Neel Kashkari was recently appointed to be the new president of the Federal Reserve Bank of Minneapolis. He’s making headlines because he thinks banks in the United States are still too big to fail, and the solution is to break them up.
Delivering a speech this week, Kashkari presented the case that Washington and Wall Street haven’t done enough to end the concept of too big to fail. This is why something needs to be done, and nothing has been done since the 2008 economic collapse, he says.
“We must begin this work now and give serious consideration to a range of options, including … breaking up large banks into smaller, less connected, less important entities,” he said.
Kashkari, who is a former Goldman Sachs executive and Treasury Department official, added that other ideas could be mandating banks to have more capital to weather a financial storm and modifying tax laws to discourage big banks from taking on too much risk.
Although he still supports and defends the 2008 bailout of the banks because it posed a substantial risk to the global economy, Kashkari thinks something else has to be done to ensure history doesn’t repeat itself.
“The right solution is to take the bold action in advance,” Kashkari noted.
Neel Kashkari is right.
There is no reserves to cover the default of trillions in loans for credit card and student loan debt or other overvalued assets, worldwide.
The governments will bail them out when the credit bubble pops. But, that may not be enough.
Fractional Reserve Banking, the Ponzi Scheme that is only going to work as long as the monthly payments keep coming in.
Price inflation over the last 40 years has created a debt economy. This has allowed the economy to expand to fast and has not kept assets at their true value.
The average person has relied on debt to maintain the illusion of a middle class standard of living. Houses and cars cost way to much for the average worker to buy new, even with low interest rates.
In the past credit was used to purchase cars and homes.
Today credit is used for everything, because the average pay check does not even cover your needs, let alone your wants.
Only when the credit bubble pops will things get better.
But there will be pain, higher unemployment, lower profits for everyone, deflation.
I do not know how long the Central Banks will be able to keep the Ponzi Scheme going, time will tell.