Neil Barofsky, the former regulator tasked with policing banker bailouts in the Bush administration's Troubled Asset Relief Program (TARP), told talk show host Bill Moyers this week that another major banking crash is now "inevitable" because neither of the political parties have the stomach to end "too big to fail."
"This was the government policy created by the architects, Ben Bernanke who is chair of Federal Reserve, Tim Geithner, who was then the president of the New York Fed before becoming Treasury Secretary, and Hank Paulson," he explained, describing the Bush administration's actions during the 2008 economic crisis. "Their solution originally was to further concentrate the industry, to make the too big to fail banks bigger."
That's a policy the Obama administration has mostly continued, placing only modest limits on the debt load financial institutions are allowed carry, but neglecting broader reforms like restoring the long-standing firewall between checking and savings accounts and the big banks' more risky ventures on Wall Street.
It's not as if there isn't some support for restoring that firewall either, which effectively lets banks risk their investors' money while keeping deposits safe from major swings in the markets. It used to be the law, but that law was repealed during the Clinton administration, in legislation created with the help of former Citigroup CEO Sanford I. Weill. In the wake of the crisis, however, Weill admitted in July that the time has come to restore the division between investment and consumer banking, which would essentially ban the "financial supermarket" model he created that's led to institutions becoming "too big to fail."
Barofsky added that the consolidation of over-leveraged banks like Merrill Lynch into somewhat more healthy institutions like Bank of America ultimately put the markets on a more dangerous path than the nation's top financial regulators realize. That's because "you have institutions now that are just monstrous in size, over $2 trillion in assets by certain measures, close to $4 trillion by other measures," he said, calling the reality in today's markets "terrifying."
"The idea that any of these institutions could ever be allowed to fail is pure fantasy, at this point," Barofsky lamented.
That's when Moyers cut right to the chase: "Are you suggesting that we could have another crash?"
"I think it's inevitable," he replied.
The video below is from "Moyer & Company," published Friday, October 26, 2012.