THIS MAKES A LOT OF SENSE

Instead of trying to prevent big banks from indulging in reckless speculation, it's much better to break them up. This whole article is worth reading.

Masked by Gibberish, the Risks Run Amok
By FLOYD NORRIS
Published: March 21, 2013
NY Times

I called Anat Admati, a Stanford professor and co-author of an insightful new book, “The Bankers’ New Clothes,” which advocates forcing banks to be far better capitalized than they are now, with less debt and more equity, as they were before deposit insurance was created. I asked what she thought of the Senate report. “We discover these risks when it is too late,” she said. “Next time it could be $10 billion.”

Back in 2008, when the financial system was starting to teeter, regulators assured us the banks were well capitalized. They were wrong then, and this report does not reassure us that the regulators have a much better handle on the situation now.

“My first stress test,” Ms. Admati told me, “is the test of prosecution.” She noted a recent comment by Eric H. Holder Jr., the attorney general, that some banks were so large that he feared it would “have a negative impact on the national economy, perhaps even the world economy,” if criminal charges were filed against the bank.

“If the economy cannot stand them being prosecuted,” she said, “they fail the stress test.”