'Break Up Wall Street' Loose Again; Dem Debate 'Could Be Fun'
April 6, 2016 (EIRNS)—”Minnesota Federal Reserve President Neel Kashkari, interviewed adversarily by CNBC-TV anchors today, repeated his assertion that the Dodd-Frank Act had done no good in preventing another full bank crash and huge bailout; and again spoke of breaking up the Wall Street banks as a potential solution. Kashkari's intervention came at the same moment that the anti-Wall Street Sen. Bernie Sanders completed his seventh primary victory over Hillary Clinton in the past eight states to vote.
"The question is," Kashkari said, "in a stressed economic environment like a crisis when multiple banks are running into trouble at the same time, will we actually be able to haircut bond holders and creditors? I say the answer is no. And the reason is the contagion from one bank to another bank to another bank. No one yet has figured out how to solve that contagion risk. Dodd-Frank hasn't done it. The ['bail-in' idea] hasn't done it. We see it in Europe.... Those 'contingent conversion' securities haven't added to stability. They've actually added to instability and uncertainty."
And asked why he hadn't brought up breaking up Wall Street banks in 2010, when he had just run the TARP bailout, Kashkari said he had, but, "What I'm saying, is, and what we in Minneapolis are saying, is, a bunch of these transformational solutions were taken off the table in 2010." That would be by Rep. Barney Frank, for Obama, on behalf of Wall Street.
Kashkari's April 4 hearing at the Minneapolis Fed Bank, on ending "too big to fail," featured Stanford economist Dr. Anaan Admati calling for the Fed to reject the Wall Street banks' latest "living will" proposals—"a charade," she said—”and then move to break these banks up by ordering them to sell off divisions and subsidiaries which threaten a crash.
Admati is correct that the Federal Reserve has the authority to determine that large banks' internal controls, including their "living wills," are not credible, and to order them to change their structure and sell off units. It has this authority as their "safety and soundness" regulator.
EIR Founding Editor and leading Hamiltonian economist Lyndon LaRouche gave this idea his qualified support, because the banks could be broken up quickly, and "the Federal Reserve could write off their bad assets through its discount window function." The only way "breaking up" Wall Street leads to a productive credit system, LaRouche said, is that the vast majority of its speculative units be shut down entirely, and key to that is writing off all their worthless "assets."
LaRouche also noted the next Democratic debate, April 13 in New York, "could be some fun" with the Wall Street issue loose: "Hillary will try to defend inflation again, Wall Street inflation of all its worthless debt," he said.