61 Senators Perpetuate "Too Big to Fail"

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"We've ended the too-big-to-fail debate. No longer do I expect any argument to be made that this bill exposes the American taxpayer."

Sen. Christopher Dodd spoke these words after the Senate voted to pass amendments to his financial reform bill, clarifying that taxpayer money would not fund future bailouts.

Unfortunately, the Senate hasn't fixed the underlying problem that gives rise to bailouts: "too big to fail."

We all remember how this works: Enormous, risky, interconnected banks know it's safe for them to take huge gambles. If the bets pay off, they collect big bonuses. If they fail, taxpayers will pick up the tab -- because otherwise, the economy implodes.

Nothing has changed in banking. Citigroup (NYSE: C  ) , Bank of America (NYSE: BAC  ) , and JPMorgan (NYSE: JPM  ) each hold more than $1 trillion of kindling on their balance sheets. Together with Goldman Sachs (NYSE: GS  ) , Wells Fargo (NYSE: WFC  ) , and Morgan Stanley (NYSE: MS  ) , they control 63% of the nation's GDP (in assets). Wall Street continues to hold our economy hostage. The Senate is promising that the United States won't pay ransoms in the future; but in the ultimate political ransom, it neglected to ban hostage-taking.

Unless we end "too big to fail," banks know that the market cannot hold them responsible for their mistakes. The next time that such a catastrophically huge bank into trouble, we'll face the same dilemma we had in September 2008: bail it out, or risk economic collapse.

OK, so why not just end "too big to fail"?
The SAFE Banking Act recently came up for a vote. This amendment, which would have limited the size of bank liabilities to the $300 billion to $400 billion range, was literally "a vote to end too big to fail."

It didn't pass.

Why did 61 senators vote to preserve -- instead of fix -- the problem? It can't be because megabanks are better for the economy -- there are no efficiencies of scale in banking beyond $100 billion. Nor is it because megabanks charge lower fees to their customers -- they don't.

Instead, Donny Shaw of A New Way Forward discovered that senators who voted to perpetuate "too big to fail" received an average of $3.5 million in campaign contributions from the financial sector during their career -- twice what those who voted in favor of the bill received.

Now, 33 senators did stand up to lobbyists by voting for this amendment. But just as it's important to hold banks responsible for their failures, it's only fair that we hold politicians responsible for theirs. And the vote on this critical issue was buried in a busy news day that included the market flash crash -- presumably in order to shield the 61 senators who voted with Wall Street.

So without further ado, here are the names of the 33 senators who voted to end too "big to fail" -- and of the 61 who voted to preserve it, thus making future economic catastrophes more likely.

The 33 "Yes" votes to end "too big to fail"


Career $ From Finance


Career $ From Finance

Sen. Mark Begich [D-AK]


Sen. Carl Levin [D-MI]


Sen. Jeff Bingaman [D-NM]


Sen. Blanche Lincoln [D-AR]


Sen. Barbara Boxer [D-CA]


Sen. Jeff Merkley [D-OR]


Sen. Sherrod Brown [D-OH]


Sen. Barbara Mikulski [D-MD]


Sen. Roland Burris [D-IL]


Sen. Patty Murray [D-WA]


Sen. Maria Cantwell [D-WA]


Sen. Mark Pryor [D-AR]


Sen. Ben Cardin [D-MD]


Sen. Harry Reid [D-NV]


Sen. Bob Casey [D-PA]


Sen. Jay Rockefeller [D-WV]


Sen. Tom Coburn [R-OK]


Sen. Bernie Sanders [I, VT]


Sen. Byron Dorgan [D-ND]


Sen. Richard Shelby [R-AL]


Sen. Richard Durbin [D-IL]


Sen. Arlen Specter [D-PA]


Sen. John Ensign [R-NV]


Sen. Debbie Stabenow [D-MI]


Sen. Russell Feingold [D-WI]


Sen. Tom Udall [D-NM]


Sen. Al Franken [D-MN]


Sen. Jim Webb [D-VA]


Sen. Thomas Harkin [D-IA]


Sen. Sheldon Whitehouse [D-RI]


Sen. Ted Kaufman [D-DE]


Sen. Ron Wyden [D-OR]


Sen. Patrick Leahy [D-VT]




The 61 "No" votes to preserve "too big to fail"


Career $ From Finance


Career $ From Finance

Sen. Daniel Akaka [D-HI]


Sen. Mike Johanns [R-NE]


Sen. Lamar Alexander [R-TN]


Sen. Tim Johnson [D-SD]


Sen. John Barrasso [R-WY]


Sen. John Kerry [D-MA]


Sen. Max Baucus [D-MT]


Sen. Amy Klobuchar [D-MN]


Sen. Evan Bayh [D-IN]


Sen. Herbert Kohl [D-WI]


Sen. Michael Bennet [D-CO]


Sen. Jon Kyl [R-AZ]


Sen. Kit Bond [R-MO]


Sen. Mary Landrieu [D-LA]


Sen. Scott Brown [R-MA]


Sen. Frank Lautenberg [D-NJ]


Sen. Samuel Brownback [R-KS]


Sen. George LeMieux [R-FL]


Sen. Richard Burr [R-NC]


Sen. Joe Lieberman [I, CT]


Sen. Thomas Carper [D-DE]


Sen. John McCain [R-AZ]


Sen. Saxby Chambliss [R-GA]


Sen. Claire McCaskill [D-MO]


Sen. Thad Cochran [R-MS]


Sen. Mitch McConnell [R-KY]


Sen. Susan Collins [R-ME]


Sen. Robert Menéndez [D-NJ]


Sen. Kent Conrad [D-ND]


Sen. Lisa Murkowski [R-AK]


Sen. Bob Corker [R-TN]


Sen. Bill Nelson [D-FL]


Sen. John Cornyn [R-TX]


Sen. Ben Nelson [D-NE]


Sen. Michael Crapo [R-ID]


Sen. Jack Reed [D-RI]


Sen. Chris Dodd [D-CT]


Sen. James Risch [R-ID]


Sen. Michael Enzi [R-WY]


Sen. Pat Roberts [R-KS]


Sen. Dianne Feinstein [D-CA]


Sen. Charles Schumer [D-NY]


Sen. Kirsten Gillibrand [D-NY]


Sen. Jeff Sessions [R-AL]


Sen. Lindsey Graham [R-SC]


Sen. Jeanne Shaheen [D-NH]


Sen. Chuck Grassley [R-IA]


Sen. Olympia Snowe [R-ME]


Sen. Judd Gregg [R-NH]


Sen. Jon Tester [D-MT]


Sen. Kay Hagan [D-NC]


Sen. John Thune [R-SD]


Sen. Orrin Hatch [R-UT]


Sen. Mark Udall [D-CO]


Sen. Kay Hutchison [R-TX]


Sen. George Voinovich [R-OH]


Sen. James Inhofe [R-OK]


Sen. Mark Warner [D-VA]


Sen. Daniel Inouye [D-HI]


Sen. Roger Wicker [R-MS]


Sen. John Isakson [R-GA]




As one senator recently noted, "banks ... frankly own this place."

I don't know about you, but to me, this arrangement seems outrageous. It's not how free markets or democracies are supposed to work. If you want to let your senators know how you feel about banks gutting Wall Street reform, click here for their contact information.

Fool editor Ilan Moscovitz doesn't own shares of any company mentioned. The Motley Fool is investors writing for investors.

Read/Post Comments (61) | Recommend This Article (182)

Comments from our Foolish Readers

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  • Report this Comment On May 17, 2010, at 11:30 AM, masterN17 wrote:

    For what its worth I sent a message to Dianne Feinstein not to expect my vote for another term and linked to this particular article.

  • Report this Comment On May 17, 2010, at 11:47 AM, park94 wrote:

    Nice article your wish for improving and actually making a difference is inspiring. Although as the articles imply Banks own this system and so do the corporations. Average americans can only work to pay their college debts and invest some of their leftovers in these same corporations to keep them going. Whoever came up and imposed this Capitalism model on the gullible citizens sure knew how to screw the working class.

  • Report this Comment On May 17, 2010, at 11:51 AM, DBrown7 wrote:

    Thanks for the informative article. It would be helpful to know the average each senator received per year, since some have been in office much longer than others.

    I wonder where Barney Frank was when the vote was taking place.

  • Report this Comment On May 17, 2010, at 12:12 PM, ETFsRule wrote:

    Focusing only on the size of the banks seems rather draconian and simplistic.

    What we really need to do is regulate the behavior of the banks. The problem wasn't their size, the problem was their excessive risk-taking.

    As for the donation numbers, I don't find them terribly convincing. The averages are clearly skewed by 4 people in particular (Kerry, McCain, Lieberman, and Schumer). If you take them out, then the numbers look very similar between the "yes" and "no" voters.

  • Report this Comment On May 17, 2010, at 1:27 PM, DanPowersccim wrote:

    ETFsRule- I disagree, One of the problems is their size. The reason they take excessive risks is because there is little downside. 100's of smaller banks have been allowed to fail in the last few years. The biggest know this won't happen to them.

    I am sending an email to Diane Feinstein reminding her that some of us are paying attention.

  • Report this Comment On May 17, 2010, at 1:28 PM, TMFDiogenes wrote:

    Hey ETFs,

    Good point. If you take out the top four and bottom four earners in each category, the Nays received 60% more than the Yeas. Under that method the disparity is lower, but it's still huge.

  • Report this Comment On May 17, 2010, at 1:37 PM, TMFDiogenes wrote:

    Regarding the size/behavior argument, I think you have to fix both. DanPowers is right -- when your size protects you on the downside via bailouts, there's an enormous incentive to take big risks. That means that if you aren't going to limit size, you have to be darn sure 1) regulations are adequate, and 2) regulators are extremely talented and sufficiently free from influence. And both have to remain true for decades after the recent crisis has faded from memory. It remains to be seen if we'll get both, but given the enormous lobbying power of big banks, the weak status of portions of both the House and Senate bills, and the experience of the last 30 years, I'm not convinced we're close to legislating Wall Street into a low-risk utility-like industry.

  • Report this Comment On May 17, 2010, at 1:37 PM, dstb wrote:

    I don't agree that a bank's size should be regulated. I do believe that the banks should be forced to be more transparent in how they run their businesses and invest. I should be able to open up an annual report and see every investment made by a bank, including derivatives. If investors can see what's going on the bank's stocks will be priced accordingly. Additionally, all new derivatives contracts should clear on exchanges. Again for transparency.

    Commericial banks or anyone else receiving money through the Fed's discount window should not be able to use that money for proprietary trading.

    Leverage of financial companies should be restricted to reasonable levels.

  • Report this Comment On May 17, 2010, at 1:38 PM, shoobeedoobee wrote:

    Great article. Actually, if we break this down by party, 52% of Democrats voted to end "Too Big Too Fail", but only 8% of Republicans did. Why is that?

    I believe that every senator who voted with the big banks in this bill put their own interests ahead of their country's. Every now and then a vote like this comes along that makes it crystal clear who is honorable and who is not. The results are mind-numbingly disappointing.

    As to the question posed by DBrown7 above: "I wonder where Barney Frank was when the vote was taking place", Barney was probably in the House, not the Senate, since he is not a senator. However, I am confident he would have voted against the big banks on this bill.

    Now if we could only get rid of those 61 senators, as well as Summers, Geithner, Rubin...

  • Report this Comment On May 17, 2010, at 1:39 PM, TMFDiogenes wrote:

    Ooh, forgot to say TMFDiogenes = Ilan Moscovitz.

    Thanks everyone for reading and for your comments!

  • Report this Comment On May 17, 2010, at 1:49 PM, jmcantrell wrote:

    I find it surprising that this article goes straight to blaming "campaign contributions" for swaying the votes, rather than examining the very basics of political views. Since the split is fairly closely along party lines it would be prudent to examine the fact that maybe Republicans just don't believe the government should be regulating private business. The better approach would be to either split up those banks or allow them to fail (as the truly free market would). Continuing to prop up these banks is allowing the perpetuation of this problem. Perhaps the removal of the idea that these banks are necessary for our economy is the cure to the problem, rather than treatment of the symptoms. We need to allow these companies to go through the bankruptcy restructuring system, just like any other company if they are truly in that much trouble.

  • Report this Comment On May 17, 2010, at 2:00 PM, TMFDiogenes wrote:

    "Since the split is fairly closely along party lines it would be prudent to examine the fact that maybe Republicans just don't believe the government should be regulating private business."

    It wasn't a party-line vote -- especially not compared to the nearly straight party-line votes that have become the norm these days. 3 Republicans voted for, and 27 Democrats voted against, including every Democratic member of the Banking Committee (excluding the two co-sponsors.)

    "The better approach would be to either split up those banks or allow them to fail (as the truly free market would)."

    Splitting up the banks so that they are of a size that is subject to market discipline is exactly what the vote was on:

  • Report this Comment On May 17, 2010, at 2:32 PM, rd80 wrote:

    Good article.

    I really, really don't like the term 'too big to fail.' It dramatically oversimplifies the situation. As mentioned in some of the comments, it's far more complicated and size alone is not the only indicator of systematic risk.

    At the end of 2008, Wachovia - then the fourth largest bank in the country - failed and was unwound in an orderly manner. If TBTF was truly the answer, Wachovia would have crashed the system while Lehman and Bear would have been little more than troubling blips. The key difference in those failures is that Wachovia had a troubled, but typical balance sheet . Lehman and Bear, Stearns (along with AIG) had complex webs of derivatives that not only effectively increased leverage, but did it in a way that regulators, investors and even the company executives themselves apparently didn't understand.

    If the primary focus of reform is 'too big to fail,' it misses critical pieces of the puzzle.

    Furthermore, by focusing on banks, legislators miss other systematic risks like Fannie, Freddie, GM, and AIG - the parts of the bailout likely to cost taxpayers the most.

    The $$ to Senators McCain, Kerry, Schumer and Dodd are eye opening.

  • Report this Comment On May 17, 2010, at 2:44 PM, TMFDiogenes wrote:

    "I find it surprising that this article goes straight to blaming "campaign contributions" for swaying the votes, rather than examining the very basics of political views. Since the split is fairly closely along party lines..."

    This wasn't really a party-line vote -- 3 Republicans voted for, and 27 Democrats, including every Democratic member of the Banking Committee (except the 2 co-sponsors), voted against.

    "Republicans just don't believe the government should be regulating private business. The better approach would be to either split up those banks or allow them to fail (as the truly free market would)."

    That's just the thing -- this wasn't a vote to create a new government agency or set up sophisticated new regulations to stay one step ahead of the banks at all. Instead, splitting the banks up so that they would be subject to market discipline is exactly what the vote was on:

    This was literally a vote over increased competition in financial markets in place of banking bailout subsidies -- it should have been an easy "Yes" vote for Republicans and Democrats alike had they stuck with their professed values.

  • Report this Comment On May 17, 2010, at 5:29 PM, Terragram wrote:

    What's up with Shelby and Coburn ? I thought they were sensible, reliable conservatives. Has Shelby been captured by his committee ? Glad Scott Brown voted the right way, along with my 2 senators.

  • Report this Comment On May 17, 2010, at 5:32 PM, Terragram wrote:

    sorry, my dyslexia is at it again.

  • Report this Comment On May 17, 2010, at 5:38 PM, 7footmoose wrote:

    and again this entire Motley group has failed to grasp the actual problem here and instead has joined the TBTF chorus, it was when your friends on Capitol Hill demanded of Fanny and Freddie (in a hearing in 1999) that they enable more Americans to buy homes and then subsequently encouraged the GSE's to change their criteria for accepting residential mortgages that the avalanche began, once Pandora was out of the gate and careening down the slippery slope Mother Greed overtook all including Individuals, Mortgage Lenders and Wall Street Bankers, the problem here is not that "Banks" are TBTF it is that no one on Capitol Hill has the stones to do the right thing and let the Market well enough alone without superimposing Socialist Agendas on business

  • Report this Comment On May 17, 2010, at 5:43 PM, WyattJunker wrote:

    Just implement the Dutch system. Its self-regulating. By putting risk taking onto the personal balance sheet of the bank's corporate officers, the system gets easily solved without all this political histrionics and grandstanding.

    BTW, I don't listen to these kinds of articles anyway. Unless and until Fannie and Freddie are included in these discussions, the root of our melt down, then we aren't addressing the issue. And they probably won't be mentioned, too much political exposure.

  • Report this Comment On May 17, 2010, at 5:53 PM, todavek wrote:

    Chris has 14 million to spend as he wishes, because he's not even going to run again (would've lost, that's why). He'll sure be able to have a good time in retirement. Note that it didn't take long for CLOWN Al Franken to get signed up for the goodies! Talk about an unqualified abomination representing America !!!

  • Report this Comment On May 17, 2010, at 5:57 PM, todavek wrote:

    The real basic root of the meltdown, that Obama never mentions, is the rating agency that gave those bundles of crap their AAA rating. If they hadn't done that, no one in the world would have bought them and the original lenders would have been stuck with their pigs, without the lipstick. The rating agency should be testifying in congress, not the bank CEO's.

  • Report this Comment On May 17, 2010, at 6:11 PM, buntyp wrote:

    One of the things I'm still somewhat fuzzy about is the underlying reason for the 2008 'reasons for Failure', so to speak.

    It has been my understanding so far, that it was the sub-prime Mortgage business which came crashing down.

    When Tres, Sec. Hank Paulson, pressed all the 'Panic buttins' at the time, in order to as quickly as possible, obtain those first TARP Funds, it was to pay-off for the 'Countefeit Derivatives' peddled overseas, which was where appox. 95% of them had been sold.

    I don't recall any 'Big Coroporations' going 'Belly-Up, & causing Banks exposed by their lending to such Corporations, coming into question at that time.

    But as the 'Big Banks' have begun to 'Pay-Back' significant Sums of what they were Lent, I hear nothing about 'Freddie Mac., & or Fannie Mae'.

    I personally believe that it is for these 2 Institutions, that the 'Too Big to Fail' concept' is being perpetuated.

    The whole Housing/ Mortgage, busuness as far as this 'Fool', is concerned, is the 'Trojan Horse', Congress is leaving us as a gift, by passing this 'Legislation' at this time.

    It was 'Wall Street', who came to the rescue of those Institutions who had been heavily exposed to the 'Sub-Prime' 'Toilet Paper', by 'Inventing' the 'Derivatives', which they then sold heavily Overseas.

    It must be the only time in History, that the 'Risk Takers' Overseas were simply not told 'Buyer Beware'.

    One could argue what would have been the 'Consequencies', if AIG, for example, decided not to honor the 'Insured Risk' which many of the Overseas Institutions had Cleverly re-insured, so to speak, with AIG.

    The enomity of the Game being played at that time is still Mind-Boggling Today.

    And, let's ask ourselves, what were the Govt. Policies in play at the time that led Folk to take these 'Patently Ridiculous Risks'.

    The amount of the recent Home Foreclosures on Properties that were already Re-Financed, should once more Demonstrate what kind of really, really, STUPID GAME was being played with the Sub-Prime Mortgage Business.

    I think it best for me to leave it 'Right There'.

  • Report this Comment On May 17, 2010, at 6:52 PM, plange01 wrote:

    61 senators trying to figure out how they can steal more money from banks!!!

  • Report this Comment On May 17, 2010, at 7:16 PM, Tiingall wrote:

    As an overseas investor who always thought the USA to be a secure place to invest my savings, where professionalisim, responsibility, thinking long-term and thinking of the greater good could be expected to be higher priorities than personal greed, this whole episode is very disappointing.

    From what I learnt from TMF, the banks bought out the politicians so they could start the sub-prime loan scam, and now the bought-out politicians are guaranteeing that short-sighted personal greed is the principle focus of banking and finance in the USA.

    I'm very sure the Europeans and others will be building up policies to protect themselves from this blatent corruption in your system. The USA is now known to be a terrorist of the financial type, happily exporting their financial stupidity and greed around the world; to cause human suffering on an immense scale.

    After ten years of expiencing your wildly gyrating business cycles - driven by personal greed and professional irresponsibility - I'm moving my stock broker account elsewhere, And I'm taking the TMF advise to put more overseas stocks in my portfilio, moving my investments out of the USA, and signing up to TMFs Global Gains.

    It's great to see there are still people in the USA with wisdom and prefessionalism who can see beyond corrupt, inward focussed and ultimately destructive personal greed. Unfortunately there seems to be far too few of you, or you are not sufficiently committed to have created the change required.

    A 2008 OECD report showed the gap between rich and poor was getting bigger, faster, in DEVELOPED countries; not the undeveloped nations. The type of scam the banks and politicians created - and now reinforced with this latest vote - is exactly the mechanism they are using to do it to you. Wake up guys. You are being ripped off by a deliberate and well executed conspiracy.

    Based on what seems to be the stupidity and greed of your elected representatives, and their close ties with the big banks, I fear you will need the equivalent of another Civil War to correct the extremism, human exploitation and corruption now firmly entrenched into your private and public institutions.

    In the meantime, my savings are moving elsewhere. Good luck. Send me a message when you have this sorted out.

  • Report this Comment On May 17, 2010, at 7:18 PM, ltoribio wrote:

    It might help to have a law prohibiting contributors from another state to make contributions to the campaigns of each senator, since a senator is supposed to represent only the voters in his state. Accepting contributions from an entity in another state would be equivalent to permitting

    people from the other state to vote for a senator.

    We didn't have as big a problem when banks were prohibited from crossing state lines with their operations. We also didn't have as big a problem with what amounts to egregious usury.

    Leo Toribio

    Pittsburgh, PA

  • Report this Comment On May 17, 2010, at 7:40 PM, militauro wrote:

    What a shame that a California senator is on here as voting against the measure. I will be sending Diane Feinstein an e-mail and to also not expect my vote. I can't believe some of the senators (like Claire McCaskill) I look up to also voted the way they did. Shame.

  • Report this Comment On May 17, 2010, at 7:51 PM, fks3 wrote:

    C'mon Ilan Moscovitz, you can't be that naiive! It's not about size, it's about control. Look at the "who's who" of who voted "no". I wish it were as simple as you seem to think it is.

  • Report this Comment On May 17, 2010, at 8:07 PM, peters46 wrote:

    todavec - I hate to defend Franken, but at least he voted to end TBTF.

  • Report this Comment On May 17, 2010, at 8:36 PM, canticle wrote:

    I keep thinking of A.C. Nauman's SCORCH. A scary read.

  • Report this Comment On May 17, 2010, at 9:46 PM, MyDonkey wrote:

    Next time you write to your representatives, maybe include a check for 10 or 20K in an attempt to buy their vote. But remember, you'd be bidding against lobbyists giving hundreds of thousands, so don't get your hopes up too high. The Cat will not agree to wear a bell because doing so would not be in the Cat's best interest.

    If we Mice were serious about trying to influence the Cat's behavior, we would organize strikes and take to the streets in protests all over the country. In short, start a revolution.

    But apparently we're not even close to becoming serious. The vast majority of Americans today are blissful entertainment addicts who spend most of their leisure time under the spell of computers and television. We would much rather watch "reality" shows on TV than try to deal with the real world outside our cozy livingrooms.

    An extended power outage would certainly change that. With our "drug supply" cut off, we'd become helpless babbling idiots within days. No electricity to run lights, appliances, and motors for our furnaces & water pumps, and when diesel/gasoline runs out in a few days, no fuel for portable generators, and no fuel for trucks to bring food & water and other necessities. I wish it weren't the case but I honestly believe it's going to take some drastic event (such as a lengthy blackout) to get our full attention.

  • Report this Comment On May 17, 2010, at 10:32 PM, CMFgdf wrote:

    I'm disappointed in the vote but I think the theory about why it failed (too many senators in banks' back pockets) is misplaced. There are many, many Senators on the list and a number of them have run for national office (lieberman, mccain, kerry, schumer, dodd) and the contributions they have received over the years grossly distort the average. It might be better to look at the median, rather than the mean, in each group.

  • Report this Comment On May 17, 2010, at 10:58 PM, shortsided wrote:

    OK, we've been an organized (more or less) nation for some 220 years and counting. When have banks NOT owned it???

  • Report this Comment On May 17, 2010, at 11:25 PM, DBrown7 wrote:

    I like Buffett's idea. Any bank CEO who has to go to the Fed for money forfeits his and his spouse's assets or her and her spouse's assets. That would make the CEOs think twice about the risk they are taking.

  • Report this Comment On May 18, 2010, at 2:39 AM, thomaslyons wrote:

    Just think, McCain could have been our President.

  • Report this Comment On May 18, 2010, at 4:01 AM, Tortiewc wrote:

    Thanks you IIan Moscovitz for bringing the TBTF

    vote to light. I think we need a 3 prong approach;

    Regulate Derivatives, Break Up Banks to foster

    competition & place the financial risk back on them, and somehow Hold Rating Agencies accountable. "Absolute power corrupts absolutely" and the big banks have too much of it. I wonder to what extent this crisis could have been mitigated if even one of the above had been in place; if subprime loans hadn't been so heavily leveraged, if banks were smaller and ratings agencies had been honest?

    Now for a question; How much of the problem was caused by subprime loans gone bad (or starting off that way) vs. how heavily they were leveraged, how much would've our economy been impacted if they hadn't been tied to derivatives?

    Anotherwords what would the cost have been for them going belly-up without their ties to leverage?

    Any economists out there that might have an answer to that? By what percent would the damage be lessened? I have a feeling it is many percent.

    I recommend a PBS Frontline video called "The Warning", it's very enlightening and maddening.

  • Report this Comment On May 18, 2010, at 4:56 AM, Rorfool wrote:

    I'm surprised. I thought Fools were more politically astute. You compare political contributions to influencing legislation. Political contributions only help to get politicians elected, but it is the special interest groups, PAC's and Lobbyists, who really influence legislation. They determine who gets elected, what bills go to the floor, what is in those bills, and which bills are passed. I recall an article about 30 or 40 years ago about Gerber Baby Foods. The president told about not being able to get favorable legislation from Congress. He then hired a lobbyist firm and immediately Congress started passing legislation favorable to Gerber and the baby food industry. The point is that the lobbyists are the ones who control legislation. The Supreme Court has been favorable to business since John Marshall was Supreme Court Justice. In the 1890's they took a major step forward when they ruled that corporations have the same rights as individuals which meant that the owner of a corporation has the rights of a corporation in addition to the rights of a citizen. Therefore the corporation owners have much greater clout in Congress than a regular citizen. The Supreme Court put the final nail in the coffin early this year when they ruled that there was no limit to the amount corporations can spend to influence legislation. I have noticed this past year that corporation expenditures for PAC's and lobbyists have increased by about 400%. You can expect that this will increase ten folld in the next year or two. All of these new costs will be passed on to the consumer as increased costs of goods and services. This means that corporate America is now in total control of Congress. Unless we can find a way to eliminate special interest groups and corporate influence of legislation, we are at their complete mercy.

  • Report this Comment On May 18, 2010, at 8:49 AM, MPov wrote:

    The SAFE Act is a piece of populist trash that won't solve the problem it was intended to solve and will only have unintended consequences.

    I think the senators who voted against this step toward socialism were right. First, in this country we don't break up large companies just because they competed successfully. There are lots of industries where failures by major players could reak havoc on our economy (automotive comes to mind) or society, but we don't talk about breaking them up. The banking industry is today's favorite whipping boy. Who will it be tomorrow? Something I've learned in 40 years of watching politicians - any time Congress gets whipped up into a fervor about something we should all be very afraid.

    Also, the Act puts the country at risk of losing its standing as a world financial leader. I've seen no mention in the article, or the comments to it, of the facts that the big Banks compete on an international playing field. The SAFE Act only works if every other country with a large global economy passes the same legislation, otherwise we will be trounced by larger, better-funded competition. So even if one agrees that we should limit the size of banks, the SAFE Act would be a horrible way to do it.

    I'm all in favor of

  • Report this Comment On May 18, 2010, at 9:05 AM, BMFPitt wrote:

    I absolutely hate the idea of limiting the size of banks, but the only thing I hate more than that is knowing that Congress can never be trusted to not bail them out. If it comes down to a bad policy of limiting bank size or the absolute certainty that we will bail them out if they fail, I'll take the bad size limiting policy any day of the week.

  • Report this Comment On May 18, 2010, at 9:48 AM, ewent0 wrote:

    Bank size is related to monopolies. That in itself should be a red flag. If we allow only a handful of super-sized banking institutions to interface with the Federal Reserve and the SEC, how easy would it be to revisit the fraud of Enron when the SEC looked the other way at the marked to market Enron power plays?

    If Enron's, the country's largest producer of energy, isn't a clue to why banks cannot and should not be overlapping monopolies, then all of the previous anti-trust laws have no teeth. And no new laws will change that.

    I no longer want any part of the borderline fraud and extortion tactics of these banking institutions. No matter how you call it, it's your loss, not theirs. My small local bank needs my support. They get it now full on.

  • Report this Comment On May 18, 2010, at 9:51 AM, ewent0 wrote:

    Bailing banking and financial institutions is akin to "wealth protectionism". That is, when the wealth of the 1% is protected in greater efforts than the economic stability of the rest of the country.

    There is no reason any privatized banking institution needs to be bailed out. These chief decision makers make chief decisions without the help of taxpayers. They can suffer their way out of the messes they create.

    How can the stock market ever stabilized when there is an unstable banking process working to insure failure?

  • Report this Comment On May 18, 2010, at 9:54 AM, ewent0 wrote:

    For those who see senators who voted against this reform as being against socialism, think again.

    Take a look at how many of these senators like Lautenberg and others are Big Business and protecting their wealth by voting against common sense reforms.

    Does anybody want to admit that corporate socialism is at work when a senator is protecting his Big Business wealth to the detriment of the rest of the country?

  • Report this Comment On May 18, 2010, at 10:00 AM, ewent0 wrote:

    Why in 2003 was the political powers that were in favor of keeping the ban on the McCain Ferguson Act and 7 years later, the same powers that be are no longer in favor of it?

    Yo-yo politics to protect a political party in office and the reversing when the opposition is in office is as contentiously hypocritical as it gets. Worse, now that the Supreme Court has upheld the ban on McCain Ferguson, a directly ultra-conservative move to allow more money to flow to the GOP for 2012, means that foreign owned American based companies can put as much money as they want into American campaigns.

    This is the best example of how big money is now making the average voter obsolete. Why bother with elections if Big Business can pour billions to get the president they want?

  • Report this Comment On May 18, 2010, at 10:01 AM, FutureMonkey wrote:

    Can we please stop using "Too Big to Fail" as the short-handed scapegoat for the 2008 financial crisis, the stability package, stimulus, deregulation, Obama, Bush, the Dems, the GOP, or anything else we happen to be hating on this week? The phrase "Too Big to Fail" has lost all meaning other than - oh that must be bad, I'm against it.

    Reality check - Senators could have voted for or against this ammendment for reasons other than channeling pure evil from the depths of hell. Try to understand an issue in all of its complexity before demonizing the other side. I'm not even sure what my position is on this ammendment, but I do know that the vitriol and shallow, bloggish, sound bite commentary didn't help me understand the issue any more than I did before.

    While we are at it, why are the top stories on The Fool becoming so politicized, why aren't we talking about equities investing?

  • Report this Comment On May 18, 2010, at 10:09 AM, unitedcs1911 wrote:

    Did anyone expect anything logical, right or moral to come out of out leadership ? Don't fool yourselves. Until ethics and real world experience become a pre-requisite to run (or hold) political office, it will continue to get worse.

  • Report this Comment On May 18, 2010, at 10:44 AM, unitedcs1911 wrote:

    GOP or GOB I think the "good old boys" is a better acronym. Not just the republicans any more. Membership requires cash, lots of it. Remember the golden rule... those with the gold make the rules. Who gives a sh__ about the struggling in this country, give them a little unemployment and education credits and they'll go away. If they make a lot of noise or gain ground, stifle them with corporate media. Label them as kooks, or better, kooks with guns. Lets increase taxes by promising healthcare for everyone. Screw the congrssional budget office figures, most Americans can't spell it much less understand its findings. Lets take what little bit of savings they may have left by convincing them that the market is "where to be" to get back what they lost by being stupid. The end of the road is in sight yet it's "petal to the metal" from our "GOB" leadership. The insane are running the asylum.

  • Report this Comment On May 18, 2010, at 10:46 AM, Turfscape wrote:

    todavek wrote:"Note that it didn't take long for CLOWN Al Franken to get signed up for the goodies!"

    What are you talking about? Sen. Franken voted AGAINST THE BANKS!

    Or, are you suggesting that all campaign contributions be outlawed?

  • Report this Comment On May 18, 2010, at 10:57 AM, sapereaude1 wrote:

    So, we end in bankruptcy, anarchy, civil war, and dictatorship. How does that differ from the history of any of our predecessors in the World Empire business? At least, with our weaponry, our collapse will help solve the overpopulation crisis.

  • Report this Comment On May 18, 2010, at 11:18 AM, TMFDiogenes wrote:

    Have to respond to this articulate but incorrect comment because it cuts to the heart of the problem:

    "First, in this country we don't break up large companies just because they competed successfully....Also, the Act puts the country at risk of losing its standing as a world financial leader. I've seen no mention in the article, or the comments to it, of the facts that the big Banks compete on an international playing field. The SAFE Act only works if every other country with a large global economy passes the same legislation, otherwise we will be trounced by larger, better-funded competition."

    1. Pretty much every major bank and Wall Street firm would be out of business today were it not for FDIC deposit protection and bailouts. This is a fact. Neither traditional banking nor high-risk gambling is a sustainable business model in a laissez faire model. It's government assistance, not "free and fair competition" that preserved too-big-to-fail banks.

    2. There have been dozens and dozens of studies that have found no efficiencies to banking beyond about $100 billion in assets, versus none that have found efficiencies for $2 trillion banks like Citigroup.

    European megabanks are a disaster (look at what's happening in Greece), and the English are already on the path to breaking up theirs.

  • Report this Comment On May 18, 2010, at 11:22 AM, TMFDiogenes wrote:

    "Can we please stop using "Too Big to Fail" as the short-handed scapegoat for the 2008 financial crisis, the stability package, stimulus, deregulation, Obama, Bush, the Dems, the GOP, or anything else we happen to be hating on this week? The phrase "Too Big to Fail" has lost all meaning other than - oh that must be bad, I'm against it."

    It's true, TBTF has sometimes been used as a short hand for every problem leading up to the crisis. I'm using it in it's original sense in an article that's specifically about the danger, moral hazards, and costs of having banks that are so large and interconnected that their failure would destroy our economy. There were other problems besides TBTF -- they're just not what this article is about.


  • Report this Comment On May 18, 2010, at 11:38 AM, moda0306 wrote:

    Why do so many people think that helping poor people buy houses had such a HUGE part in this crisis? The bottom and middle end of the market is MUCH less impacted than the top. How do you explain $1 Million houses selling for $1.7 million? The community reinvestment act? Let's face it, there are several causes to this crisis:

    1) Artificially low interest rates

    2) Deregulation & lack of accountability

    3) Poor financial education in a consumer based, debt reliant society

    4) Institutions so large, that their failure would collapse an entire economy

    5) Yes, our government subsidizing helped cause the crisis... key word... HELPED.

    6) Wishful thinking on behalf of consumers that an asset like a home could continue to be used as a bank and would continue to go up in price.

    7) Other macroeconomic factors I probably don't fully understand.

    Dealing with any one of this is a good thing, and doesn't depend on others being done to be a good idea.

  • Report this Comment On May 18, 2010, at 1:03 PM, varney wrote:


    The point is that government regulation and court decisions which forced banks into lending money to uncreditworthy individuals caused them to loosen their time-tested rules on lending money.

    Banks had a hard time justifying the idea of looser credit standards for their least creditworthy borrowers, so they loosened standards across the board. This allowed people at the mid at top levels to overextend themselves in a way they never would have been able to under the old standards.

    You also forgot to mention mark-to-market as one of the contributing factors.

    As for deregulation, the deregulation that went on wasn't really all that culpable. It was missing regulation in terms of CDOs (AIG had no hope of paying of it's obligations - it was essentially fraud to sell them) and the above mentioned interference which were largely responsible.

  • Report this Comment On May 18, 2010, at 1:17 PM, pondee619 wrote:

    What does this mean: "The next time that such a catastrophically huge bank into trouble,..."?

  • Report this Comment On May 18, 2010, at 7:09 PM, RicoCanuch wrote:

    Would it not make more sense if legislation was passed that made it illegal for banks and financial institutions to donate money to politicians or at least severly limit the amount?

  • Report this Comment On May 20, 2010, at 4:19 AM, interdependent wrote:

    Size matters. Banks must be efficient, but it sounds like a mere $100 billion does that. Beyond that amount makes a bank dangerous, unaccountable, and powerful, but "efficient"? Not so much. Keeping banks small would actually be the best way to protect the free market from collapse or government takeover. Look at what happened in 2008.

    Banks should behave more like... well like "banks". Simplifying what banks can do with our money, so that we can all understand it and hold them accountable. Rather than placing risky speculative bets worth trillions on complicated financial vehicles, keeping assets on hand seems more like the idea of what banks are really for, doesn't it? Shouldn't clever investment schemes be left to the profiteers, con men and sharks to go through? Does my little savings account really have to be gambled on derivatives or sub-prime mortgages? Can't I just put my paycheck in the bank without worrying that I'm funding the next economic collapse?

    Local ownership is good. As a former Washington Mutual customer, I really like my local Credit Union. Quite efficient, no frills, they know my name when I walk in, and they don't spend a penny of my money on corporate waste or on elections. (My checking account earns me a higher interest rate than CDs at any corporate bank.)

    Elections should be publicly funded. If we pay a campaign tax, and outlaw contributions, it would be cheaper for every one of us. Who ultimately pays for lobbyists and corporate 'influence'? When corporate America goes shopping for votes in Washington D.C. where do the millions really come from? You and me. As consumers we pay more for goods and services, as shareholders we sacrifice our profits for "the cost of doing business in this town", and as citizens we pay a higher percentage of our tax dollars to finance our national debt when elected officials vote for corporate giveaways, pork, and Too Big To Fail Banks that we the taxpayers will have to bail out to prevent economic disaster.

    Public funding would be so, so cheap! And we might get more Senators who protect the integrity of our financial system, instead of protecting the profits of financial schemers. Who needs $3 million in campaign contributions once running for Senator costs under $100,000.

    But we are not moving towards outlawing corporate influence. Now that corporations can freely give unlimited amounts to campaigns, public funding seems more urgent - and less likely - than ever. But still more likely than stripping corporations of their Supreme Court-confirmed "Constitutional Rights" to free speech.

    Shall we start a Foolish movement?

  • Report this Comment On May 21, 2010, at 11:15 AM, snowmon wrote:

    The whole idea that more regulation or capping the size of institutions would solve any problems that led to, or may lead to future financial meltdowns is ludicrous. The politicians are the ones who created the conditions for a financial meltdown to happen in the first place, now they are looking to blame everyone but themselves. AIG had 500 regulators on them through the whole thing. They were not asleep, they were simply not alarmed. Going to 3000 regulators is not going to help. The solution to "to big to fail" is to actually LET THEM FAIL. Done, solved, no cost to the taxpayer! New better and stronger institutions will spontaneously form in the wake of such failures if we let them. This is how the creative destruction of capitalism is supposed to work. The irresponsible are cleared from the marketplace to give someone new a chance to pick up their assets and customers, and do a better job of it. The politicians want build a corporatist state where they pick the winners and losers because this maximizes their power and influence. What we really need is for Congress to stop fixing the game, and go away.

  • Report this Comment On May 21, 2010, at 2:30 PM, msobo001 wrote:

    I don't care to get into the details of the issue, but I just want to say Thanks to the Fool for including the "Washington Influence" in the weekly updates. In case you have been in a coma for 3 years governments all over the globe are having just as much influence as fundamentals on the price of your stock. Sad but true, and Washington is the biggest offender. Thanks Fools being open minded enough (brave maybe--lets see how often you get audited over the next few years while publishing articles critical of DC?) to provide these Washington updates and I will close with a cautionary quote from George Washington a few months back on the Income Investor boards: "Government is not reason, it is not eloquent, it is force. Like fire, it is a dangerous servant and a fearful master."

    Fool On! And take the time to get involved!

  • Report this Comment On May 21, 2010, at 6:37 PM, blueskysbonnie wrote:

    I agree with msobo001 that Fool should continue its political watch.

    Thanks; I have notified both my senators that I am dissatisfied with thier votes; (previously contacted them to ask for their support of the amendment); it's usually hard for me to find out which reps voted for or against any law.....THANKS, FOOL

  • Report this Comment On May 22, 2010, at 10:25 AM, drinkthekoolaid wrote:

    We're all screwed, let's do the math.

    According to the supreme court:

    free speech = $ contributions (not actually speaking)

    Therefore those with the most $ speak the loudest.


  • Report this Comment On May 22, 2010, at 12:19 PM, philkek wrote:

    Thank all you fools for enjoying your FREEDOMS in this Great country of USA. Freedom of speech, Freedom of the press, etc. Freedom for all peoples here, Red, Yellow, Black, and White. But FREEDOM is not free as seen in military graveyards. It cost much blood and guts along with using good brains of our LEADERSHIP to bring us through peace and wars. As the saying goes, "God bless America". (as long as possible). Americans will face fear and greed while investing in our future. I enjoy reading all these comments of fellow fools. Now back to the job of making more honest money. Thanks MF.

  • Report this Comment On May 22, 2010, at 4:02 PM, mjtri wrote:

    I am usually very much in agreement with the Fool articles. However, I'm not sure about this one. To blame this mess on just the big banks seems way, way too simplistic. Plus, some of those large banks did fail.

    It's kind of interesting that if someone must sell their house, we call it a failure/foreclosure. But, if a big bank's shareholders and unsecured creditors lose everything or almost everything and the CEO loses his job, we don't view it to be a failure unless the institution is totally ripped apart.

  • Report this Comment On May 28, 2010, at 12:32 AM, masterN17 wrote:

    Apologies for link plugging, but I just received a response from Dianne Feinstein (or someone from her office) regarding her no-vote on the SAFE amendment.

  • Report this Comment On June 02, 2010, at 11:41 PM, rovobo wrote:

    I'm glad to see MF taking a strong stand on the politics of campaign contributions, it amazes me to hear people talk about lady gaga,lindsey Lohan and all banal BS that surrounds us,but completely ignore all the greed and deception foisted on us the powers that be under the name of patriotism or some other catch phrase that is in vogue at the time.

    it is time to clean house in Washington but it won't happen till we get public financing of campaigns it wont solve the greed and corruption,but it's a good start.Free speech is a poor excuse for the power brokers to buy our lawmakers


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