Too big to Fail?

[classicman]

Dallas Fed president Richard Fisher, who’s otherwise known as a conservative budget hawk,
has embraced the radical cause of breaking up the nation’s largest banks and forever ending “too big to fail.”

In its annual report for 2011, issued on Wednesday, the Federal Reserve Bank of Dallas released a startling report revealing that 52 percent of all the assets held by the entire banking industry have now become aggregated into the hands of just five companies, and
the top 10 institutions have swollen so large that they possess wealth
that equates to roughly half of America’s annual gross domestic product (GDP).

BUST THEM UP!
Link

[Aliantha]

I don't think breaking banks up is a good solution. The assets banks hold is what make them secure. By making those assets smaller by breaking the banks up, you're only going to decrease consumer confidence (what's left of it).

I think you'd be better off going down the path of tougher regulation and tighter scrutiny of procedures within the banks. Whether it's self regulation or government regulation would be up to the people I suppose, but you live in a country that espouses the notion of less government.

The irony is that it seems everyone cries foul and wonders why the government didn't fix it when something goes wrong.

[Happy Monkey]

Actually, the size of the banks is what allowed them to successfully pressure Congress to allow them to have far too few assets to be secure.

Ideally, you would be correct that size would give stability. But banking culture is so screwed up now that the largest banks are more leveraged than a small-time bookie, and all their size does is make sure that everyone is hurt if they make a bad bet.

[SamIam]

I really liked the following from the pdf article which followed the original link (emphasis my own):

An unfortunate side effect of the government’s massive aid to TBTF banks has been an erosion of faith in American capitalism. Ordinary workers and consumers who might usually thank capitalism for their higher living standards have seen a perverse side of the system, where they see that normal rules of markets don’t apply to the rich, powerful and well-connected.


Here are some ways TBTF has violated basic tenets of a capitalist system:

Capitalism requires the freedom to succeed and the freedom to fail.
Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure—openly and publicly. Economist Allan Meltzer put it this way: “Capitalism without failure is like religion without sin.”

Capitalism requires government to enforce the rule of law. This requires maintaining a level playing field. The privatization of profits and socialization of losses is completely unacceptable. TBTF undermines equal treatment, reinforcing the perception of a system tilted in favor of the rich and powerful.

Capitalism requires businesses and individuals be held accountable
for the consequences of their actions. Accountability is a key ingredient for maintaining public faith in the economic system. The perception—and the reality—is that virtually nobody has been punished or held accountable for their roles in the financial crisis.

The idea that some institutions are TBTF inexorably erodes the foundations of our market-based system of capitalism.

I could not agree more about the importance of accountability and how the lack of it has turned the management of big financial institutions and other major corporations into a free for all.

Communist systems of government suffer from a this same failure of responsibility. If a nationalized business is inefficient and fails to produce, who cares? The government will simply pour increasingly worthless yen (as in the case of China) onto the problem as Government supported banks prop up everything from construction companies that are unable to build a viable national infrastructure to manufacturers turning out contaminated baby formula to corporate polluters who pour so many toxins into the air over Beijing that birds fall dead from the sky.

Capitalist countries are supposed to be better than that. Yeah, right.

It's all a part of the continuum of government sponsored disasters from small to large which seem to be occurring in countries all over the globe. The fat cats get pay raises, stock options, or at worst; golden parachutes - all as a reward for their greed, irresponsibility, and inability to run so much as a lemonade stand, never mind an outfit like Goldman Sachs.

The rest of us are still struggling with high unemployment, low wages if we are lucky enough to still have a job, and a highly uncertain future.

"Too big to fail" is simply Orwellian double-speak, not a viable governmental policy.

[Griff]

Originally Posted by SamIam

Communist systems of government suffer from a this same failure of responsibility.

Absolutely.

[ZenGum]

Well, under Stalin and the NKVD, if the train's bearings wore out, they shot the engineers for sabotage.

Of course, the trains bearings wore out because the commissars forced the engineers on pain of death to overload them ...

[Urbane Guerrilla]

Originally Posted by SamIam

I could not agree more about the importance of accountability and how the lack of it has turned the management of big financial institutions and other major corporations into a free for all.

Communist systems of government suffer from a this same failure of responsibility. If a nationalized business is inefficient and fails to produce, who cares? The government will simply pour increasingly worthless yen (as in the case of China) onto the problem as Government supported banks prop up everything from construction companies that are unable to build a viable national infrastructure to manufacturers turning out contaminated baby formula to corporate polluters who pour so many toxins into the air over Beijing that birds fall dead from the sky.

Capitalist countries are supposed to be better than that. Yeah, right.

It's all a part of the continuum of government sponsored disasters from small to large which seem to be occurring in countries all over the globe. The fat cats get pay raises, stock options, or at worst; golden parachutes - all as a reward for their greed, irresponsibility, and inability to run so much as a lemonade stand, never mind an outfit like Goldman Sachs.

The rest of us are still struggling with high unemployment, low wages if we are lucky enough to still have a job, and a highly uncertain future.

"Too big to fail" is simply Orwellian double-speak, not a viable governmental policy.

I'm Urbane Guerrilla and I approve of this message.

[Griff]

... and the seventh seal is opened.

[Urbane Guerrilla]

Hee hee.

[ZenGum]

Wait, WHAT????



Dogs and cats - living together!

[tw]

PBS Frontline, in a tradition of reporting facts often before most here have even heard them, has again reported on Money, Power, and Wall Street The first two of a four hour report is one of the best explanations of the corruption that created this recession - to enrich only the rich.

For example, CDO (or credit default option) is powerful tool to protect institutions from excessive risk. A tool to address what is most important and only relevant - the product. But as originators of CDOs realized, their instrument eventually was perverted into a tool to enrich the most corrupt and scam the naive. IBK Bank is cited as a perfect example.

These instruments were easily sold by and to people who were also some of the poorest students when you were in school. So that the public would only lose money. Bankers, stock brokers, etc typically enrich themselves - screw the counterparty. And call that acceptable. If they were not bankers, some probably would be bank robbers. Even JP Morgan, who invented the instrument, realized the problem and resulting corruption. And stopped selling this monster. See the people who invented the CDO discuss it.

Are derivatives and credit defaults evil? They are and are not. Anyone who knows in terms of good and evil is part of the problem. These instruments have important purposes. But since bankers are driven by wealth (rather then the purpose of bank), then these finance instruments almost caused a 40% world wide unemployment. CDOs are both evil and productive. You should know why. That means learning details. And ignoring sound bytes. Why do we have a Tea Party? People who would rather remain uneducated are even purchased by the corrupt on Wall Street. Its not hard when a party is based in staying dumb; not learning the details.

If you have any recommendation or criticism of the world financial system, then Frontline is a must watch. To have any opinion without details makes one just as evil. The show will be repeated often. And can be watched on the internet.

BTW, Frontline in four episodes also exposed the lies that justified Mission Accomplished and Shock and Awe. So many so hated the American soldier as to remains uneducated when even Frontline exposed the myths. Anyone who hates the middle class and themselves (or can be manipulated by Rush Limbaugh) also will avoid these episodes.

A bottom line remains. If deceived or foolish, then one thinks the purpose of a company is profits. Only mafiso types believe in profit – screw everything else. Corruption, openly advocated by George Jr and his wacko extremists, created this recession. The rich as still getting richer because so many do not even know these details. So many only parrot political spin.

Details behind this corruption are explained in interviews with people who were complicit in and enriched themselves. Why could Eastman Kodak get so much money from Wall Street when Kodak was only creating a buggy whip business? Money, Power, and Wall Street. A story of investment bankers, stock brokers, bond traders, derivative salesmen, sub-prime loan officers - greedy people whose wealth comes from scamming. Everyone should understand these details – how it works. How we all suffer a lower standard of living because these finance people enriched themselves by supporting an unproductive Kodak. To even do same even to European communities. To not understand means one remains an accessory to an ongoing crime.

Another fundamental fact. Financial instruments (CDO, derivative, etc) should be exchanged in open markets. Banks are now spending massively to continue hiding their scams. Bloomberg News had to appeal to the Supreme Court to discover and report this reality. Because banks want everything to remain secret. Even have the Tea Parry and wacko extremist Republicans supporting them.

During George Jr’s tenure, the nation’s largest banks were borrowing $trillions from the Fed to remain solvent. Sometimes borrowing $100billion a day. Banks played money games so their spread sheets reported mythical profits. New laws made this scam easier - hid the loans. Because deregulation was the political spin to encourage corruption. Same people were so corrupt as to even want Social Security invested in stock markets.

Many of the ‘too big to fail’ banks were on the verge of bankruptcy throughout a large part of George Jr’s reign. When political spin somehow was knowledge to so many.

[xoxoxoBruce]

Excellent show by Frontline, all 4 episodes can be seen online.

[DanaC]

Capitalism requires businesses and individuals be held accountable
for the consequences of their actions. Accountability is a key ingredient for maintaining public faith in the economic system. The perception—and the reality—is that virtually nobody has been punished or held accountable for their roles in the financial crisis.

I almost agree with this. Unfortunately, though, some people have been punished for their roles in the financial crisis. It's just on the whole they weren't the financiers.

[TheMercenary]

Capitalism requires the freedom to succeed and the freedom to fail.
Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure—openly and publicly. Economist Allan Meltzer put it this way: “Capitalism without failure is like religion without sin.”

I can't agree more, which is why the auto industry should never have received a bail out with tax payer dollars. The taxpayers are out billions on that deal.

[classicman]

Originally Posted by DanaC

Unfortunately, though, some people have been punished for their roles in the financial crisis. It's just on the whole they weren't the financiers.

Who in the US was prosecuted? I must have missed that. :/