Failing Big Banks? Euthanize ‘Em!

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Paul Volcker, the former Federal Reserve chairman and Obama ally in reforming Wall Street, went on CNN this weekend to explain why tough financial reform should involve a bank “euthanasia” process. By euthanasia, Volcker essentially means a wind-down, liquidation process for when a too-big-to-fail bank—say, Citigroup—teeters on the brink and threatens to topple much of the financial markets. “There ought to be some authority that can step in, take over that organization and liquidate it or merge it—not save it,” Volcker told CNN’s Fareed Zakaria on Sunday.

Of course, this kind of financial euthanasia offers more than just a resolution process for the next great Wall Street meltdown. It also eliminates what people like Volcker and financial watchdog Elizabeth Warren call the “moral hazard” in the financial markets in which, as Volcker described, “people think they’re going to be rescued and, therefore, will take risks that they shouldn’t be doing.” Dangling a so-called euthanasia process over banks’ heads strips away the government guarantee that banks who take too many risks and implode because of those risks will always be backstopped by taxpayer funds. It’s a plan Volcker has been pushing since he emerged on the financial-reform scene in the past year or so, and Obama so far seems to be support some kind of bank wind-down process. “You get very aggressive traders, and they’re out there,” Volcker said. “Millions of dollars are at stake, and personal bonuses, so they have a real incentive to take risks, which is fine, if you’re not being protected by the government.”

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

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Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

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