Bank of America Corp (BAC), Wells Fargo & Co (WFC), and How Banks Became Too Big to Fail

Given the economic havoc wreaked by these now-massive and helplessly opaque institutions during the financial crisis, one would be excused for concluding that the epilogue to this story would resemble a return to our pre-1970s ways. But, of course, nothing could be further from the truth. As opposed to acting as an impediment to further consolidation, the crisis ended up being one of its greatest accelerants. In 2008, JPMorgan exploited the turmoil to pick up the nation’s fifth largest investment bank, Bear Stearns, and the country’s largest savings and loan association, Washington Mutual. Bank of America Corp (NYSE:BAC) took over Merrill Lynch, the third largest investment bank, and Countrywide Financial, the largest mortgage originator. And Wells Fargo & Co (NYSE:WFC) thankfully succeeded at stealing Wachovia, the nation’s fourth largest bank holding company at the time from under Citigroup’s nose. And, critically, all of these transactions were completed with the explicit or implicit support of Washington.

The point I’m trying to make is simple: While millions of Americans have lost countless of hours of sleep over the last five years worrying about their jobs and underwater homes, our representatives in Washington have responded with feigned outrage over how things got to where they are today. But as you can see, the reality is, these very same representatives created this problem. Senators Grassley and Brown can lament all day long about banks being “too big to jail,” but they both supported the legislation that made them this way. Both sides of the aisle warned about the evils of regulation and proclaimed the virtues of a free market. Republicans spirited the deregulatory measures through Congress, but a democratic president signed them. They allowed themselves to be bought and paid for by the financial lobby. And the financial lobby got what it paid for. Regardless of what you may or may not believe, the nation’s largest banks are too big to fail and will remain so until Washington genuinely decides otherwise.

The article How Banks Became Too Big to Fail originally appeared on Fool.com.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

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