We need to have this and even if they -- London essentially almost drag everybody down along with them.
That we've got to bail them out again that's those are tough words for people to hear politically aren't they because they bring up things like moral hazard and -- Hit list of why are we allowing this to happen again.
I don't know that your plan would -- sell in this political environment that nothing would get done and we could have this.
Repeat itself in the short term we think.
Well like I think you're right I think that basically what everything is very palatable with the fact that is it's reality.
You know like I can't in and you can't and we can't change capitalism it is what it is.
And capitalism go through periods of great expansion content and significant contraction.
Can you can't stop that and if he can't stop that you're gonna have this it's salvage the financial system.
From time to time fortunately.
It only happens in this country want to -- once in a generation but when it happens it's it's painful and congress if it chooses.
To have the United States compete worldwide he's gonna have to do it did 1991.
And 1991 than President Bush.
Asked Treasury Secretary Nicholas Brady.
To explain what had happened to the American banking system can win the American banking system should go right mr.
Brady came back with a 500 page report saying.
You know we don't have enough big banks and -- big banks two small.
And therefore we cannot support the growth of the American economy worldwide.
There you -- That's an honest defense bank to dwell on now -- know Dick -- is not gonna be running for office right debt heavy handed -- getting -- -- -- -- wanna get from your specific content some specific things that before we do that.
Want to bring in James Roberts he's an economist of course renowned economist -- a professor.
At the university of -- at Texas.
And and -- they've been listening all along to Dick's point that he made it is capitalist than the system overall is that really what.
Created this too big to fail model is that the blame.
Well -- that report records the personal Shirley Temple -- it was a great and great economist ticket actually went.
China I've been an advisor to the government of China it simply is not the China Chinese banks are publicly owned institutions.
They are not really comparable to American -- and they certainly not close.
To be major players let alone taking over -- global.
OK so we should not -- written policy decisions based upon the alleged Chinese aren't that stimulus -- the third point -- I'm an economist and -- an -- but economists -- -- -- to a decrease in competition.
And the problem with concentrating the banking system so much that you put forth by the -- -- -- the industry.
Is that they do no longer compete effectively with each other and put up competition they're not providing the right kinds of services to the public.
-- where this is where the show gets fun let me bring it back a little bit let's have a honestly not a screaming match for the discussion about this that he disagrees with you -- and James brings up.
You know a legitimate point there that it wouldn't be competitive if you -- and the system of just making it the big guys that control everything what's the response to that point in particular.
OK like I think that the competition is in fact getting more and more intense and -- -- if we take the banks around the world we've got to three Chinese banks the right you know.
The industrial commercial bank of China -- China construction bank you know the bank of China we've got -- CIA CIA in India we've got.
Thank you so you know -- in Brazil we have.
-- VA and debacle sometime there in Spain we've got.
You know UBS in Switzerland we've got HSBC.
In our Great Britain these banks are all growing they all have the support of the government's.
In even though many of them can't compete head to head with we'll -- -- Goldman Sachs are already Bank of America today they will be able to do so.
Because remember -- you know back in 1990.
For every dollar and I'm valuing -- behind -- -- -- now.
For everybody for every dollar that we had in reserves in the United States Federal Reserve the Chinese had a nickel.
Now they've got four dollars and 65 cents for every dollar that we have.
They've got two trillion dollars in reserves you know when they -- when they enter the World Trade Organization.
There was a requirement for them to let.
Other financial companies operate within China what we did was we took these banks that -- disastrous condition.
And we turned them into very strong public companies that are now doing the biggest IPOs in the world.
OK so much compete I am bit -- -- -- -- -- -- response that in just a second the real quick here deacons were going to be short on time.
I've -- big banks the ones that -- would consider too big to fail.
Who is the healthiest and who is maybe not quite as happy.
Well I think -- JPMorgan is certainly one of the healthiest banks and the United States and and I would argue and I know it's over to a lot of discussion.
That both -- court.
That portion of Citigroup which is gonna continue.
And Bank of America a very strong American banks in the you know these banks are going to be very effective.
In generating profits and -- competitive advantages for us in the world for the next few decades that Morgan Stanley.
Morgan Stanley I would consider to be an investment bank which should be different.
From traditional or universal bank I don't particularly like the way they managed I think Goldman Sachs is one of the best managed banks in the Indian in the world.
You're not there you go aren't ideal I think we're gonna say goodbye -- -- that's a great discussion by the way Dick -- is one of the noted.
Analysts on Wall Street the -- with the banking sector thanks again for coming on is always.
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