Please excuse the short diary, but I can't find anyone discussing this anywhere.
I think I am becoming obsessed with this question and so far can't get a reasonable answer as to why this is a bad idea.
Unlike the auto industry that has unions and pensions, breaking up the banks wont hurt workers.
We used to have monopoly laws in this country to increase competition (remember when AT&T was broken up into Lucent and other smaller companies?)
Well what would be wrong with doing this with the banks? Probably less jobs would be lost in that industry than are being lost now.
My reasoning below the fold.
Consistently, in this crisis smaller banks have preformed better than the bigger banks because they have not been involved in investing in abstract, derivative instruments. They have not been involved in inventing these instruments and they have remained closer to their tangible assets in their decision making.
Further, the small banks have acted in their own behalf because if a small bank does poorly, the employees will all do poorly. In big banks, people act in their own interest - not in the interest of the bank.
(I pointed out in a comment earlier that Thain's office furniture was a frivolous but good example of this.)
I also believe Alan Greenspan alluded to this in his testimony when he spoke of his misplaced belief that banks would act in their own interest - thus protecting the economy.
There have been several reports that the banks have been using their 25 billion dollar cash influx in order to INCREASE the consolidation of the banking industry.
This sounds like an awful idea to me. It sounds like it will decrease competition between the banks and thus is fundamentally anti-capitalistic. It will also be bad for businesses as banks will have more power to set rates. Finally, it will encourage people within banks to act only for themselves - not the banks.
This diary is purely a question.
I'm a physician not an economist. This is not my field of expertise, but I don't understand why we are encouraging bank consolidation. Please tell me what the down side would be of making the banks smaller.