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No bank should be ‘too big to fail’

David Stickley Laramie Wyo. holds up signs Friday during United States Postal Service Protest .  |  AP Photo/The

David Stickley of Laramie, Wyo., holds up signs Friday during a United States Postal Service Protest . | AP Photo/The Wyoming Tribune Eagle, Blaine McCartney

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Updated: April 27, 2013 6:09AM

What do the U.S. Postal Service and the megabank JPMorgan Chase have in common?

The government won’t let either one of them fail. At least Washington is up front about the mail service. But it keeps telling us that it has eliminated the “too big to fail” problem with the nation’s largest banks.

The Postal Service lost $16 billion last year and its management prudently wants to save about $2 billion a year by ending Saturday home delivery of most mail (but not things like pharmaceuticals). However, Congress just said no in passing a budget resolution to keep the government operating. Last year lawmakers succeeded in blocking the service from closing thousands of money-losing rural post offices.

Email, Facebook, Twitter, direct deposit, e-filing and other Internet avenues are transforming the way we communicate with each other. When was the last time you wrote a letter? Some schools have stopped teaching cursive writing. Yet lawmakers for a variety of reasons, including bending to pressure from tiny town constituents and unions trying to protect postal jobs, want to bog down the Postal Service in the 20th century. Guess who will be stuck with the bill? You, dear taxpayer.

And taxpayers will be on the hook in the event of another financial meltdown. After the 2008 panic produced the unpopular rescue of banks so big their failure would pose a systemic risk to the nation’s economy, Congress passed the Dodd-Frank financial “reform” act that was supposed to end too big to fail.

No one believes it. And no one has been more outspoken in exposing this fallacy than Richard Fisher, the president of the Federal Reserve Bank of Dallas who dissents from Fed Chairman Ben Bernanke’s all-is-well party line.

Fisher reminds us of the inconvenient truth that the 12 biggest financial institutions control almost 70 percent of the assets in the U.S. banking industry. Bernanke argues that everyone’s expectations that the government would rescue them is wrong. But does anyone doubt that in another panic like 2008, with the economy facing disaster, the government wouldn’t jump to bail out megabanks whose risky business threatens our fiscal health?

Congress knows it and worries about it. That’s why the Senate investigated and produced a 307-page report about JPMorgan Chase’s failings, manipulations and misrepresentations in $6.2 billion in “whale trading” losses in derivative transactions last year.

Too big to fail is not just a problem in the event of a crisis. As Fisher explains, the perception that the government will always bail them out gives megabanks a “subsidy” to grow bigger and take bigger risks. “They represent not only a threat to financial stability but to fair and open competition,” he reasonably argues in calling this “crony capitalism.” He has recommendations to restructure the system to downsize the financial giants into institutions “too small to save.”

In recent weeks Fisher has taken his case to the pages of the Wall Street Journal and the annual meeting of the Conservative Political Action Conference and won the praise of the likes of New York Times blogger Simon Johnson, former chief economist of the International Monetary Fund. Johnson asserts that JPMorgan Chase is “profitable precisely because it receives implicit subsidies from being too big to fail.”

Big government likes big business. Believers in central planning like access to levers of power concentrated in a few resources like megabanks — despite the risks to taxpayers. Saving Saturday mail delivery will be small change compared to the bill taxpayers would find in the mailbox for a megabank bailout.

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