Michael Hudson — Too Big To Jail?

Video and transcript of Paul Jay interviewing Michael.

The idea by the Progressive Era in the early 20th century was that instead of banking being predatory as it had been for thousands of years, instead lending against real estate or to governments for war loans – or for petty consumer usury, foreclosing and putting people in debtors’ prisons – for the first time in history banks were going to make loans to finance direct investment in new means of production. The aim was to mobilize banking and savings to expand industry, to build factories and equipment that weren’t already there.

This is how Germany rose rapidly to industrial power with the Reichsbank, along with the rest of central Europe. Leading up to World War I, German banks worked with the German government almost as semi public entities – along with the military-industrial complex, to be sure. But at least you had banking taking industrial form.

World War I changed everything. You had a reversion to the English-Dutch-American kind of banking that was called merchant banking. Banks would make loans to ship goods that are already produced, or they’d make loans against real estate. So today you have 80 percent of bank loans in America and England and Scandinavia are all loans for real estate. So, essentially the function of the financial sector has been simply to load down the economy with debt without helping the economy grow.

What you really want is for banks, instead of loading the economy down with debt, to be able to finance economic growth instead of just eating into growth as an overhead.

Michael Hudson
Too Big To Jail?

John Carney — Boston Fed President: Banks May Not Have Enough Crisis Capital

John analyzes capital requirements. More about bank funding.

CNBC NetNet

Boston Fed President: Banks May Not Have Enough Crisis Capital

John Carney | Senior Editor

Yves Smith — The FDIC Continues to Promote the Fantasy That It Can Resolve Megabanks

This all sounds wonderfully tidy and neat, right? Problem is it won’t work.

The rather large fly in the ointment is that counteryparties would be concerned that putting the holding company into what Satyajit Das calls “a strange hypnotized state” would trigger cross defaults across agreements, including derivative agreements, where the holding company had guaranteed a contract.

Read it at Naked Capitalism
The FDIC Continues to Promote the Fantasy That It Can Resolve Megabanks
by Yves Smith

The short version: We're screwed. The swamp monsters (systematically dangerous institutions aka SDIs) can't be killed by any ordinary means. They really are too big to fail and also too big to exist. Rock meet hard place.