"I think the disagreeable but sound thing to do regarding institutions that are TBTF (ed. note. Too Big To Fail) is to dismantle them over time into institutions that can be prudently managed and regulated across borders," he said. "And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis."
Adam Smith would roll over in his grave to understand how perverted his elegant economic system, for all its initial flaws, has become, corrupted by the aggregation of money, power, and influence. He intended for small businesses to compete against each other to provide goods and services to consumers.
Indeed, our Founding Fathers had a great and long debate about even opening up a national bank which would serve as a 800 lb gorilla in the banking system to provide leverage against large business combinations attempting to wrest control of the national money supply. Inevitably, businesses of all sizes fail. It's just a question of time.
If a major multinational bank fails, it doesn't just hurt its employees and shareholders as we've seen. It threatens the entire nation, from its financial security right down to its physical security.
And that's not good.
"Too Big To Fail" is, quite simply, too big. Full stop.
We've discussed on this blog the marvels of distributed power generation. Money is power. Banks should be hacked down to manageable sizes that service the communities they are located in, with no direct entanglements in regions where they have no business being in, and I don't just mean geographic. I mean economic sectors, business sectors, even political sectors.
Will this harm the banking system? I don't think so. I think the system will evolve, perhaps parent corporations that can hold smaller banks under an umbrella, with governmental oversight to make sure there isn't as much crossover as there is now will be established.
One thing is certain: the banking system we have now is on the road to yet another collapse. Businesses fail. Industries fail. Banking will fail again unless we address the inherent flaws immediately.