Andrew Ross Sorkin did a good job of making things up to argue that we shouldn't have a policy against "too big to fail banks." Sorkin argued the need for big banks by telling readers that: "If Pfizer, for example, needs to raise $20 billion for a takeover bid, or Verizon needs to raise billions to lay fiber optic cable for its FiOS service, they cannot efficiently go to 20 different community banks looking for the money." Okay, this statement has about as much to do with the argument on breaking up too big to fail banks as the score in the NFL playoff games. At this moment, no significant actor in the debate on breaking up banks is advocating leaving the country with nothing but community banks. Simon Johnson has proposed a cap on liabilities equal to 4 percent of GDP ($560 billion) for commercial banks and 2 percent of GDP ($280 billion) for investment banks. I would probably cut these numbers at least in half, but let's imagine we put the cap way down at $100 billion. Is there anyone who thinks that a bank with assets of $100 billion would be incapable of putting together a syndicate that could underwrite a $20 billion stock or bond issue? This does not require Pfizer or Verizon to go to 20 different banks. It requires them to go to one bank who offers to be the lead bank in putting together the syndicate. Even as it stands now, it would be almost unimaginable that even J.P. Morgan or Citigroup would underwrite an issue of this size by itself. Mr Sorkin presumably knows the way banks operate, so why did he construct this ridiculous straw man?
--Dean Baker
