<\/span>
Dr. Gonzo: <\/b><\/span>Everyone is saying that Obama’s plan will “break up the banks” and end “too big to fail.” That’s complete [manure<\/i>].<\/p>\n
<\/b>Dr. Gonzo<\/b><\/span>: <\/span>
\nOK. So the plan, as far as I understand, would only apply to commercial
\ndeposit taking banks. Goldman Sachs, Morgan Stanley, etc. only became
\ndeposit taking banks because the Fed and Treasury forced them to. If
\nObama pushes this through they’ll just dump their deposit business and
\ndo so with a smile. This would have a heavier impact on the Citi banks
\nof the world, but even then this would have done ZERO to stop Lehman
\nBrothers and Bear Sterns from failing. This would not have applied to
\nthem because they didn’t take deposits. So in short, it’s a solution to
\na problem that never happened.<\/i>
<\/u><\/div>\n<\/div>\n
\nhe’s saying the same thing as you, but reaching the opposite conclusion: That this
\nregulation doesn’t do enough. That it has to affect more than commercial
\ndeposit taking banks.<\/p>\n<\/div>\n<\/div>\n
\nSimon Johnson is simply assuming that smaller is better, but there is
\nnothing out there suggesting that’s true. Common sense tells you that
\ninstitutions need to be huge to place huge amounts of securities.<\/p>\n
\nhow do you account for the double-edged sword here — that big banks
\nhave better access to capital and are more secure in that respect, but
\nalso that their bigness creates a moral hazard because they know that the government’s bailout policy sets an implicit floor
\nto their losses in the case of disaster?<\/span><\/div>\n<\/div>\n
\nHow many times has this happened? A failure on this scale? Once. Every
\ninstitution has good reason to manage its affairs properly. The CEO of
\nBear was completely wiped out. He was a billionaire, and now he is not.
\nHe did no go into this thinking that the US Gov will bail him out if
\nthings go poorly, because thinking like that will allow your
\ncompetition to eat your lunch.<\/div>\n<\/div>\n
\nbut no way this applies to the equity holders. AIG: equity wiped out.
\nCiti: equity wiped out. Bear, Lehman: wiped out. The list goes on.<\/div>\n<\/div>\n
\nyou really don’t think too big to fail is a viable problem? Do you
\nthink other free marketers like Alan Greenspan who have essentially
\nsaid ‘to big to fail means<\/span> too
\nbig to exist’ are just talking sweet to Congress? Or trying to
\nmake up for past mistakes? Or are they just wrong on their own, honest
\nmerits?<\/div>\n<\/div>\n
<\/span><\/p>\n Something is only too big to fail because the methods The problem with money centers going That __________<\/p>\n *For a 360-degree perspective on the bank plan, you can also read Dan<\/a> and Megan<\/a> who have more positive takes on the bank plan. Obama’s new plan to rein in Wall Street has two parts. First it tries draw a bright legal line between commercial banks and investment banks by prohibiting commercial banks from trading on their own accounts to make money for their shareholders (otherwise known as proprietary trading). Second, it caps the percent of certain kinds of […]<\/p>\n","protected":false},"author":1534,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-212905","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/212905","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=212905"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/212905\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=212905"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=212905"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=212905"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nbut I can say that Greenspan certainly has an incentive to save face. I
\nalso think that a non-bank resolution plan would resolve most of these
\nissues. <\/p>\n
\nof dealing with its failure are inadequate. Lehman is a giant. It does
\nnot belong in a federal bankruptcy court, but that’s all we’ve got. If
\nwe had procedures that allowed the markets to continue to function
\naround the failure that would be ideal.<\/p><\/div>\n<\/div>\n
\na resolution plan for big firms is sort of like saying after a horrible fire
\n‘OK, let’s buy a bigger, better extinguisher for next time’ right? Does
\nit begin to address the problem of how the fire started?<\/span><\/div>\n<\/div>\n
\nIn general it doesn’t. Companies go bust all the time, and it has no
\nreal effect on the economy. Even giant companies go out of business
\nwith no material effect. <\/p>\n
\nbust is they’re the brain of the financial system. They hold securities
\nfor clients as custodians. They make markets. They place debt. When one
\nof them fails, large swaths of the financial system stop working, and
\nall of a sudden thousands of companies can’t get financing for payroll,
\nor paying rent, etc. That’s what we should be trying to avoid. <\/p>\n
\ncompanies will fail is inevitable. There’s no getting around it.
\nMistakes happen. The point is to minimize the impact of these mistakes.<\/div>\n<\/div>\n<\/div>\n
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