Fine says he can live with the PCA law and even endorses it, but he detests the fact that it was no longer being used for the megabanks. It makes him smolder. "Greenspan—banks couldn't get too big for him," Fine says ruefully. He recalls a 2004 battle in which the Fed wanted to remove all capital-reserve requirements from the big banks. Fortunately, the FDIC won that scrum. Otherwise, the megabanks' behavior could have been even riskier and more devastating than what occurred.

It was bad enough that, during that run-up to the crash, bank examiners who wanted to scrutinize the giants were intimidated. One told Fine that a bank's CEO had "a direct line into Washington, and it could destroy the examiner's career." In another incident that, Fine says, "outraged" him, an examiner who tried to sanction Wells Fargo had his decision reversed after the CEO visited the Office of the Comptroller of the Currency; the examiner was then transferred out of the bank's district.

Eventually, it became clear that "nothing was happening to the big banks, and everyone knew they were sliding south," Fine says. When four majors—Wachovia, National City, Bank of America and Citigroup—became critically undercapitalized, Fine went to FDIC Chairwoman Sheila Bair to ask why they weren't being subjected to the PCA law, which could have resulted in replacing their executives or even breaking them up. Fine likes Bair, who has a populist streak of her own and whom he finds to be a candid, "hard-as-nails regulator." But he says she "basically gave a non-response": that there were complicated issues and that, perhaps, if she had a free hand, action would be taken. "She was very sympathetic," he says, but what he gathered was that there "was great resistance from the political community."

U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street
imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
AFP PHOTO/Carl de Souza
U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.
White House Official Photographer/WENN.com
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.

Fine isn't merely griping that the free pass given to the big banks was grossly preferential and anti-competitive. He means to underscore that the financial crisis didn't need to reach full bloom, and that we could have avoided the bailouts following the "too-big-to-fail" theory, which he detests as anathema to the free market. The big banks could have been put in conservatorship, reduced to rational size or sold off in working pieces. The depositors, consumers and taxpayers would have been protected, but "we would have had to wipe out the investors and shear off the management," he says. It's a plan he still favors.

Like his members, he has feared a "Citibank or Bank of America on every corner." Would the new administration tackle the big banks? Last winter, 12 hours after being sworn in as Treasury secretary, Geithner summoned Fine to a meeting. "He asked me what was on the mind of the community bankers of America," recalls Fine. "I said, 'Do something about "too big to fail."'" Fine says he told Geithner that he was worried that the taxpayers would be on the hook again for further bailouts and that the economy would suffer. He raised the anti-competitive impact of propping up Citigroup and Bank of America.

"Why are they treated differently from us?" Fine recalls asking.

Fine says Geithner's response was, in effect: "I understand where you're coming from, and it's something the Treasury should address." Then, says Fine, "I asked him point-blank if he thought these firms should be bailed out. He looked me in the eye and said, 'No, I don't.'" The Treasury secretary has recently hinted to Congress about ultimately getting rid of the "too big to fail" concept, but his suggested measures "don't go nearly far enough," Fine says.

Recently, Paul Volcker, the former Fed head and current Obama advisor, indicated that the White House remains committed to the concept of "too big to fail," meaning that the megabanks will continue to have a safety net and may ask for more bailouts. Presently, 19 financial institutions are on the protected list. Their business model hasn't changed materially since the crisis. They're still bloated and addicted to gambling. They could have benefited from prompt correction, but were spared.

----

Washington may very well foist one unified regulator on the industry, a consolidation that, at first glance, could seem like a good idea. The Big Four banks—Citi, BofA, Wells Fargo and JP Morgan Chase—now control about 53 percent of all bank assets; the biggest 20 banks control 80 percent. There's no denying the appeal of a Transformers-type battle between a heroic Autobot regulator and the financial world's Decepticons. But that's make-believe.

The cyclops theory of bank regulation that would fuse all four bank regulators into one "superagency" is actually the heart of a bill by Senator Chris Dodd (after Obama, the No. 2 recipient of AIG money in the presidential campaign). A number of other proposals have been floated by the administration and Barney Frank, chair of the House Financial Services Committee. Those drafts have been discussed for almost a year and have mutated all the while. What we'll end up with is uncertain, but comprehensive reform is unlikely to be hashed out until after health care is settled.

Will it result in real protection or platitudes?

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