Is Bank of America Too Big to Manage?

“The kinds of measures they've taken are stopgap, and [akin to] repainting the deck chairs on the Titanic,” says former IMF chief economist Simon Johnson.

Johnson, who spoke to Benzinga during a

, says that Bank of America

“has become too big to manage.” That is just one of many topics Johnson discussed during the interview, which included the ECB's ability to prevent a flash crisis in Europe. “The European Central Bank has indicated that it will provide liquidity to banks,” Johnson said. “It will also buy up a lot of government bonds – it bought up a lot of Italian bonds, Spanish bonds, and so on. The Germans are very uncomfortable with this approach, and the approach does have risks. The ECB is taking a lot of credit risk; there are potential monetary and inflation implications if they can't fully sterilize buying Italian bonds.” This, Johnson says, is a big part of why he thinks that Jurgen Stark resigned from ECB management last week. “Of course, he was quickly replaced by somebody else who is just as hardline, and perhaps will be more hardline – another German,” Johnson said. “This confrontation between the leading powers and schools of thought around monetary policy in Europe is going to continue.” Unfortunately, that's not necessarily what Europe needs right now. “You should expect, at best, a great deal of instability,” Johnson warned. “Probably, some bad things are going to happen before the Europeans decide to put their differences behind them and figure out who is going to bear what fiscal cost. “I think the situation will be stabilized when the Germans reach an agreement, an accommodation with other weaker countries on the basis of who bears what costs, who can run what kind of fiscal policy going forward.” Johnson say that he doesn't know “where in the space between an extreme German position and an extreme Greek or Italian position that compromise is exactly going to be forged.” “They don't know,” he adds, “and they are going to fight hard before they decide that.”

Johnson said that while he does not believe that banks are close to failing, he thinks that credit is going to “increasingly become a constraint on the recovery.” “The banks don't have enough capital,” he explained. “They don't have enough equity funding relative to their debt. They are worried about potential losses…and they are going to be careful.” With credit limitations already in place, “credit-worthy companies and credit-worthy people are not that inclined to borrow,” Johnson said. “But assuming the economy gets going, then there is going to be demand for credit. Are banks, big, medium, and small, in a position to provide that credit in a responsible and timely manner? I don't think so, not based on what we see right now. “But I don't think the policymakers are going to want to move at all preemptively, particularly in this political climate. It's kind of a hands-off moment. We'll see what we get, and I'm not optimistic on that dimension.”

With regard to the future of our economy and our nation, Johnson says that the “lack of real wage growth and the widening inequality and squeezing of the middle class [are] real phenomena, and they are very serious and longstanding.” “I don't think that is what drove the financial crisis. It was much more about the failure of financial regulation,” he said. “It was about big firms wanting to take on crazy risk and actually being paid very well when they did that.” Finally, Johnson says that the lack of good jobs and our inability to generate middle-class jobs “is a huge issue that needs to be addressed.” However, he believes that combining that issue with the financial crisis has caused a bit of confusion. “I would rather see these as different and separable issues,” he said. To hear more from the IMF's former chief economist, don't miss Benzinga's

with Simon Johnson.