There has been some invented talk over at CNBC about the virtue of breaking up the big banks. Naturally this would make the left leaning press happy, and it might even make a few regulators and politicians happy as well. But it won't make customers happy. Costs for consumers dropped appreciably when the banks were allowed to grow, and undoing that growth would undo much of the savings which actually came from structural efficiency.
This talk was more or less started by opportunistic tool, Sandy Weill. The man all but invented the form of the modern investment bank, cashed out at the top, and has only recently come back - I guess - so he can profit again from undoing what he originally designed. This isn't just a case of someone learning from their mistake and deciding to fix it. For Sandy Weill of all people to make this argument, it means overturning his entire philosophical applecart. A better way to think of it is that if he couldn't be trusted the last time he gave a bunch of justifications for a business decision, then you really shouldn't trust him now.
Dick Kovacevich from Wells Fargo has been telling tales too. I heard him claim today that the consumer business of banks, that is... lending, is not risky at all. This is a patently ridiculous statement. In fact lending is one of the most risky businesses banks engage in. And what made it even more risky during the financial crisis was that the banks were being ordered to make loans that were unlikely to be paid back, to meet some political agenda for a left leaning congress. Now maybe you don't call being forced to write 'throwaway loans' to non-qualifying candidates in order to keep ACORN from holding a protest and calling you a racist "RISKY", but I do.
The modern investment bank may not be a model of ethical business practices, or a monument to the free market system. but it's problems certainly don't come from a lack of government involvement. It's the most heavily regulated industry in the country. And if you think the regs and mandates of the past made it screw things up, (and I certainly did) then just wait till you see what comes down the pipe after Dodd-Frank.
No one really knows what Dodd-Frank is, because it isn't really anything except a political position. It's the view that whatever it is the banks are doing, it better have some government accountability embedded in it, and if the regulators don't like what they see, then they should be able to penalize, prohibit or mandate whatever it is that they don't like about it. The details have been left vague to provide the maximum flexibility toward that end.
Like Frith has been saying, we need to change the focus here. We need to start thinking of ways to get the government out of business and turn those businesses on each other. That's how you make things better. If the banks decide they'd like to split off a business unit for competitive reasons, then everyone should cheer. If they decide not to, then they should still cheer. It should be entirely up to the headline generators, the pols and their ant-capitalist lackeys in the press.