WASHINGTON, DC – Two hundred years ago, Washington DC was captured by the British – who then proceeded to set fire to official buildings, including the White House, Treasury Department, and Congress. Today, it is a domestic interest group – very large banks – that has captured Washington. The costs are likely to be far higher than they were in 1814.
America’s largest bank holding companies receive an implicit government subsidy, because they are perceived to be “too big to fail.” The authorities will not allow the biggest banks to default on their debts, through bankruptcy or in any other fashion, owing to the need to prevent the financial system from collapsing. This doctrine became starkly apparent in late 2008 and early 2009; it remains in force today.