If We Broke Up Standard Oil, We Can Break Up the Giant Banks → Washingtons Blog
If We Broke Up Standard Oil, We Can Break Up the Giant Banks - Washingtons Blog

Friday, April 30, 2010

If We Broke Up Standard Oil, We Can Break Up the Giant Banks

If we broke up standard oil, we can break up the giant banks.

Says who?

Senator Ted Kaufman (interviewed recently by The American Prospect's Tim Fernholz):

You and Senator Sherrod Brown have proposed an amendment that would cap the size of the largest banks and, in effect, break them up. How do you sell this to people who are leery of what seems like a radical move?

First off, we've broken up things before. We broke up Standard Oil, we broke up AT&T, we broke up the accountants, too. A lot of the changes we're talking about, the mergers, are just new. When you look at the reasons these banks are so big -- and you know how big they are -- remember the reason JP Morgan Chase is so big is because they bought Washington Mutual when it was in trouble, and Wells Fargo bought Wachovia, and Bank of America bought Merrill Lynch [during the crisis]. It is pretty straightforward, now that these are back on their feet, that it makes sense to break them up.

Alan Greenspan:

U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.

“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings”...

“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

Former chief IMF economist Simon Johnson:


  1. Anti-trust is a double-edge sword. We need to eliminate the ratings cartel (it is a legal cartel because the government limits the number of firms who can do it), and eliminate the FDIC. If banks need deposit insurance, it should be done through the free market. I doubt there's any variability in the rates, and for the last 10 years, before the big financial panic, the FDIC collected no premiums, how they're supposed to be funded, at all.

  2. Yup. All it takes is the willpower to do so, right?

  3. Sorry to be a naysayer but....

    "The breakup of the Standard Oil monolith resulted in about 37 new companies. Rockefeller still secretly controlled them all by owning a voting majority of stock in the new corporation. Thus Standard Oil would be known as Standard Oil New Jersey (Exxon), Standard Oil New York (Mobil), Standard Oil Indiana (Amoco), Standard Oil California (Chevron), Atlantic Refining (Arco) etc., etc. It was business as usual at 26 Broadway [New York City], the headquarters of the giant." - Niall Kilkenny, Rome, Rockefeller, the U.S. and Standard Oil; The Monarchy of Money

  4. "eliminate the FDIC" because runs on banks were great for the economy?

  5. If we broke up "Ma Bell" we can break up the banks. The problem lies in the fact that the central banks won't let that happen.

  6. --> We need more to know about the BIS - Bank of International Settlement in Basel!

    1. BIS is Free from any oversight
    2. All their data are inviolable at all times & in all places
    3. All persons enjoy absolute immunity from any jurisdiction (even after they quit)
    4. No claims against BIS or their deposits may be enforced without BIS prior agreement.

    Please have a look at:


  7. Even with the same majority owners, is better small companies, than biggg ones.
    And if they are small, people can buy shares (in theory). One of the events in the crise, was bigger banks


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