Editorials and Opinions

Georgetowner • July 11, 2012

Throw in one heat wave that just went on and on and on, in the end resulting in a record-breaking four days of 100-plus-degrees temperatures. Throw in a sudden, swift line of storms on a hot June 29th night in the area which upended trees, resulted in power outages that left thousands in the city and area without electric power.

As time passed, people without power, people carefully making their way through streets blocked off by the presence of fallen trees, people waiting endlessly in lines at gasoline stations (many stations were closes due to electric outages), people and restaurant owners who had to throw away food going bad for lack of refrigeration, people unable to use their advanced fone and computer tools and toys, the elderly suffering in homes without air conditioning, all made their feelings known.

A great daily and plaintive note began to be heard in our area, over the airwaves, in tweets and toots and blogs and e-mails.

Most of us experienced the discomforts of the storm and the heat wave which have made their presence know all the way across the country, and we can be excused if things just got plain frustrating. The ongoing television commentary, often hysterical warnings and coverage from self-styled storm centers and watches didn’t help much: one weatherman kept telling us that such and such a place was getting “hammered” by hail and thunderstorms while another displayed his gift for making the word “huge”—as in huge storms, huge hail, huge heat—sound even, well, huger, than it was.

But as one local commentator says, “Folks, let’s get real.”

Things can always be worse. Can’t get your e-mails or tweet or text your friends: read a newspaper (ours, included), or, use the phone, if it works. If not, send a card. Did that falling tree across the street scare you? Be glad it didn’t hit the place where you live, and we can tell stories about that.

More important—like snowmageddon and other natural disasters that are increasingly more a part of our daily lives—you survived. Sure, times are a little more anxious, given that we’re only in early July with lots of good old summertime left with all its attendant climatic dangers. But you survived, and not so much worse for wear.

Some were not so lucky. The storm—and the heat—caused fatalities across the country, including in this region.

Two elderly women in the area were killed when trees struck their home. A man on his way home from school died when his car was struck by a tree.

Mohammad Ghafoorian who lived near Woodley Park died that Friday night. Power lines hit his Maserati, and it went up in flames. He ran out of his home to put the fire out but stepped on a live power line on the ground. The story, told in the Washington Post, was filled with irony. But his son summed all it up best, when he told the newspaper of his larger-than-life father who emigrated here from Iran: “He lived like a storm, and a storm took him. I think only a storm like that could take him.”

And then there’s Carolina Alcalde, a D.C. resident, native of Peru, office manager for a national consulting firm and avid motorcyclist who was struck by a tree on the night of the storm near Meridian Park. She suffered a severed spinal cord, broken rib and fractures and was paralyzed below the waist. A special fund has been set up for Alcade and her family by friends. We encourage our readers to help if they can. Visit their fundraising website: https://www.wepay.com/donations/camp-carolina.

Let us count our blessings.

Georgetowner • June 27, 2012

Around here, and everywhere else, people spend an awful lot of time waiting for the other shoe to drop. Shoeless Joe Jackson did it all his life.

No, it’s not going to rain Christian Louboutins tomorrow.

It’s just that feeling you get that some- thing big-bad or just big, or just dumb and stupid is going to happen very soon — after something big-bad, or just big, or just dumb and stupid has already happened.

So, we thought we’d give some notice of possible shoe droppings. I mean shoes have already dropped on or been dropped by Kwame Brown and Harry Thomas, Jr .

Still waiting to hear from the feds and what’s left of their investigation into Mayor Vincent Gray’s election campaign after two of his aides have pleaded guilty and blabbed to the feds. If I had anything to do with that campaign, I’d walk around town with a shoe-deflective umbrella.

One big shoe’s going to drop Thursday. That’s when the Supreme Court delivers its decision on Obama’s Health Care Reform plan. What are the odds that the shoe will fall on the mandate? If I were a betting man, and I’m not, but still, I’d say they’re pretty good.

How many more shoes are going to drop on the hopes of the Washington Nationals? There’s Zimmerman (Ryan), the hitter, not the pitcher, and his anemic, un-franchise-player-like batting average, there’s Zimmermann (Jordan), the pitcher and his lack of support from his teammates, there’s Werth, out with an injury, there’s Ramos, out with an injury, there’s the top reliever, out with an injury, there’s the 0-7 in a Yankee game by future franchise Harper, and now our ace hits a guy on the noggin and unravels.

But we’re still in first place. Amazing.

Elections campaigns are, of course, the big shoes altogether. Who will have both of his shoes on after the election — I’m betting it’s Romney because he has so many to spare.

Here’s a shoe for blue jeans. Win or lose, how long will Mitt Romney go on wearing blue jeans in public and then cause the blue jean industry to collapse after he stops, causing the loss of 100,000 jobs and pushing the unemployment rate over 10 percent?

Big-time shoe:

That’s when the Ken Cuccinelli presidential campaign begins.

Shoe time:

The day Lindsay Lohan as Elizabeth Taylor debuts on Lifetime Television.

Shoe time two:

The next time Lindsay Lohan goes into rehab.

Shoe time:

When the Republicans sweep the House of Representatives, the Senate, the presidency and the nationwide cupcake concessions.

Shoe time:

When the Nationals win the World Series, in spite of all the shoes that have dropped on them, shocking the world.

Shoe time:

When the new Redskin rookie sensation throws seven interceptions in the first half of the season opener, is replaced by Rex Grossman, who throws seven more, setting an NFL record, whereupon the Redskins fire Shannon, try to get the Joe Gibbs man back into harness for $20 million.

Shoe time:

The race between Vincent Orange and Phil Mendelson for City Council Chairman ends in a tie after ten recounts of all of the 1,399 votes cast. The final results: someone wins by a shoe.

Rumored shoe drop:

There are rumors that plans exist to make Avengers II with 350 superheroes, including the Katzenjammer Kids, Homer Simpson, Little Lulu, Mutt and Jeff, the Range Rider and Brenda Starr, thus resulting in a possible film in which every comic character every drawn will be in a movie.

And last, but not least, the biggest shoe drop of all.

There is, of course, December 21 on the Mayan calendar. (Are do new archeological discoveries say otherwise?)

Still, you know the drill. It’s all over, Baby Blue. ?

Georgetowner •

The day before July 4, bands will likely be rehearsing the national anthem for Independence Day celebrations. But in the Georgetown church where Francis Scott Key, the author of “The Star- Spangled Banner,” worshipped, a parade of workers will be busy delivering an exquisite new pipe organ, designed specifically for the historic St. John’s Episcopal Church on O Street.

The July 3 arrival of the new organ, coinciding with holiday traffic and extensive Georgetown street reconstruction, will force a temporary traffic disruptions on Wisconsin Avenue, N Street and Potomac Street to accommodate the tractor-trailer hauling the organ components.

At about 7 a.m., the tractor trailer is expected to enter onto Wisconsin Avenue and turn onto N Street. It will travel up the street and back almost a block to park on Potomac Street NW alongside St. John’s, forcing parking limitations along both routes. Off-loading the organ console with its 2,262 wooden and metal pipes from the 53 foot trailer will take hours.

Every effort to minimize inconveniences to neighbors and businesses will be taken, said Interim Rector Bruce McPherson. “We realize this is going to be one more element of complication in an already challenging parking and traffic situation, but we also believe this organ and the concert series it will inspire will greatly enhance the community’s artistic and musical cultural climate long into the future.”

The new organ will be dedicated Sept. 29 by the Rev. Mariann Edgar Budde, Bishop of the Washington, D.C. Episcopal Diocese.

Historic St. John’s was founded in 1796, with early donations to the building fund from Thomas Jefferson and Thomas Corcoran. An early vestryman was Francis Scott Key and Dolley Madison was a regular attendee.?

Georgetowner • June 18, 2012

There has been a lot of media head-scratching, pondering, pandering and pontification, and deep thinking about a so-called culture of corruption in District of Columbia politics.

You can hardly blame folks for thinking along those lines: I mean, look what’s happened. Just last week, after a lengthy investigation into his financial activities, District Council Chairman Kwame Brown resigned his position and pleaded guilty to a felony bank fraud charge and a misdemeanor charge.

Earlier, the federal investigation into Mayor Vincent Gray’s mayoral campaign, produced two guilty pleas from campaign aides for making illegal campaign contributions to a third and minor candidate, which has been the subject of investigations since almost the beginning of Gray’s term. The federal investigation is still in progress, resulting in a gloomy, expectant political atmosphere about what else may be coming. Everyone is hearing the sound of shoes dropping.

In the spring, Ward 5 Councilman Harry Thomas, Jr., pleaded guilty to embezzling $350,000 of money meant for nonprofit youth programs and was sentenced to three years in prison by a federal judge.

The name of former “mayor for life” Marion Barry, now and perhaps for always Ward 8 Councilman came up often in discussions. Barry, after all, went to jail on a single drug charge after a tumultuous, divisive trial and then returned to become mayor yet again.

People are now talking about all of that as if it was one big bag of bad coals, a black mark for D.C. politics. There are fears that Congress will take up its anti-D.C. cudgel again and beat down home rule.

It’s always trendy to see trends where none exist. But let’s take a look at things. Mayor Barry’s history in this city—and it’s a history of great accomplishments as well as transgressions, past and continuing —is fit subject for a novel, but not any part of a trend.

Vincent Gray’s election was supposed to be about bringing the city together: “One City,” remember? But his problems are about his election, or more accurately, his election campaign. What we know is that his aides, at the very least, lacked any sort of respect for the electoral process and were none too sharp in how they went about it, enlisting a known political loose cannon to assist them.

The acts of Brown and Thomas destroyed two promising political careers and the faith their communities had in them. It’s not fair, however, to suggest that what has happened—and that includes Barry—is indicative of the D.C. political culture, which grew out of the late arrival of home rule in the 1970s. The city was lucky, in fact, to have for a first mayor a man like Walter Washington, who had size, common sense and authority to which every D.C. candidate for anything ought to aspire.

We’ve had what were basically successful terms as mayor by Anthony Williams, the sometimes maligned but very pragmatic, effective and even visionary mayor, who changed the D.C. landscape in his two terms. Williams was not especially popular with the public, but won two terms easily, in spite of not having a natural gift for politics.

There are plenty of good and fine people on the current council, as there have been in the past—chairpersons like John Wilson, Linda Cropp, David Clarke, and Gray, the popular Republican Carol Schwartz, Bill Lightfoot, Hilda Mason, and others, none of whom came close to dishonoring their offices.

So, we should get a grip. We might remember one other thing, besides the problems of lacking statehood: It’s that often you get the government you deserve. And when you repeatedly have miniscule and embarrassing voter turnouts that send individuals to the council, or to high office, then maybe the results that we see now should not be so surprising. ?

Georgetowner •

The setting was dramatic and unexpected. Mayor Vincent Gray with neighborhood and Georgetown University leaders next to him announcing that peace was at hand in the on-going G.U. Campus Plan debate. They stood on P Street, a block from the campus. After two months of negotiations, the plan was revised with agreement from all sides. The fight was over. Again, unexpected.

“I firmly believe that we have developed a proposal that will go a long way towards alleviating many of the adverse impacts we experience living in such close proximity to the university,” said Jennifer Altemus, president of the Citizens Association of Georgetown. “This is a genuine compromise whereby neither side got 100 percent of what it wanted, but we are all pleased with the outcome.”

Key details include moving more students onto the main campus (at least 450 students); a new Georgetown Community Partnership, comprised of neighborhood and university representatives; a push to make the campus more attractive to students with a new student center or pub and a policy to make it easier for in-dorm parties; moving the School of Continuing Studies to a new downtown campus (not yet found); capping the undergrad headcount at 6,675.

Also on the list for the future: a new 100-acre campus, supposedly for most of the university’s graduate programs. Ditto: Finding housing graduate students outside Georgetown, Burleith and Foxhall.

For some students, the phrase used by CAG — “Living off-campus will be a privilege not a right” — is troublesome. They should be aware that it is up to the university to enforce such a restriction and not the city.

As for the dramatic, it came from an unexpected source, Ron Lewis, chairman of Advisory Neighborhood Commission 2E, who said: “This is an extraordinary event in the life of our community, and it’s very promising. We have found a way — the community and the university, together — that offers a new cooperative spirit and real results on issues that have divided us for years.”

Mayor Gray added to the dramatic and to what will now be expected: “What they have done is developed a prototype and set a precedent for how these issues are to be dealt with in the future.”

Something dramatic clicked in the heads of those involved, and we have yet to sit down with the expert in “alternative dispute resolution.” But it is also gratifying to see that some of the advice issued on this matter in these pages over the last year have been taken to heart. Whether it was that the university think beyond its own bubble as well as the neighborhood appreciating the college presence and its benefits and drop the demand for all undergraduates to live on the campus, we cannot be sure.

We do know that a line of cooperation has been joined and should not be cut and that the university’s motto — “Utraque Unum” — translated as “both and one” moves in the background as a guide to this new relationship between town and gown.?

Jack Evans •

Given recent events and the attendant media scrutiny on the Council, I wanted to take a moment to highlight some of the positive things our government is doing and assure you all that I will continue to work hard for my constituents and the city as a whole. On Tuesday, June 5, the Council had its second and final vote on the Budget Support Act, and I think that it was a definitive improvement over last year’s budget and I want to highlight a few areas of interest.

First, I was pleased that this year’s budget proposal included no tax increases. One of the primary reasons I was unable to support last year’s budget was the inclusion of unnecessary tax increases to support our ever-expanding government. I believe the Mayor and my colleagues should find efficiencies within the agencies they oversee rather than asking our residents to pay continually higher taxes in the face of a recession. We are the only local government in the country to continue to pass the largest budget in our history every year despite the economic slowdown.

Within my committee, for example, I was able, in consultation with our Chief Financial Officer, to identify millions of dollars of unallocated funding through savings achieved in the Gallery Place tax increment refinancing. I was pleased to allocate some of these funds toward enhanced arts programming, which fills a gap in our public education system and supports our small business community. I also recommended additional funding toward marketing dollars that encourages additional tourism in the District. Studies have shown that both of these uses of government funds generate several dollars in new tax revenues for each dollar spent, which increases the pool of money we have for other items of importance to me, such as our libraries, parks, public safety, and education.

Another very positive development is that we were able to push back the implementation of the municipal bond tax another year. If you recall, the initial bond tax proposal initially considered last year would have been retroactive to interest earned on or after January 1, 2011. This was a shocking and unfair proposal. After some amendments, the tax was subsequently set to go into effect for interest earned on or after January 1, 2012, to be included in one’s tax filing in the spring of 2013 if a taxpayer files on an annual basis. As a result of the fiscal year 2012 supplemental budget bill, which we also passed on Tuesday, we were able to push back implementation an additional year, to interest earned beginning January 1, 2013, for inclusion in your tax filing in the spring of 2014. This is great in and of itself, as it provides relief for another year of this tax, and it also gives us another opportunity to seek to fully repeal the tax in next year’s budget prior to it taking effect. While I was disappointed that the municipal bond tax was not fully repealed in the budget, particularly after I had identified approximately $800,000 of the $1.1 million necessary for this repeal within my own committee, I am still hopeful for full repeal the next time we revisit the budget.

Thank you for all your letters of support during this difficult time, and let me again commit to you that our work will remain uninterrupted as we move forward with selecting an interim Council Chair pending a special election. ?

John Fenzel • June 13, 2012

In private sideline conversations between
principals during the G-8 summit meeting at
Camp David, some significant decisions were
made that will impact the long-term fate of the
European Union over the coming weeks and
months.

Those conversations centered on the decision
to plunge ahead with the bailout of the
European banks in an effort to save the Euro
system, with Greece still inside. The prime
influencers behind this decision were Managing
Director of the International Monetary Fund
Christine Lagarde and President Obama. Both
Lagarde and Obama are concerned that if Greece
leaves the Euro, the contagion will spread to
Spain, Portugal, Ireland, and, perhaps, even
Italy. President Obama’s unspoken motivation
in preventing a financial meltdown of the Euro
system is the possibility that it would almost certainly
spill over into Wall Street and adversely
affect the U.S. economy.

Christine Lagarde put the IMF squarely
behind a bailout of the European banks, with
the full backing of the U.S. Federal Reserve and
Treasury to boost the leveraged lending of the
European Central Bank (ECB) to prop up the
European banks. The ECB will likely take junk
bonds and other vastly over-priced assets as collateral
for loans to the Spanish, Greek and other
European banks—a move that will offset an
additional estimated $500 billion in new writeoffs
by bondholders of Greek debt.

So, the IMF, the Obama Administration
and the ECB appear to have colluded to further
delay the reality of the financial and banking
crisis through what are–by any measure–very
risky, hyperinflationary measures. From the
Obama Administration’s perspective, however,
the strategy will have succeeded as the crisis is
effectively postponed, taking many months to
fully play out (versus days or weeks), well past
the November elections in the United States.

In his sideline meeting with new French
President Francois Hollande, President Obama
reached a full agreement on this perpetuation of
the Euro. This is an area where Hollande and
German Chancellor Angela Merkel will agree
to disagree. They both want to defend the Euro,
but Hollande will continue to insist that austerity
must be limited and a growth program initiated.
While the feasibility of such a dual-track program
is questionable at best, it is nonetheless the
growing agenda of the Euro-socialists, including
Hollande, Germany’s Social Democratic Party
and the Italian Socialist Party. A majority of
Greek voters are in favor of staying in the Euro,
so long as the austerity is reduced.

Hollande will make continued efforts to push
for Euro bonds as one way to implement this
bailout plan. Merkel will continue to oppose and
block the Euro bond argument. Merkel recently
told her party that “under no circumstances”
would she agree to a Euro bond strategy.

“A Euro bond would take a few years to
implement because there are lots of technical
issues to solve and also implementation of the
Euro bond procedure would take several years,”
Finnish Prime Minister Jyrki Katainen says. “So
Euro bond[s] are not a solution for this current
crisis,”

The total amount of assets on the books
of the US Federal Reserve and the European
Central Bank, combined, fall well short of the
currently estimated 4 trillion Euro liability of
the European private banks—something that
U.S. Treasury Secretary Timothy F. Geithner is
acutely aware of.

Treasury said, in a written statement, that
Katainen and Geithner recently met and “discussed
the global economy, including the United
States’ economic recovery and the plans of
European leaders to reinforce the institutions
of the Euro area.” Federal Reserve Chairman
Ben Bernanke, conspicuously absent from the
Treasury statement, also was also present and
participated in the same discussions.

Both Bernanke and Geithner are said to be
extremely worried about the worsening trajectory
of the Euro crisis. While they know they are
in a position to delay a breakup of the EU, they
may well be powerless to prevent it if the downward
spiral continues unabated. Geithner’s
message has been a clarion call to EU leaders to
address their core problems now, not later. With
unemployment at depression era levels, and the
periphery of the EU experiencing zero growth,
the massive deficits of countries like Greece,
Italy and Portugal are simply too large to bail
out, even with U.S. help.

So, while EU politicians sit on their deck
chairs, discussing ways to achieve deeper integration
in the 17-nation euro area, Germany,
Austria, and the Netherlands are privately donning
life vests, preparing for the EU ship to sink
in cold, unchartered waters.

When that happens, the well-practiced
S.O.S. call will go out to U.S. rescue ships in
the area, as always, only to find out that they’ve
run out of gas.?

Georgetowner •

In this issue of The Georgetowner, we celebrate
Father’s Day, remember our fathers and
honor the qualities and virtues of fatherhood.

It’s an especially poignant time for us at the
Georgetowner because my sister, Susan, and I lost
our much loved father, Owen G. Bernhardt. Dad
died on March 24 after a long, arduous and painfilled,
but also life-filled, struggle with leukemia.

It has not been long enough
to acquire a distance from his
passing and to continue to acquire
inspiration from his life
and his role as my father.

When you think about
the loss of a loved one and
try to talk about it, it seems
almost surprising to see just
how rich, unique and original
a tapestry he had created with
his life. He was always our
father, and we tended to look
at him, respond to him and see
him in that way.

He was also a husband to
our mother, Pilar, with whom
he shared a remarkably deep
and enduring 43-year marriage.
She passed away at
62, much too young to lose,
in 2002. Together, they formed an enduring marriage
and partnership and made each other complete.

He was an absolutely doting grandfather to
Elisa, now 13, and Stefan, now 11, my niece and
nephew, my sister’s children.

He was more than that: of Swiss, German and
Russian stock, he grew up on a farm in the smalltown
world of heartland Kansas with a childhood
spent during the American Depression. He had
some of that quiet, almost stoic, demeanor that
might be typical of both his background and generation,
but he was also warm, energetic, optimistic
and strong and steady. His was the voice I
knew that would listen to my plans, my hopes and
fears, and he would hear me out, offer advice, and
be totally supportive, no matter how crazy the idea
or project. That included my foray into newspaper
publishing by acquiring the Georgetowner newspaper.
I know in my heart that the success we’ve
had would not have happened without his support,
without that steady voice on the phone, in person
and now in spirit.

His own career was varied and — combined
with his first enduring marriage to my mom —
original and even colorful. He came from a large
family of 11 children. At first, he dutifully took
on the role of managing the family farm but ruefully
discovered that perhaps he was not meant to
be a farmer. Instead, he enlisted in the Air Force,
a decision that landed him in Spain attached to
the Air Ministry in Madrid in 1956 where he met
my mother. He was an enlisted man but operated
among the highest ranks. He served in Vietnam
and acquired a Bronze Star. At the Pentagon, he
had a successful career that made him travel to
most places in the world.

My father had a keen curiosity about people,
about everything he came in contact with. He was
one of those hidden experts who knew a lot about
some very specific things, and at least a little about
most other things, a good quality for the father of
two daughters to have. He played tennis with passion
and loved sports, and his favorite football
team remained the Kansas City Chiefs.

Mostly, I miss his expertise about life. Even
when he was struggling with his illness, which at
one point left him without a viable immune system,
he remained a visible presence in his own
life—and ours. Until the end, he had that unique
skip in his gait that told everyone that everything
was going to be fantastic.

On Father’s Day, I miss my dad, Owen Bernhardt,
a lot. I know that everyone else who knew
him more than casually does, too.

On Father’s Day, I remember my father and
here at the Georgetowner, we remember and celebrate
the life of all the dads, ever, and ask you to
do the same.

— Sonya Bernhardt, publisher

John Fenzel • May 30, 2012

J.P. Morgan’s $2-4 billion trading blunder has reignited the debate of whether our banking industry should remain the oligopoly that it is, or be subject to a broader array of regulatory reforms and restructuring.

The media’s focus on the several billion dollars in bad derivative trades, while replete with shock value, misses the real lessons of the incident. While significant, the losses were hardly catastrophic for the bank. With $2.3 trillion in assets, J.P. Morgan’s loss represents only .1 percent of its total assets and 1 percent of its equity. Clearly, the bad trades represent a failure of risk management, yet the fact remains that J.P. Morgan remains fundamentally well managed. Chances are, the bank will still be profitable in the second quarter.

In the midst of the ongoing media feeding frenzy, J.P. Morgan will do what any well-run organization would do: analyze what went wrong and fix it. Ina Drew, the J.P. Morgan chief investment officer who ran the department behind the massive trading loss, has left the bank with a $32 Million severance package. Other heads will roll in the coming weeks as the forensics behind the bad trades become more apparent.

Jaime Dimon, J.P. Morgan’s chairman and chief executive once praised for adeptly navigating the bank through the 2008 financial crisis shares the blame. His biggest mistake, perhaps, was his lack of humility and his reflexive—if not extreme—resistance to enhanced regulation of the banking industry. On April 13, Dimon downplayed the rumors of the massive losses by referring to it as “a tempest in a teapot.” But after the extent of the losses became clear, and when Dimon was forced to announce the losses on May 10, he explained, “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

To even a passive observer, the incident highlights that Dimon and other megabank CEOs, supported by a government sanctioned and licensed oligopoly, dominate trading flows and market making, particularly in the “over the counter” (OTC) markets.

What exactly does that mean?

The term, “Oligopoly” comes from the Greek, “Oligos” and “Polein.” “Oligos” translates to “few”; “Polein” means “to sell.” Simply defined, an oligopoly is an economic condition where there are few sellers and many buyers. The few sellers who dominate a market exert control over their competitors’ prices or their ability to freely compete. In an oligopoly, the market is also particularly vulnerable to the mistakes and fates of those few dominant influences.

When Citigroup or Bank of America experience massive losses, the government invariably comes to their rescue with billions in taxpayer dollars quite literally because they are “too big to fail.”

The 2008 financial crisis was largely caused by an overconcentration of derivative instruments in the hands of a few banks. Today, the top six megabanks hold 95 percent of the entire $1.2 quadrillion derivatives market. J.P. Morgan has 44 percent of that market. Those statistics alone constitute an oligopoly in that particular market. Alarming? Now, consider this: today, those same banks have assets that exceed 60 percent of our national GDP.

While the CEOs of the megabank club know the risks of overconcentration well, those whispered conversations normally occur behind closed doors or on the back nine. Their interest, understandably, is in turning massive profits for their shareholders. Each bank, therefore, contributes millions to both political parties, and employs an army of Capitol Hill’s best lobbyists to ensure their advantages are preserved.

Over a century ago, President Theodore Roosevelt confronted the financiers (J.P. Morgan among them) and industrialists head-on with antitrust suits. Despite the accusations of his critics, Roosevelt’s objective was to regulate the giants, not to destroy them. Roosevelt’s direct approach was politically courageous and effective in 1907. Created to safeguard against undo risks by improving accountability and transparency in the financial system, the Dodd-Frank Act was the closest we’ve come to TR’s method yet. But even that “big stick”has, by most accounts, fallen short.
The lessons should be abundantly clear. Mitigating against risk requires sufficient capital. Because J.P. Morgan is a healthy bank, the losses they announced last month, while uncomfortable, were nonetheless manageable. Banks should, therefore be required, by law, to hold ample equity capital to cover any potential losses. That is something regulations can’t do.

Second, the Department of Justice as well as federal regulators should both be empowered and instructed to preemptively break up large financial institutions that pose a threat to the nation’s financial stability. Currently, Dodd-Frank empowers regulators to intervene “only as a last resort.” Dodd-Frank also requires banks to have a “living will” to provide for a managed dissolution in the event of a bankruptcy. This provision remains ill-defined and untested, and offers little reassurance that our economy won’t be driven into the same kind of crisis we experienced in 2008.

Today, the banking system is even more concentrated than pre-2008. Because the largest banks have the implicit backing of U.S. taxpayers, their cost of capital is artificially low. As a result, the megabanks are incentivized to take outsized, irrational risks—and smaller banks are challenged to compete with them.

That is the textbook definition of an oligopoly.