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2008 Bailout Architect: We Must Break Up Big Banks

| by Robert Fowler
Federal Reserve Bank of Minneapolis president Neel KashkariFederal Reserve Bank of Minneapolis president Neel Kashkari

Neel Kashkari, the newly installed president of the Federal Reserve Bank of Minneapolis, has called for the nation’s biggest banks to be broken up. This stance has shocked Wall Street insiders, especially because Kashkari directly supervised the 2008 big bank bailouts.

Kashkari have served as a Goldman Sachs executive and worked in the Treasury Department of the George W. Bush administration. During the 2008 financial crisis, he managed the Troubled Asset Relief Program (TARP), which provided vast government bailouts to the big banks.

On Feb. 16, Kashkari delivered a speech at the Brookings Institute in Washington D.C., assessing that the Obama administration and the 2010 Dodd-Frank regulatory law “did not go far enough” to cure the country of “too big to fail.”

In 2008, banks such as JPMorgan Chase and Wells Fargo were considered so large and interconnected to the U.S. economy, the government deemed them too integral to go bankrupt. So U.S. taxpayer money was surged into these institutions to keep them afloat.

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Bills such as Dodd-Frank were designed to ensure that this scenario would not be repeated.

“I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy,” Kashkari said, according to The Huffington Post.

He then offered three options for keeping the big banks in check.

Option one: “Breaking up large banks into smaller, less connected, less important entities.”

Option two: “Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant).”

Option three: “Taxing leverage throughout the financial system to reduce systemic risk wherever they lie.”

Democratic presidential candidate Sen. Bernie Sanders of Vermont said that he was “delighted” by Kashkari’s stance.

The self-described Democratic Socialist candidate has made breaking up the big banks a centerpiece of his campaign. During the last Democratic debate, Sanders said that Dodd-Frank was only a half-measure.

“When you have three out of four largest financial institutions in this country bigger today than they were when we bailed them out because they were too big to fail… I think if Teddy Roosevelt were alive today, the great trust-buster would have said ‘break them up,’” Sanders said, according to The Washington Post.

Better Markets’ president Dennis Kelleher told Politico that Kashkari's speech was “refreshing and encouraging.”

“For too long too many people involved in creating or responding to the financial crash have remained silent about what happened and what really needs to be done, and that goes for Wall Street CEOs and policymakers,” Kelleher said.

Kashkari will provide the U.S. Congress a plan to end “too big to fail” at the end of 2016.

Sources: The Huffington Post, Politico, The Washington Post / Photo Credit: Wikimedia Commons

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