Five of the Eight Major Banks Could Be Heading For Another Bailout Soon [VIDEO]

The major bank bailouts will occur because the institutions have no credible plan for surviving a financial crisis.

Federal regulators are warning of five major bank bailouts out of eight financial institutions that are allegedly too big to fail.

Associated Press reports,

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JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street Bank were cited Wednesday by the Federal Reserve and the Federal Deposit Insurance Corp. for gaps in their bankruptcy plans known as “living wills” that they were required to submit. The five banks — with a total of about $5.6 trillion in assets — were among eight Wall Street behemoths whose plans were evaluated.

The two agencies found the five banks’ plans are “not credible” or insufficient for an orderly restructuring in the event of bankruptcy. The regulators gave the banks an Oct. 1 deadline to fix the problems or face possible “more stringent” requirements. That could include ordering the banks to beef up their capital cushions against unforeseen losses. If the regulators still weren’t satisfied, banks eventually could be forced to sell off assets.

This is the bind we are in due to “too big to fail” ideology. The fact is, if any one of these institutions collapsed, it would trigger the recession to get much worse much sooner. So how can the banks be punished for failing to follow the law? If they are too big to fail, then the government must be very careful to do nothing to cause investors to lose confidence in them. The banks have every reason to believe that the government is too afraid of the economic consequences to ever seriously penalize them.

The last time we bailed out the banks, Hank Paulson forced all the banks to accept bailout money, whether they wanted it or not, because he didn’t want some banks to be perceived as more sound than others. Federal regulators are departing from that policy a bit, but when (not if) the next crisis hits, I suspect they will revert to the previous practice and all eight banks will be bailed out.

Just think: If we had let the banks fail in 2008 we would have a chance to be building the economy back up without worrying about these huge liabilities. Major bank bailouts are the gift that keeps on giving.

Or rather the wound that keeps on festering.

Joe Scudder

Joe Scudder is the "nom de plume" (or "nom de guerre") of a fifty-ish-year-old writer and stroke survivor. He lives in St Louis with his wife and still-at-home children. He has been a freelance writer and occasional political activist since the early nineties. He describes his politics as Tolkienesque.

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