Too Big To Fail Can Be Fixed

The Congress of the United States is trying to come up with regulations to deal with the problem in the financial system in America of "too big to fail." Politics makes this difficult along with the fact that there is a lack of financial literacy even in Congress.

It is very easy to understand that we don't build building 5 miles high into the sky. What additional problems would we have if we permitted such a thing to be built? Without going into them, do you think you could come up with a few? The situation with financial institutions is really quite similar, but because there is nothing to visualize, size and failure are harder to pinpoint.

Paul Volcker has it right when he says we need to go back to some form of the Glass-Steagall Act of 1933. The separation of banks and investment banking would help resolve the issue of "too big to fail." The second part, in my opinion, would be to not permit an investment banking company to issue common stock to the public. The investment bankers would have their own capital at stake and as a result would be a lot more careful in the process of committing their capital to the underwriting of new issues. There is no good reason why we can not have several smaller firms instead of these huge firms that present everyone with the problem of "too big to fail."

Maybe if the press and TV cover the story as to why Paul Volcker is not being listened to, we might get some movement in that direction. Larry Summers does not know everything about investment banking and finance, and someone needs to tell President Obama that little secret. Paul Volcker knows more about running a central banking system with investment banking separated from commercial banking, and why, than anyone in Washington. President Obama needs to know this now.

Stay tuned.