This country has laws on the books to break apart monopolies and other entities that are “too big to fail.” I know that is shocking, given recent history, but it could have been somewhat avoided by treating the big banks the same way we treated “Ma Bell” – by breaking them up into pieces small enough that none could take down the whole system if they fell.
But how would we do it? There is a reason I mentioned Ma Bell: David Merkel says: “if banks are kept small by limiting their size by states, like insurers, they won’t become systemic problems. Simple, huh? Much like the AT&T breakup, I think a breakup of intrastate banking would be good for the US economy. It would unleash competition in financial services, and would eliminate systemic risk in the financial economy.”