Voice of Cramerica

Breaking Up the Banks?


One of the ideas in circulation that's been gaining a lot of traction is the notion that we need to cut the giant banks down to size, so that none of them ever again will be too big to fail. We've spent a lot of time on Mad Money explaining why it would be foolish to nationalize the large banks like Citigroup , but I think it would be just as silly to carve them up into little pieces.

Never mind the fact that without the scale of a JPMorgan Chase or a Bank of America or a Wells Fargo, there wouldn't have been any banks large enough to acquire the non-viable institutions, meaning the US government would have had to clean up after Countrywide, Wachovia, Washington Mutual, Bear Stearns and Merrill Lynch, just to name some of the larger banks that were taken over instead of becoming the problem of the American taxpayer.

Beyond that, nowhere have I seen anyone consider that controlling bank size isn't only up to us. There are plenty of foreign monster banks around: Deutsche Bank, Credit Suisse, Banco Santander and all of those insolvent British banks. Most other countries seem to think fostering enormous national champion banks is a sound and desirable policy, even when those banks start to overshadow the mother country, as in Switzerland or poor, poor Iceland.

In a world where we can't even convince our allies to send a few more battalions to the Hindu Kush, or to lever up a bit to help get the world economy back into gear, I don't hold out much hope that we'll be able to prevail on them to reverse their centuries-long affinities for economic concentration. 

We don't have a choice between big banks that are too big to fail and small banks that aren't. The small-bank option will be our small banks and their big banks. Too big to fail equals too big to exist? More like too parochial for words.

Cramer's charitable trust owns JPMorgan Chase and Wells Fargo.

Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like. 

Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.

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