The courts required AT&T to divest itself of local telephone service, creating seven independent Regional Bell Operating Companies (RBOCs) in the bargain. AT&T would retain its manufacturing arm, Western Electric, but customers would contact their local RBOC for local telephone service starting on January 1, 1984.
AT&T had always assumed that it would continue in its role as a monopoly, so it commingled local and long distance telephone equipment. As the end of 1983 approached, a line had to be drawn between each RBOC and AT&T, so a chalk line was literally drawn down the middle of some hallways to indicate the borders. Later, walls were constructed, converting what were formally large AT&T buildings into ones housing both RBOC and AT&T.
And today we have a myriad of choices for telephone service, whether someone prefers cell phones, BlackBerries, or POTS (plain old telephone service, aka landlines).
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Presidents Theodore Roosevelt and William Taft did not allow the members of their own Republican Party to dissuade them from launching tens of anti-trust suits against the monopolies of their day, as well as passing needed laws such as The Meat Inspection Act and The Pure Food and Drug Act.
The platform of the Progressive Party that Roosevelt created contained concepts we take for granted today, including an eight-hour work day, a minimum wage law for women, and workers' compensation.
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The FDIC and NCUA are responsible for insuring the deposits of banks and credit unions, respectively, up to a set limit, currently $250,000. These entities were created in the immediate aftermath of the Great Depression to prevent the panic which occurred when banks failed, leaving their depositors high and dry.
When a bank or credit union runs into financial trouble, it is taken over by the appropriate agency -- the term for this is intervening -- over a weekend. The regulatory officials appear at closing time on Friday and inform the bank management that the bank is now closed. The regulators then determine the best course of action, often allowing a stronger bank to absorb the weakened bank. Sometimes the bank is closed if a buyer cannot be found. The FDIC keeps a list of intervened banks going back to October 2000.
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Senator Sherrod Brown of Ohio calculated that 15 years ago the assets of the top six banks totaled to 17% of GDP. In April 2010 that figure was 63%. Today that figure is 64%.
The figures for assets of the top fifty banks are informative with respect to potential bailouts. Adding up the assets of the top ten yields $11.2 trillion. Compare that to the GDP of the USA: $14.7 trillion; the top ten banks have assets equal to 76% of GDP. The largest, Bank of America, has assets of $2.3 trillion. If any of the top ten were to fail, does anyone seriously believe that the government would hesitate to bail it out?
Government regulations mandate that insurance companies possess sufficient cash to make pay-outs to customers in the worst case scenario. This is necessary in the case of large-scale disasters like tornadoes, as the worst possible time for an insurance company to go bankrupt would be when many customers suffer the same loss.
Credit default swaps (CDUs) are just one of the many arcane derivatives created by Wall Street. Unlike some of its other products, these are somewhat easy to understand. CDUs are nothing more than betting insurance. A casino sells a CDU to a customer so that customer can mitigate its investment risk.
According to the Bank for International Settlements, at the end of 2008 there were around than $42 trillion worth of CDUs floating around. The value of the entire OTC derivatives market, including CDUs and other gambling inventions, has hovered around $600 trillion for the past few years. As a comparison, the GDP of the top 20 countries combined (ignoring the EU as an entity) is slightly less than $60 trillion.
Since CDUs were unregulated, there were no cash reserve requirements. The recent panic was greatly increased when many companies were forced to make good on their CDUs, but since they did not possess sufficient capital to do so, they started selling their other equities at a fire sale price, adding greatly to the panic.
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The Glass-Steagall Act prohibited any one company from being any combination of an investment bank, a commercial bank, and an insurance company. Glass-Steagall essentially placed firewalls between these three types of businesses.
The repeal of Glass-Steagall via the Gramm-Leach-Bliley Act in 1999 allowed the commingling of banking activities with gambling houses, aka investment companies. Gramm-Leach-Bliley lead directly to the failure of AIG. And when the recent panic occurred, the government claimed that it did not have the authority to intervene an entity which is both bank and casino.
We need banks; we do not need casinos. Combining the two gave our corrupt politicians the excuse to claim that they were forced to rescue these firms with bailouts. The politicians created the problem and then "solved" the problem they created by transferring even more money to Wall Street.
The situation becomes even more complicated when one considers that large banks are multinational. The national portion of a bank can be intervened, but what about the international portion? And, of course, the CEOs of the large banks tend to be former government officials or friends of government officials, so they put pressure on regulators to prevent their banks from being intervened even if the bank threatens to take down our economy, as was seen in the recent crash.
Banks are able to borrow money from the Federal Reserve at virtually zero percent. The Huffington Post reported that nine companies -- five of them foreign -- borrowed between $5.2 billion and $6.2 billion in U.S. government securities, paying one-time fees that amounted to a rate of 0.0078%.
The Fed is upfront about this borrowing, stating on the New York Fed's website that foreign firms can accept cash from the discount window. The entire financial world started to change in 1980 with the passage of the Depository Institutions Deregulation and Monetary Control Act; before this act, "discount window borrowing generally had been restricted to commercial banks that were members of the Federal Reserve System."
The bailouts never stopped, they just became slightly more obscure.
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Two men are walking in the forest one day when a large and hungry bear emerges directly behind them. The first man bends down and starts to re-tie his shoes.
The second man asks, panic-stricken: "What are you doing? Do you think you can out-run a bear?"
The first man replies: "I do not have to out-run the bear. I only have to out-run you."
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We need to intervene one of the Too Big To Fail (TBTF) companies, one of the beasts with two heads, banking and investments. Of course we would choose the one in the weakest financial condition, but the legal justification is that these hybrids have taken our economy down once already and we cannot afford a second go at it.
A president with courage and integrity could assemble a team led by the FDIC. This team would first decide which firm to intervene. Then a detailed plan of action would be created, involving secrecy comparable to the successful elimination of Osama bin Laden:
- At closing time on an auspicious Friday, the team would enter the firm, announcing that the government was intervening it. Many federal marshals would be present to impress upon management that the businesses were now separate. Local police would be present to remove any persons exhibiting violent tendencies.
- A chalk line would be drawn down the hallways to separate the firm into three entities: domestic bank holding company, international holding company, and domestic casino. The casino would be left in the hands of the current management. Control of the domestic bank holding company would be transferred to a specially chosen regent, one who would manage the entity until new management could be selected. Since the USA has no jurisdiction over international entities, all of that would be dumped into one holding company, one which would be initially banned from operating as a bank in the USA until further ground rules could be established. This process might take weeks or even months. The regent would ensure that the domestic banks continued to operate without a hitch.
- The casino management would vociferously protest the intervening, claiming that it was un-American. To prevent these pit bosses from filing injunctions, the team, perhaps including the very best legal minds such as Supreme Court Justice Sandra Day O'Connor, would have done its legal homework in advance; anti-trust legislation would be an important part of this. The sight of a former Supreme Court Justice in a hearing to decide whether an injunction should be issued would probably be enough to quash such nonsense.
- All bonuses for that year would be eliminated for the domestic bank holding company and casino, with claw-backs possibly needed for ones recently paid.
- A logical division of the domestic bank holding company's assets would be devised to bring the fallout of a failure down to an acceptable level, dividing it into entities perhaps no larger than $50 billion each.
The remaining TBTF banks might then be motivated to divest themselves into separate, smaller banks and casinos. But if not, there could always be a second round.
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