Today's Article
Americans should
never again let Big
Finance get so big
that it distorts our
politics and corrupts
the economy, says the
grass-roots group A
New Way Forward.
never again let Big
Finance get so big
that it distorts our
politics and corrupts
the economy, says the
grass-roots group A
New Way Forward.
The American Spark
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If Financial Companies 'Too Big To Fail', They're Too Big To Exist
By Cliff Montgomery - May 23rd, 2009
There is discussion in the White House and on Capitol Hill of extending taxpayer-funded bailouts to a host of
other huge financial institutions, under the argument that they too are "too big or interconnected to fail."
The American Spark below quotes major sections of a Congressional Research Service report released in
April, 2009, which puts forward this position:
"Congress [now is dealing...] with the question of how best to handle the failure of Systemically Significant
Financial Companies (SSFCs).
"In the United States, the insolvencies of depository institutions (i.e., banks and thrifts with deposits insured by
the Federal Deposit Insurance Corporation (FDIC) ) are not handled according to the procedures of the U.S.
Bankruptcy Code. Instead, they and their subsidiaries are subject to a separate regime prescribed in federal
law, called a conservatorship or receivership.
"The basic difference between a conservatorship and a receivership is that a conservatorship involves
operating the institution as a going concern to protect its assets until it stabilizes or is closed and a receiver
appointed. A receiver is charged with liquidating the institution and winding up its affairs. A conservatorship
may indicate that the FDIC aims to restore the institution to solvency or that the FDIC had to act quickly
without the usual lead time for investigation. In either case, a conservatorship may be followed by a
receivership if a determination is made that the institution is not viable.
"Under this regime, the conservator or receiver, which generally is the FDIC, is provided substantial authority to
deal with virtually every aspect of the insolvency. However, the failure of most other financial institutions within
bank, thrift, and financial holding company umbrellas (including the holding companies themselves) generally
are dealt with under the Bankruptcy Code.
"In March of 2009, Treasury Secretary Timothy Geithner proposed legislation that would impose a
conservatorship/receivership regime, much like that for depository institutions, on [other] insolvent financial
institutions that are deemed systemically significant. [...]
"It is argued that the pivotal role banks and thrifts play in mainstream economic life exceeds that of most other
commercial firms, thus justifying a special regime designed specifically for bank and thrift insolvencies. [...]
"This raises the question: Do SSFCs, as a result of their inherent traits, warrant a special insolvency regime
modeled after that of depositories? While SSFCs do not hold insured deposits, it is entirely possible that large
portions of individuals’ wealth could be held by these institutions in other forms.
"While non-deposit financial products may not be explicitly insured like deposits, financial firms that are truly
systemically significant arguably have an implicit backing by the federal government, which considers them too
big or interconnected to fail [italics added], and thus would warrant federal financial investment to avoid their
failure (at least under the current insolvency process)."
We at The American Spark here feel the need to offer the alternative voice of the grass-roots group A New
Way Forward, which perhaps proclaims a more straightforward, sensible approach to the "Big Bank" problem:
Like what you're reading so far? Then why not order a full year (52 issues) of the The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
By Cliff Montgomery - May 23rd, 2009
There is discussion in the White House and on Capitol Hill of extending taxpayer-funded bailouts to a host of
other huge financial institutions, under the argument that they too are "too big or interconnected to fail."
The American Spark below quotes major sections of a Congressional Research Service report released in
April, 2009, which puts forward this position:
"Congress [now is dealing...] with the question of how best to handle the failure of Systemically Significant
Financial Companies (SSFCs).
"In the United States, the insolvencies of depository institutions (i.e., banks and thrifts with deposits insured by
the Federal Deposit Insurance Corporation (FDIC) ) are not handled according to the procedures of the U.S.
Bankruptcy Code. Instead, they and their subsidiaries are subject to a separate regime prescribed in federal
law, called a conservatorship or receivership.
"The basic difference between a conservatorship and a receivership is that a conservatorship involves
operating the institution as a going concern to protect its assets until it stabilizes or is closed and a receiver
appointed. A receiver is charged with liquidating the institution and winding up its affairs. A conservatorship
may indicate that the FDIC aims to restore the institution to solvency or that the FDIC had to act quickly
without the usual lead time for investigation. In either case, a conservatorship may be followed by a
receivership if a determination is made that the institution is not viable.
"Under this regime, the conservator or receiver, which generally is the FDIC, is provided substantial authority to
deal with virtually every aspect of the insolvency. However, the failure of most other financial institutions within
bank, thrift, and financial holding company umbrellas (including the holding companies themselves) generally
are dealt with under the Bankruptcy Code.
"In March of 2009, Treasury Secretary Timothy Geithner proposed legislation that would impose a
conservatorship/receivership regime, much like that for depository institutions, on [other] insolvent financial
institutions that are deemed systemically significant. [...]
"It is argued that the pivotal role banks and thrifts play in mainstream economic life exceeds that of most other
commercial firms, thus justifying a special regime designed specifically for bank and thrift insolvencies. [...]
"This raises the question: Do SSFCs, as a result of their inherent traits, warrant a special insolvency regime
modeled after that of depositories? While SSFCs do not hold insured deposits, it is entirely possible that large
portions of individuals’ wealth could be held by these institutions in other forms.
"While non-deposit financial products may not be explicitly insured like deposits, financial firms that are truly
systemically significant arguably have an implicit backing by the federal government, which considers them too
big or interconnected to fail [italics added], and thus would warrant federal financial investment to avoid their
failure (at least under the current insolvency process)."
We at The American Spark here feel the need to offer the alternative voice of the grass-roots group A New
Way Forward, which perhaps proclaims a more straightforward, sensible approach to the "Big Bank" problem:
- "As Wall St. corporations grew bigger and bigger until they were 'too big to fail,' they also became so
politically powerful that they led to distorted and unfair policies that served companies, not citizens.
"The bailouts [therefore] are widening the gap between the rich and poor. Our government has spent
trillions of our dollars to prop up a banking system that has failed the country. Wall St. needs to be
stopped. We demand that our government break up the insolvent banks and never again let them get so
big that they distort our politics and corrupt the economy.
"During the week of June 8th, Americans will host national video screenings and town hall forums to
learn about the crisis and begin working on restoring our economy and democracy."
Like what you're reading so far? Then why not order a full year (52 issues) of the The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
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