What is the basis for major policy decisions in the United States? Is it years of careful study, using the concentration of knowledge and expertise for which this country is known and respected around the world? Or is it some unfounded assertions, backed by no data at all?
At least in terms of the White House policy towards megabanks, it is currently “no discussion of data or facts, please”.
Speaking on the Lehrer NewsHour last week, Larry Summers said, with regard to the Brown-Kaufman SAFE banking act – which would restrict the size of our largest banks (putting them back to where they were a decade or so ago):
“Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States.”
“But that’s not the important issue, they believe that it would actually make us less stable. Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn’t have profits in one area to turn to when a different area got in trouble.
“And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.”
I’ve looked into these claims carefully and really cannot find any hard evidence supporting Summers’s position – and therefore US policy. To be sure, there have been assertions made along these lines by a few people.
But can the White House point to any published material or even publicly available analysis or data that is relevant to the questions at hand? How about work that has been presented to critical audiences, preferably with the entire discussion on the public record. I would be happy to be corrected on this – call me – but I can find nothing.
This is not about jumping through any kind of academic hoops – it is simply a question of whether this critical aspect of our public life is post-Enlightenment (i.e., we worry about the evidence) or stuck at the level of unfounded medieval assertion.
On the other side of the argument, I would submit the evidence reviewed in our book 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown, which – among other things – surveys the available literature, from both academics and practitioners. Read it for yourself – we wrote it for this moment and this issue. (Or ignore the book if you prefer; this would put you in good company at the top rungs of our society.)
“Most observers” agree with 13 Bankers on the need to reign in (and constrain the size of) our largest banks. We’ve presented this book and its findings to top lawyers, finance people, both more academic and completely practitioner. We’ve talked about it at length on Capitol Hill and with very experienced people who work or have worked throughout the financial system. We have also argued in detail with anyone who is close to the big banks – although, unfortunately, top executives and their representatives will not come out to debate in the open. The experts are overwhelmingly on board – except for those who work for the big banks.
I would not have a problem with the administration’s top officials saying, “we can’t take on the biggest banks because (a) they are too powerful in general, and (b) they would cut us off from the campaign contributions that we need for November.” This would at least be honest – and then we could discuss whether it makes sense as political tactics.
And if the most senior and experienced economic policymakers in the land wish to make their own assertions, unencumbered by the facts, then you can take a view regarding whether or not they have earned the right to be taken seriously. (By the way, “most observers” think we are very fair to Larry Summers in 13 Bankers; a significant minority think we are overly generous.)
But for the White House to make inaccurate claims regarding the views of “most observers” is the most obvious and cheapest sham.
Come out and have the discussion on its merits in public. Or just cut off debate in the Senate, through some sleazy backroom deal, and face the consequences.
Originally published at The Baseline Scenario and reproduced here with the author’s permission.
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