J.P. Morgan's Mugging by The Feds Is A Bad Precedent
Richard Parsons says the $13 billion penalty extracted from J.P. Morgan will make big banks reluctant in future crises to help government by absorbing smaller failures ("Sending a Bad Message to Big Banks," op-ed, Oct. 21). But isn't Dodd-Frank meant to keep a financial meltdown from ever happening again?</br></br>That's not the lesson to me. It's that socializing present small failures assures a larger future failure. Mr. Parsons notes that 30 of the top 50 banks in the 1980s banking crisis are now amalgamated into Bank of America, J.P. Morgan and Wells Fargo, and only one of these three giants might have survived 2008 if failure hadn't been further socialized by the Federal Reserve.</br></br>Results? The U.S. is now $90 trillion in debt for current and future obligations. From the point when government intervened in the S&L crisis, we've not since had sustainable "normalized" interest rates. Despite economic expansion under Presidents Reagan and Clinton, interest rates have been on the same downward trajectory. There is no lasting risk-free rate of return anymore.</br></br>Officials at the Fed lament that in the 1980s the Fed could lower interest rates to spur economic activity, but today with rates near zero, they must use "extraordinary measures." That's incorrect. By forcibly intervening in market failures, government has driven risk steadily higher and interest rates (and purchasing power) correspondingly lower. These aren't the seeds of growth but of its destruction.</br></br>Now we've socialized failures spanning 50 years into the maw of the currency of the U.S. and onto the balance sheet of the Federal Reserve. Where now do we send our socialized failures? To some other planet? Our "great economic thinkers" have done the exact, wrong thing.