Rachel Maddow Show: Matt Taibbi On Why Financial Institutions Should Be Broken Up

[media id=7672] You Tube Matt Taibbi talked to Rachel Maddow about his article at Rolling Stone The Big Takeover and what needs to be done with thes

You Tube

Matt Taibbi talked to Rachel Maddow about his article at Rolling Stone The Big Takeover and what needs to be done with these mega-financial institutions that are too "big to fail".

Maddow: You think the Obama administration should break the financial companies that are in crisis down. Stop letting them get so complex that they can't be understood and they can't be regulated. Why do you think that should happen?

Taibbi: Well first of all I'm obviously not an expert on any of this stuff but I think on this one point the logic here to me doesn't seem all that hard to follow. If these companies are too big to fail, they're too big to exist. In a capitalist society we can't have a situation where all you have to do to stay in business forever is get so big that whenever you screw up the government comes and bails you out.

That's the reason we had the trust busting and the anti-monopoly laws back in the day and I think that's the reason we have to make sure that these companies are manageable and if they are incompetent and irresponsible that we can just let them fail.

They go on to discuss how AIG after deregulation that occurred under the watchful eye of Phil Gramm in the nineties was allowed to choose its own regulator. Of course that being one that wouldn't really be capable of...actually regulating them. From the Rolling Stone article.

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

Taibbi fears that the Obama administration is not going to be a change from Bush with how this crisis is handled because of the Wall Street crowd he's chosen to take care of it. Frankly I agree with him. So far they've shown me nothing to indicate that they're not going to bow to their buddies on Wall Street. If they actually start busting these companies up I'll feel a little better about the path they're taking. I'll also be happy to be proven wrong if what they're doing works but I'm not optomistic about watching our tax dollars flow down what looks like a bottomless pit right now. A yet to be regulated pit at that.

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