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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 25, 2009 at 10:07 AM

‘Did so!’ ‘Did not’ — Missing the larger problem of too-big-to-fail finance

Top of the News: Ken says he was strong-armed by the Federal Reserve to take over Merrill Lynch. Ben says no such thing happened. The Lewis vs. Bernanke catfight misses the larger problem.

When an institution such as Merrill Lynch or Bank of America have become so large, thanks to industry consolidation, comatose antitrust regulation and compromised financial regulators, they pose systemic dangers to the economy.

Thus, the government necessarily intervenes in a heavy-handed way. But in a larger sense, these institutions became part of the government — even before taxpayers had to fork over $20 billion to make the Merrill-BofA deal happen.

Unfortunately this systemic risk is not addressed in the Obama administration’s financial reforms. Instead, they propose to give the Fed more power. With the political power of big finance, nobody dares suggest the obvious: An orderly breakup of these giants. Scattering their constituent parts back to cities from which the big institutions snatched regional banks originally would also be healthy for those metro economies.

The Back Story: Jobless claims are back up. It will be interesting to see where the trend goes from here. But Harvard economist Jeff Frankels has remained a bear on the labor market. Earlier this month on his blog he noted that the length of the average workweek was at its lowest level since 1964. The trend continued in May.

“If firms were really gearing up to start hiring workers once again, why would they now be cutting back as strongly as ever on the hours that they ask their existing employees to work? If one factors in falling wages, to compute total weekly earnings, the picture looks still worse.”

Today’s Econ Haiku:

A wing and a prayer

Just make sure they attach well

When building your Dream

Comments | More in Bailout, Banking, Jobs/Unemployment

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