Are the Big Banks REALLY Too Big to Be Allowed to Fail?

The public relations firms of the big banks in the United States and England are busily grinding out PR releases, trying to convince us that they are critical to reducing unemployment and jump starting our economy. It reminds me of the old joke about the person who murdered his parents telling the judge to show mercy because he is an orphan!

There are many institutions who shared in the creation of the economic mess we are now in, that directly affects appraisers and impacts the future of our profession. My nomination for the top of the list of miscreants are the "big banks." Admittedly, they had lots of company in enabling the housing market implosion, but without their profligate involvement, the subprime mess might have been avoided. The resulting foreclosures and the continuing slow recovery, as well as the malignant unemployment problem, are directly linked to their greed and disregard of everyone’s economic well being — except their own, of course...

Lurid tales of big bank foreclosure shenanigans are being reported in the press regularly. Judges all over the country are up in arms about the careless and often fraudulent papers presented to the courts in many foreclosure actions.I think we are just beginning to learn the true scope of the big banks' financial problems. The four largest banks in the US are Bank of America, CityGroup, JP Morgan and Wells Fargo. Gretchen Morgenson, a financial reporter for the NY Times, writes that these four banks have already set up reserves of about $10 billion dollars for possible mortgage repurchases. However, this may just be a drop in the bucket, considering that $5 trillion in mortgage securities were issued from 2005 to 2007. I think their mortgage losses may be big enough to put one or more of them out of business, and they still have to cope with gigantic credit card losses that haven't really been dealt with yet.

When the Feds put Lehman Brothers out of their misery, we were told that the economy could not get along without them. However, we seem to be doing just fine, as evidenced by the size of the bonuses paid by the other investment bankers to their employees in 2010.

When we are told that one of our big banks will need to be bailed out with our money because they are "too big to be allowed to fail," we shouldn't believe them! We have no shortage of banks in the United States, and bailing them out of self-inflicted bad investments is another example of allowing financiers to gamble with our money, and suffer no ill consequences! It proved disastrous in the 1980s savings and loan scandal, when it cost depositors and investors over $160 billion dollars. It's time for Americans to recognize that "banker mentality" is all about short term profits and bonuses, rather than stability, sound underwriting and sensible lending parameters.