Jaws, the Bank Sequel

Too-big-to-fail is morphing into bigger-than-ever swallowing up failing-faster-than-ever.

The nation's largest banks, infused with taxpayer billions, are feasting on the weak as the Washington Post reports that "no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected."

FDIC chair Sheila Bair sums it up succinctly: "It is at the top of the list of things that need to be fixed. It fed the crisis, and it has gotten worse because of the crisis."

This alarm follows news that her agency's insurance fund, which guarantees deposits, shrank another 20 percent in the second quarter, down to $10.4 billion, the lowest level since the savings and loan crisis in the early 1990s.

So far this year 81 banks have failed with another 416 on the FDIC'S "problem list."

Meanwhile, the bailout-bloated sharks are flourishing. J.P. Morgan Chase, Bank of America and Wells Fargo each now holds more than $1 of every $10 on deposit in the country. "Those three banks, plus government-rescued and -owned Citigroup," the Post reports, "now issue one of every two mortgages and about two of every three credit cards, federal data show."

As politicians debate socialized medicine, the country has moved toward a bastardized form of socialized banking, fed by the government for the ballooning profit of the few, who are squeezing out struggling smaller competitors by being able to borrow at lower interest rates while doing little to ease the consumer credit crunch, the original object of the bailout.

Now that the President has reappointed Fed chairman Ben Bernanke, the Obama economic team can get to work trying to undo some of its unintended consequences by starting to rein in superbanks with much tougher regulation.

Beyond the Bailout

The Republican mantra--government bad, free markets good--is taking a beating in the Fannie Mae/Freddie Mac bailout as both presidential candidates approve the Treasury's action to keep the housing and financial markets from going over a cliff but, in this personality-driven election, voters won't pay much attention to the issue.

Barack Obama is understandably reluctant to talk about the Bush Administration's and Congress' lack of oversight that led to the fiasco for fear of being attacked as a proponent of Big Government. John McCain, with his Keating Five background, will avoid the subject and keep pounding away at "business as usual" in Washington.

But behind all the clichés, the bailout should prompt some serious thinking about the balance between freedom and responsibility in a capitalist system that has made the nation prosperous but can cause chaos when all regulation is seen as bad and the cowboys of the financial world are free to do whatever they want.

Only the oldest of American generations now remembers the bank closures and panic of the 1930s even as the FDIC's problem bank list grows larger each month. The others don't know what a run on the local bank looks like, except from watching Jimmy Stewart in "It's a Wonderful Life."

At some point, in the presidential debates about change, the candidates should be pressed for straight talk about the role and size of government needed to keep Americans both free and secure.