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Oh dear. I managed to avoid talking about banks for quite a while. It seems time to revisit our favorite villains. They’re up to no good again.

The problem with banking, as someone far wiser than I once said, is that banks are more dangerous than standing armies. I guess he must have said that back before the contemporary American infatuation with all things military. But the point remains the same.

Banks are dangerous. Really and truly dangerous. And the bigger they get the more dangerous they get. Comparing a mega-bank like Citibank with our local three branch small bank is ludicrous. They may look and sound similar, but they are in different universes. It’s like comparing a bee-bee gun to a nuclear bomb. They both can go pop. But one can do an awful lot more harm.

So much so that our regulators are scared stiff of regulating them.

You probably missed it, but one of our regulators recently admitted that his agency was afraid of enforcing the law against a big bank because of the mess it could make of the economy were it even rumored to fail, let alone actually fail. This attitude effectively moves the mega-banks outside the law. They used to be too big to fail. Now they are too big to prosecute. Don’t you wish you could be outside the law? You could trash entire economies and then bitch about being inconvenienced by those bad economies. Heck you could even get yourself bailed out whilst you foreclose on the poor people you sold rotten loans to. You would become truly blameless. For everything. You could even brag publicly, as Jamie Dimon CEO of JP Morgan Chase did, that your bank does really well in recessions.

No wonder banks cause so many recessions. They profit from them.

Not that Dimon is very good. He managed to lose a pot load of money for his shareholders in a great scam scheme risk avoidance strategy known affectionately as the ‘London Whale’. The ‘Whale’ bit being a reference to the extent of the losses the brilliant yahoos involved managed to accumulate. Not that, mind you, any of the senior executives knew about those losses. Heavens forfend! Not once were the people who earn gazillion dollar bonuses for being the epicenter of all things good involved in such plans. Oh dear heaven no. The poor dears were just as surprised as you or I when the losses started oozing from every pore of the beast they purportedly manage. Never mind. Their bonuses and stellar reputations remain intact. Safe too are the yahoos.

No. The only idiots in the episode of the ‘Whale’ are you and I who steadfastly underwrite JP Morgan Chase and its peers, tolerate it excesses, allow it to roll over its regulators, and generally muck around with our economy.

And: Yes we do underwrite the mega-banks.

They benefit from being too big to fail, prosecute, and stop. Because of this their creditors, who are the devil incarnate when they deal with your or me, become cream puffs and hand over money at ever cheaper rates to the mega-banks. You see, because bank stupidity goes unpunished – we bail them out and set them on their way every time – their creditors could care less about silly schemes like the ‘Whale’. Those losses just don’t matter. The taxpayers will step in and pay up.

Why?

Because if a mega-bank goes down, the economy goes down with it. In another context it would be called hostage taking. In banking it’s called being regulated. With the definition of regulated being that you can get away with anything.

It was not always thus. And for small banks it still isn’t thus. Small banks get closed down all the time. When they fail, the regulators think nothing of stepping in, taking over, and selling off the profit making bits to other, usually larger, banks. It goes on all the time. I know. I helped buy a few. So small bank creditors are a lot more careful and charge a lot more for their money.

So the big banks – the really dangerous ones – get all the breaks. The little ones get none.

And the bigger you get, the more breaks you get. Eventually you can even rise to lawless status. The only thing you have to fear – apart from not having enough space to accommodate your bonus – is those pesky anti-trust laws. But in post-Reagan America we don’t use those laws. Indeed we encourage bigness.

So it is both refreshing and curious to see a small, but determined, band in Congress beginning to beat the ‘break up the banks drum’.

Yes. Please. Break up the banks.

And if you think this is academic think, if you will, for a moment about poor Cyprus.

Cyprus is one of those unfortunate small places that allowed its banks to outgrow its economy. Cypriot bank assets are about 800% of the island’s GDP. Its banks had become a favorite offshore location for Russian ‘hot’ money. The Cypriot economy has been destabilized in recent years, it is shrinking and needs Euro Zone help.

This is another one of those paradoxes. Euro Zone help is the same as applying the leeches. If the first leech doesn’t work – it never does – then they apply more. In this case the leech takes the form of a one time tax on savings accounts. Your savings account, were you a Cypriot bank customer, is about to get zapped by as much as 10%. So whereas your retirement nest egg was $10,000, it could now be as little as $9,000. All because of hot money and unregulated international capital flows.

So Cyprus is going the way of Iceland and Ireland before it. All because its banks swam in the shark infested waters of global capital flows. I am sure it won’t be long before we read stern messages about how the sudden rise in poverty and unemployment within the island’s citizenry is a small and necessary price to pay for stabilizing the banking system.  Oh. And you may hear homilies from sundry German bankers about then need for fiscal discipline as if Cyprus had lax budgets. It didn’t. It was a model of fiscal rectitude.

Nope. It was just bad at regulating its banks.

Like us.

The danger of us following in Greek or Spanish footsteps comes not from our debt or our deficit. It comes from our unwillingness to confront the mega-banks.

Our biggest banks are a clear and present danger. They represent a threat to national security.

That ought to get everyone’s attention.

Let’s stomp on the mega-banks. Let’s break them up.