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Harvey Rosenblum, Director of Research for the Dallas Fed, has written an interesting if flawed report on the status of “Too Big to Fail” and the early results of the Dodd-Frank reforms. Some highlights include:

1. Since the 1970′s the share of assets of the five largest banks has grown from 17% to 52%. As Rosenblum notes, with size comes complexity, and with complexity the opportunities for obfuscation, malfeasance, and creative greed.
2. Smaller banks generally weathered the crisis better, and are generally in better shape now. Most TBTF banks still have toxic assets which still infect the whole economy.
3. Dodd-Frank remains a work in progress, as its broad prescriptions are turned into rules by the required agencies, and this process has introduced more uncertainty into the system. But it is fighting size and complexity with size and complexity, leaving the larger banks, with its squadrons of lawyers, lobbyists and accountants, in an advantageous position, and the smaller banks, who have no choice but to comply with the costly demands, in a tenuous one. The smaller banks face the burdens of these regulations even if they didn’t do anything wrong the first time around.
4. So long as the Fed maintains its remarkably low interest rates it will be encouraging debtors and effectively penalizing savers.
5. He recommends breaking up the larger banks into smaller ones as “the ultimate solution” for TBTF – one that seems almost self-evident.

One might quibble with his overall endorsement and understanding of capitalism, but I think it is pretty clear that Congress hasn’t done some of the things that need to be done in order to restore some sanity to the system, including reviewing the role of the Fed itself. Clearly one of the main problems in the collapse of ’08 was the behavior of the ratings agencies, and Dodd-Frank doesn’t address them at all. These are an obvious problem in the system, especially when one considers how the ratings work and how the agencies are incentivized or not by that which they are rating.

Then too, there is the problem of implementing such regulations. The NYSE does around $15 trillion in sales annually with hundreds of thousands of exchanges daily and has, if I’m not mistaken, five full time regulators overseeing it.

One reads reports such as this with a deepening sense that this is far, far from over.

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Erstwhile Porcher Caleb Stegall has a fine piece in The Humane Vision of Wendell Berry where he discusses the difference between convivial and instrumental uses of technology, the former where technology is made to serve us and the latter where we are made to serve it. From New Jersey comes the story of a man who implanted magnets in his arm in order to be able to hold his iPod while he works out or whatever. Self-mutilation in order to better serve our devices? Nothing convivial about that. If it is a “new trend of integrating humans and technology” it is hard to see this one ending well.

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Devon, PA.  Outside of a few magazines and other fora on the conservative and collectivist fringe, one seldom hears the opinion that the banking crisis of 2008 was brought about chiefly, not to say exclusively, by the kinds of teratological corporate structure that came into being once the Glass-Stegall act of 1933 was repealed.  Chronicles has addressed this matter repeatedly, but what a pleasure it is to see the opinion page of the Wall Street Journal finally get in the game (sort of).  From Tom C. Frost’s excellent editorial that is at once, and in the best sense, Jayber Crow, Wilhelm Röpke, and Frank Capra:

In the early 1950s, when I was a young college graduate and a new employee of the Frost Bank, my great-Uncle Joe Frost, then CEO, told me that the very first goal we had was to return the deposits we received from customers. Our obligation was to take care of the community’s liquid assets and manage them safely so others could use them (via loans) to grow.

Frost Bank was not big enough to be saved by the government, Uncle Joe told me at the time, so we would always need to maintain strong liquidity, safe assets and adequate capital. I was impressed that making money was not high on his list of priorities, but he implied that profits would come if we observed sound banking principles.

When we look at banking in the United States today, Uncle Joe’s values seem so long ago and far away. The industry is now dominated by a few large banks.

In 1970, according to data from the Federal Reserve Bank of Dallas, the five largest U.S. institutions owned 17% of banking industry assets; in 2010 that share was 52%. Their business has expanded well beyond the role as steward of the community’s assets into riskier endeavors that chase supersized returns.

As the financial crisis of 2008 showed, the very diversification, structure and size of most of our largest banks put the community’s assets at tremendous risk. They had become “too big to fail,” and the government—really the American taxpayers—had no choice but to keep their colossal mistakes from bringing down the economy.

But as Harvey Rosenblum, the Dallas Federal Reserve Bank’s executive vice president and director of research, wrote last year, “These rescues have penalized equity holders while protecting bondholders and, to a lesser extent, bank managers.” In other words, by protecting people from the consequences of their errors, the bailouts raised the risk that the same errors will be made in the future.

There are many good proposals for minimizing, if not entirely eliminating, the likelihood of another “too big to fail” crisis of the sort we faced in 2008. Perhaps most prominent among them is the recommendation that we require banks to hold additional capital to protect themselves (and the rest of us) from loans and investments gone sour.

But even these recommendations would allow the big banks to keep their traditional FDIC-insured deposits, alongside their investment enterprises within the parent company. I suggest that we divide the two functions into separately owned, managed and regulated entities. That’s the only way we can ensure that their riskier businesses don’t undermine the insured deposits that are the foundation of a stable and healthy economy.

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See Rod Dreher’s interview of Congressman Jeff Fortenberry (R-NE), one of the few Congressmen who would feel right at home on the porch. Here’s a snippet, but read it all.

That’s why I think an entrepreneurial model rooted in localism, one that defends family life and defends cultural institutions as critical to social renewal, is a compelling vision….

We have to have a vibrant economy that’s good for persons. We have to also be talking about a different economic emphasis, rather than the current one, which simply focuses on the tactics of job creation but is not challenging the concentration of power in Washington and Wall Street, which is making us more insecure.

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FPR readers will be interested in two new essays in ANAMNESIS. The first, by Professor Jay Langdale, is a fascinating examination of Richard Weaver’s analysis of pathologies related to modern war: “’One more chance for the conservative solution’: Richard Weaver’s Traditionalist Conservative Critique of Modern Warfare.” The second essay, “The Contraception Mandate and Secular Discourse,” is by the Front Porch’s own, Professor R.J. Snell. This is a book review of Stephen D. Smith’s The Disenchantment of Secular Discourse. By way of examining Smith, Snell elucidates some of the significant challenges that modern liberalism poses for religion and traditionalism.

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