Unfortunately, the massive restructuring you're referring to would likely need to be in the form of deregulation. It's unfortunate because deregulating something is typically a non-discussion. Our banking regulations make almost no distinction between massive, "too big to fail" banks and small community banks. Like most regulation, it's the massive companies that can foot the bill for complying with regulation, creating barriers to entry into the market.
I didn't want to think you were right, but digging into this it seems to be the case. Dodd-Frank has apparently been a boon to big banks, and squashed competion [0].
"“Having a bank, it’s a sign of economic vitality,” he says. And it’s not just North Carolina. He notes the country has about 40 percent fewer banks today than when the Dodd-Frank Wall Street Reform Act, passed in response to the recession and implementing the most significant changes to financial regulations since the Great Depression, was signed in 2010.
Proponents of the measure said it would reduce the risk of another financial crisis by decreasing the concentration of resources in a handful of banks. Gwaltney says it’s done “the exact opposite.”
“The five or 10 largest banks in the country are larger than they were at the passage of Dodd-Frank,” he says."
The repeal of the Glass-Steagall legislation (Banking Act of 1933) in 1999 deregulated and allowed banks to act as investment, commercial, and retail at will. That deregulation doomed us to the financial crisis a decade later and the "too-big-to-fail" atrocity that ensued.
You can find lots of references from the time of the repeal saying "this is a bad idea because this act was designed to prevent banks screwing around in the way that caused the Great Depression, and the inevitable result of repealing it will be to cause a similar problem".
Then you can look at the CDO crisis less than ten years later and talk about correlation not being causation until you're blue in the face.
Here's another prediction: the destruction of the CFSB will lead to anti-consumer behavior at large banks.
The bailouts certainly would have been easier if retail and investment banking had been separate. With the current state the investment bankers can hold everyone hostage because they may also blow up regular bank accounts.
Because it is so difficult to write good regulations. It is [nearly?] impossible to predict all the consequences of your regulation ahead of time. After the regulation is written there are many more people who have an incentive to figure out how to twist it to their advantage, and they get as long as they need to dream it up. Then they get a as long as they need to try various forms in small areas that you don't notice until they get it "right" and then before you know it they have grown.
It doesn't help that the people who are best able to write the regulations are those who are in the industry: they also have incentive to get it wrong. Either you have people who don't understand the industry writing the regulations despite not being competent to do so, and thus not realizing at all what the loopholes are; or you get those who are inside to close the bad loop holes (the ones they know will be abused and they will get in trouble for) while opening up smaller loopholes that benefit slightly them at the expense of someone else not writing the regulations. Either way you lose, though insiders is slightly better. This is also why you see a "revolving door" between industry and regulators: that is the only way regulators can get the skills they need to write something that isn't completely awful.
>It is [nearly?] impossible to predict all the consequences of your regulation ahead of time.
Yes but why is the burden asymmetric? It is similarly impossible to predict the consequences of deregulation ahead of time yet proponents of deregulation are never held to the total unpredictability of the outcomes of their position.
I will partially counter that a much simpler class of regulations can cover more things in deregulation.
For example, if I just make fraud illegal, if you misrepresent what your evil I don't care what it is under deregulation I can get you. If you are honest about your evil it will be harder (but not impossible!) to sell it.
Deregulation also allows the "small guy" a better chance because to compete, and so with more choice the customer is likely to be more aware of choice.
Again, the above is not complete. There are big holes in this as well. Fundamentally there are always a subset of people who are willing to do evil to get ahead, if they can do their evil while being in the letter of the law they will. Society needs a way to deal with it, and nothing is perfect.
> It is similarly impossible to predict the consequences of deregulation ahead of time yet proponents of deregulation are never held to the total unpredictability of the outcomes of their position.
What's an example of this? The deregulation of airlines? The repeal of Glass-Steagall? I've read a lot of bad takes about the latter's supposed outcomes, but none of them claimed that the outcome was unpredictable.
>The repeal of Glass-Steagall? I've read a lot of bad takes about the latter's supposed outcomes, but none of them claimed that the outcome was unpredictable.
It depends on what you mean by 'outcome.' If by outcome you mean that with GLBA/Glass-Steagall repeal banks began investing in the products they had previously been barred from then sure that was predictable. If we mean second order effects like it's possible contribution to the financial crisis then I'd say that was definitely unpredictable considering economists still can't agree on whether GLBA played a role or not.
That deregulation already happened a month or two ago. But it's bullshit because the banks were awful before Dodd Frank too.
What Obama should have done during the crisis is nationalize the failing big banks instead of bailing them out and then broken them down into a hundred little banks and sold them off.
The Emergency Economic Stabilization Act was enacted October 3, 2008, a month and a day before the election and nearly four months before Obama was inaugurated as President. While both McCain and Obama voted in favor of the act, and issued a joint statement in favor of the action as Presidential candidates, that part of the crisis was over and done with before he took office.
I remember a thing on Frontline about the banking crisis where they described a meeting with Obama and the bankers where the bankers were pretty much ready for big concessions. Obama instead didn't do anything and let that opportunity go. He did the same when the Obamacare negotiations were going on. Instead of kicking some of his colleagues in the rear he was pretty weak and got weak results. I think he learned from these lessons and became much more assertive over time. It seems most presidents do better in their second term once they have learned the job.
George W. Bush presided over the crisis, despite what conservative media pundits would have you believe. It's amazing how this has been largely ret-conned for half the US population. We live in, uh, interesting times.
I suppose you just consider it collateral damage that big banks will act just as irresponsibly as before when they are deregulated? The whole premise that deregulation is the answer is always that the regulation isn't accomplishing anything useful, but if it really weren't accomplishing anything useful you would think the big banks themselves wouldn't be so eager to get rid of it.
I was commenting on the lack of competition. Deregulating with the aim of making the barriers to entry into the marketplace smaller. Not deregulation to allow big banks to get away with more...
Also, I would guess with more competition from smaller banks, megabanks might actually act more responsibly.
[EDIT] but you are kind of proving my point, so thanks! I said "deregulation" so your mind is already made up on the point.
On the contrary, deregulation (of banks and otherwise) is all the rage, and has been for some time (as another commentator noted, many 2008-era regulations are already being repealed). What I don't understand is how the deregulation is going to only improve things for small businesses, not allow large ones to be even more ruthlessly exploitative. Especially since the trend in many other industries (that aren't nearly as tightly regulated as banks) has been for large companies to absorb smaller ones.
