If I walk outside my lower Manhattan office building, I can pretty easily hear the drum beat coming from the “Occupy Wall Street” protestors a few blocks away. The political ramifications of our festering financial and economic crisis have reached the sidewalks of New York, as well as other large and small cities across the U.S. From the beginning of the ongoing economic slump, many commentators, market participants and politicians have used this issue to advance causes and positions that they probably held in better times as well. As songwriter Steve Stills noted in a lyric referencing a mid-1960s street protest, the demonstrators mostly say “hooray for our side.” But, what exactly does their side want?

The best characterization that I’ve heard regarding the movement’s diffuse goals came from an off-duty protestor who has weathered the economic storms well enough to afford a neighboring table at one of my favorite New York restaurants. He confessed that although he didn’t really know what should be done, he believed that things are going from bad to worse and simply wanted to raise the volume and intensity of the discussion in hopes that something good would boil up from the process.

Given the rehash of familiar remedies and the mudslinging that have dominated the debates so far, I thought I’d employ my dinner companion’s logic to raise at least one issue—the “too big to fail” fear—that I think is central to finding a more stable financial footing once we get past our current problem. The four largest U.S. banks hold close to $4 trillion in deposits—an increase of almost 5% from last year –representing roughly 40% of all bank deposits in the U.S. Some financial institutions are still so large and so interconnected that their failure would be disastrous for the global economy. The Greek debt issue, for example, is such a threat because if that country ever defaulted, it might cause some bank that’s “too big to fail” to actually fail.

I’m pretty sure that adding another 800 pages to the Dodd-Frank Act won’t solve the problem. Maybe the capital standards proposed in Basel III hold more promise. After all, as a taxpayer, if I’m acting as the insurer against losses, I should have the right to say what risks the insured can take. The point here is that the issue should be debated with an open mind. As Still’s song reminds us, “Nobody’s right if everybody’s wrong.”

***

WEBC.101211.03