Does gov’t have the will to whittle down Big Banking?
President Obama is in New York today to talk about the collapse of the financial system and the so-far-inadequate efforts to address the problems that created this situation.
The most fundamental problem is one of scale. I remember seeing Fed Chairman Ben Bernanke on TV last fall, in the early days of the collapse, explaining in somber tones the systemic threat posed by economic players who had become “too big to fail.”
Failure is a necessary enforcement mechanism in capitalism; if banks and holding companies know that they are too large to fail, that government will bail them out rather than risk systemic collapse, capitalists lose discipline and take inordinate risks. They respond logically, rationally and greedily to such a system, by privatizing the profit and publicizing the risk.
I remember hearing Bernanke’s words and noting that in response to the crisis, he and others in government were driving creation of entities that were bigger still, with companies gobbling each other up in an effort to stay viable. I’m not sure there was an alternative at the moment, given the gravity of the situation. But the problem is that now that we’ve taken a step or two back from the cliff, there still doesn’t seem to be an alternative.
Smarter minds than mine also recognize that danger. From Bloomberg:
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.” …..
“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
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200 comments Add your comment
TnGelding
September 14th, 2009
7:37 am
Resubmitted from below:
TnGelding
September 13th, 2009
8:33 pm
I Report/ Vast White Wing Conspirator (-: You Whine )-:
September 13th, 2009
7:04 pm
It’s the derivatives, stupid. Until they eliminate those, the same thing could happen again. You can never eliminate all the risk. If you can’t stand the heat stay out of the kitchen.
NR to tha' B
September 14th, 2009
7:37 am
Actually, “too big to fail” is a myth perpetrated by Big Government cronies who think they all know the best way to manage an economy.
Truth is, you can’t manage the economy any more than you can manage the weather.
And useless liberals/commies who try need to be removed from the damn country as well as anyone who proposes such NONSENSE.
And remember:
http://apnews.myway.com/article/20090913/D9AMHEH00.html
stands for decibels
September 14th, 2009
7:47 am
Does gov’t have the will to whittle down Big Banking?
No.
This has been another edition of Simple Answers to Simple Questions.
USinUK
September 14th, 2009
7:49 am
TnG –
I disagree with eliminating derivatives – but they should be regulated. They should all be operated via a deal “clearinghouse” so that everyone knows how much exposure everyone has.
it helps knowing not just what the financial liability is for a particular organization, but it also helps monitor what the market thinks is going to happen in the coming months (are they betting that default rates will rise, are they betting against a particular industry, etc)
USinUK
September 14th, 2009
7:51 am
dB –
7:47 – I was making that very point in our weekly meeting this morning. Until our congress critters operate under a different law from “you gotta dance with them what brung ya”, the bankers will be calling the shots.
stands for decibels
September 14th, 2009
7:51 am
For newcomers to the blog, the thing posting as “NR to the B” in this thread is the same gentleman who referred to Timothy McVeigh as “heroic” and, over this weekend, claimed that Barack and Michelle Obama popped champagne corks to celebrate when the WTC fell on 9/11.
USinUK, I saw your comment downstairs and yeah, it would seem that Kenye West really needs to get some help to cure his special brand of wankerism.
His lame apology doesn’t cut it, either.
Normal
September 14th, 2009
7:52 am
NR to tha’ B
I was listening to you until this: “And useless liberals/commies who try need to be removed from the damn country as well as anyone who proposes such NONSENSE.”
This kind of vitriol, just diminishes your point and makes me think of you as ill mannered… just sayin’
TnGelding
September 14th, 2009
7:53 am
NR to tha’ B
September 14th, 2009
7:37 am
You can’t? Where would we be if big business hadn’t decided to layoff 7 million hard-working, experienced, dedicated employees? Or if Bush hadn’t approved TARP? Or if Obama hadn’t approved the stimulus?
USinUK
September 14th, 2009
7:53 am
dB –
wow. NR to the B out-wanks even Kanye West. and that’s sayin’ something.
USinUK
September 14th, 2009
7:56 am
“Actually, “too big to fail” is a myth perpetrated by Big Government cronies who think they all know the best way to manage an economy. ”
bahaha. yeah. and the market crash that happened right after Lehmans really had nothing to do with the gummint deciding to let LB fail.
criminey. so much stupid in one sentence, it’s hard to believe.
TnGelding
September 14th, 2009
8:00 am
USinUK
September 14th, 2009
7:49 am
I defer to your expertise, but it seems to me they are unnecessary and caused the recent economic meltdown. The subprime loan defaults were manageable. The mortgage-backed-securities were not.
USinUK
September 14th, 2009
8:05 am
TnG –
the 2 biggest problems were that 1) no bank new how much exposure its colleagues had, so they were unwilling to do any overnight lending (which is why we saw record LIBOR rates back at the beginning of the year). this will benefit regulatory agencies, as well, hopefully preventing another AIG.
and 2) credit ratings on securities that seemed to be based on one guy with a dartboard (well give this one a …toss the dart … AAA! the next one gets a … A- … and so forth).
those would be my top 2 fixes to the system.
TnGelding
September 14th, 2009
8:06 am
USinUK
September 14th, 2009
7:49 am
I should have prefaced my comments with I really don’t even fully understand what the hell they are.
NR to tha' B
September 14th, 2009
8:08 am
and the market crash that happened right after Lehmans really had nothing to do with the gummint deciding to let LB fail.
—————————————————————————–
The government didn’t decide to let LB fail. LB decided to let LB fail because they made bad decisions and crumbled to the ground, like they deserved to.
What you economically ignorant libs always fail to understand is this: you cannot have true economic growth, or sustained increase in quality of life, without a decline every so often. That’s just the way it works.
And trying to “manage” it won’t make it any better, it will grind it to halt.
Even Jay recognized that if you reward bad decisions by bailing out a company, they will just continue to make bad decisions because they wont have to face any repercussions…as in FAILING.
But of course, liberals hate responsibility…so there you go.
And thanks for recapping my greatest hits. But it’s not my fault that Barack Obama hates white people.
GEORGE AMERICAN
September 14th, 2009
8:08 am
WE DON’T NEED NO MORE OF OBLARMA’S SOCIALIST GOVERNMENT TAKE OVER OF THE BANKS.
WHEN ARE AMERICANS GOING TO WAKE UP AND REALIZE THEIR FREEDOMS ARE BEING STOLEN BY THE OBUMBLER AND HIS HENCHMEM (PELOSI AND THE GAT GUY)?!!!
Jimmy62
September 14th, 2009
8:09 am
Of course they won’t. They had the chance to not bail out these banks and let them fail naturally, and instead they boosted them up. The government should have stayed out and let them fail.
joe matarotz
September 14th, 2009
8:09 am
Considering the fact that Golman-Sachs, Citigroup and JP Morgan-Chase donated a collective $2,391,217.00 to Obama’s election campaign, I do not think the government has the will.
To be fair, those same three entities contributed $780,253.00 to the McCain campaign. I guess that’s how they hedge their bets.
Where there’s a will, there’s a way.
WHere there’s a campaing contribution from your top ten contributors, there’s no way.
I can’t understand how the feds continue to let the bankers slide, can you?
TnGelding
September 14th, 2009
8:10 am
NR to tha’ B
September 14th, 2009
8:08 am
I heard that last remark from children in my neighborhood.
Jimmy62
September 14th, 2009
8:11 am
Derivatives make the economy much better and less risky than it would be otherwise. That’s sort of the point, to mitigate risk, to spread risk, to manage risk. Our economy would be less than half it’s current asize if not for derivatives.
joe matarotz
September 14th, 2009
8:12 am
And I’ll bet that if Lehman had ponied up about %700,00.00, they’d still be around today.
NR to tha' B
September 14th, 2009
8:13 am
TnGelding, and what exactly are you doing with the children in the neighborhood?
Normal
September 14th, 2009
8:14 am
And thanks for recapping my greatest hits. But it’s not my fault that Barack Obama hates white people.
See, there you go again, diminishing everything you try to point out. When WILL you learn?
TnGelding
September 14th, 2009
8:15 am
Jimmy62
September 14th, 2009
8:11 am
Many people, including the late Henry Gonzales and Warren Buffett, warned about the dangers of derivitaves. And their fears came true.
If you aren’t willing to take the risk, stay out of the game. Maybe our economy should be smaller. What is it with all this worship of growth? We need to stabilize our population and hit a plateau, and try to stay there.
Redneck Convert (R--and proud of it)
September 14th, 2009
8:17 am
Well, I want guvmint out of Private Innerprize. Let big business come up with whatever cockamamie schemes they want. Then, when enough investors get Madoffed–that’s a new word I made up–the cos. that come up with the schemes will go under. Sure, a few of the big boys in the cos. will walk off with maybe a couple hundred million bucks, but their cos. will be finished and so will the investors. That’s how it’s suppose to work in Private Innerprize.
I reckon I can afford to take this view. My beer stocks in my 401k are all doing good, so to heck with everybody else. That’s the Conservative way of seeing things. Besides, if you’re stupid enough to invest in anything besides beer and liquor, you deserve to get ripped off. And getting ripped off is as American as apple pie and Guvmint Motors. You don’t want to be unAmerican, do you?
So tell the guvmint to keep its grubby hands off of Private Innerprize and my Medicare. Have a good day everybody.
NR to tha' B
September 14th, 2009
8:17 am
See, there you go again, diminishing everything you try to point out.
———————————————————————
Excuse me, whoeverthehellyouare, you sound like my friggin’ grandmother. You truly don’t need to quote me and then proceed to lecture. Add to this: wherethellhaveyoubeenforthepastyear, becaue I’ve ALWAYS been like this…hence my huge fanbase here at the AJC & Creative Loafing (John Sugg in particular).
Now blow.
TnGelding
September 14th, 2009
8:18 am
NR to tha’ B
September 14th, 2009
8:13 am
Talking to them when I walk my neighbor’s dogs or taking their families food.
NR to tha' B
September 14th, 2009
8:19 am
What is it with all this worship of growth? We need to stabilize our population and hit a plateau, and try to stay there.
————————————————————
Proof that progressives are actually REgressives.
If you hate growth and increased quality of life so much, you’re free to move to Cuba, where you belong anyways.
NR to tha' B
September 14th, 2009
8:19 am
Talking to them when I walk my neighbor’s dogs or taking their families food.
————————————————————————–
So you walk dogs for a living. That explains a LOT.
USinUK
September 14th, 2009
8:21 am
“What you economically ignorant libs always fail to understand is this: you cannot have true economic growth, or sustained increase in quality of life, without a decline every so often. That’s just the way it works”
and what “free market” numpties like you don’t understand is the difference between a decline and a global meltdown.
LB made some horrible decisions that led to their own decline – no doubt about it – but if the gummint had decided to let ALL the investment banks as well as AIG go the way of LB, we would be in the equivalent of the economic caves, hunting with sticks and foraging for berries.
jt
September 14th, 2009
8:21 am
Relax hard-working Americans.
Timothy Geithner, Charlie Rangel, Barney Frank, and President Obama has got this banking problem under control.
How could anyone doubt this dream team?
TnGelding
September 14th, 2009
8:23 am
NR to tha’ B
September 14th, 2009
8:19 am
Duh, our quality of life has gone down during the last 8 disastrous years. Cuba would be an improvement over having to live near you. If not for our misguided policies it would be a beacon of light for poor Latin American countries.
TnGelding
September 14th, 2009
8:24 am
NR to tha’ B
September 14th, 2009
8:19 am
I put in my 48 hour days.
AmVet
September 14th, 2009
8:25 am
USinUK, good morning or afternoon as the case may be.
You’re right, the boorish fool who has to change his name every other week to stay on the “run” stupidly believes he feigns others into not realizing he is the same dolt who writes under numerous other monikers.
Yeah, riiiight…
And all because this master of mental midgetry is such a gullible, stunningly uniformed and hateful dupe himself.
First as he has the vocabulary of an eighth grader. Secondly with the acumen of a very challenged eighth grader it is damned near impossible to mistake him for anybody besides a card carrying member of the gutless, petulant conned.
This clown could no more tell us the causes of this economic meltdown than could that challenged eighth grader. Blubbering about Barney Frank and ACORN and the gubmint would be the depth of his “analysis”.
But hey, no worries, some here will feed the needy troll.
And like a train wreck, it is enjoyable watching him cr@p his pants on a public forum…
NR to tha' B
September 14th, 2009
8:26 am
If not for our misguided policies it would be a beacon of light for poor Latin American countries.
—————————————-
Oh yeah…its America’s fault. Has nothing to do with Castro or communism.
TnGelding
September 14th, 2009
8:26 am
jt
September 14th, 2009
8:21 am
Yeah, and they’re your worst nightmare. Pulled us out of a recession in 6 short months.
NR to tha' B
September 14th, 2009
8:29 am
we would be in the equivalent of the economic caves, hunting with sticks and foraging for berries.
———————————————————
The typical “sky is falling” rhetoric of the government worshiping rookie.
We actually would have been just fine. And better off in the long run if losers like Bush and Obama, may they both burn in hell for eternity with little demons spearing them with sharp sticks, hadn’t bailed out those idiot companies with stolen taxpayer dollars.
Get ‘cha teeth fixed yet, mate?
TnGelding
September 14th, 2009
8:30 am
NR to tha’ B
September 14th, 2009
8:26 am
The embargeo was intended for it to prosper?
http://en.wikipedia.org/wiki/United_States_embargo_against_Cuba
TaxPayer
September 14th, 2009
8:30 am
NR tada B is tryin’ to horn in on GEORGE AMERICAN’s act.
NR to tha' B
September 14th, 2009
8:31 am
Yeah, and they’re your worst nightmare. Pulled us out of a recession in 6 short months.
—————————————–
We’re out of a recession? Is there data to support this? And even if we are recovering…it will be IN SPITE of the government criminals, NOT because of them. Don’t ever give them credit for anything, it makes your already low credibility fall apart totally.
Kinda like Amvet, the crippled drug addict with the nazi flag hanging on his wall.
jt
September 14th, 2009
8:33 am
TnGelding-
If you indeed believe that we are out of a “recession”, did they pull us out or did the 10,000 dollars seized from every American pull us out?
And the monthes have not been “short” for most taxpayers.
NR to tha' B
September 14th, 2009
8:34 am
The embargeo was intended for it to prosper?
————————————————————
They can’t trade with other countries?
USinUK
September 14th, 2009
8:40 am
“Oh yeah…its America’s fault. Has nothing to do with Castro or communism.”
yeah, because China sure is doing horribly … as is Viet Nam …
really. you should stop while you’re so far behind. go, get some sugary cereal and watch cartoons.
“The typical “sky is falling” rhetoric of the government worshiping rookie.”
ah. no. been working in fixed income markets for nearly 6 years, now. feel pretty comfortable that I know more about how the markets work than you will. ever.
as for the “sky is falling rhetoric” – the proof was in the equity market collapse during Q4 into Q1, until the market had assurances that the gummint was going to act as a safety net.
Normal
September 14th, 2009
8:40 am
WOW, Isn’t that NR to tha’ B witty?
NR to tha' B
September 14th, 2009
8:43 am
yeah, because China sure is doing horribly … as is Viet Nam …
————————————————————
And would you live in either of those countries?
“ah. no. been working in fixed income markets for nearly 6 years, now. feel pretty comfortable that I know more about how the markets work than you will. ever.”
You obviously don’t if you think that government is the solution to…well…ANYTHING. You should be cleaning toilets, not doing anything with the markets. You and Obama can clean my toilet together while I shag Michelle in the basement. How’s that.
TnGelding
September 14th, 2009
8:45 am
NR to tha’ B
September 14th, 2009
8:31 am
Just keep thnking that. We’ll go on without you.
jt
September 14th, 2009
8:33 am
It hasn’t cost the taxpayers anything, yet. But we will have to service the debt, eventually. Is 6 months shorter than 7? The best part of the stimulus was probably the extended unemployment benefits, and it looks like they’re going to have to be extended again to let families adjust to the new realities of the global economy.
At least Georgia’s Labor Commissioner seems to understand the severity of the situation.
“This is not [just] a recession,” he said. “This is a restructuring, and we haven’t fully understood the implications associated with this restructuring.”
http://www.ajc.com/business/more-women-supporting-families-136846.html
NR to tha' B
September 14th, 2009
8:46 am
until the market had assurances that the gummint was going to act as a safety net.
—————————————–
And there’s the problem. But then, it was our taxpayer dollars that saved YOUR butt wasn’t it? NO WONDER you love it and are all for the bailout!! You lousy THIEF. You worthless stew bum. Good lord. Yeah you aren’t biased! It was OUR hard earned money that BAILED out your SORRY ASS.
Anything you say from here on out is total and complete rubbish…well it always was…but now we all know why.
BECAUSE YOU PERSONALLY BENEFIT FROM GOVERNMENT INTERVENTION.
Now go brush your mottled, yellow, teeth.
AmVet
September 14th, 2009
8:49 am
Normal, either change that w to an sh or change the word to witless!
Really, that he is a anti-intelligence, education-averse Republiconned, is one thing, which in and of itself, not even worth noting.
But this seniorile delinquent, Reich-winger combines that unenviable trait with an irrational animosity for everything he cannot understand.
And as a member of the imploding Reich-wing his “philosophy” is predicated by his hero of the Texas ANG – READY! FIRE! AIM!
Stupid AND hateful.
A winning combination there…
Normal
September 14th, 2009
8:49 am
NR to tha’ B
TnGelding
September 14th, 2009
8:50 am
NR to tha’ B
September 14th, 2009
8:46 am
And saved your butt as well. But you’d never admit it.
NR to tha' B
September 14th, 2009
8:50 am
WOW, Isn’t that NR to tha’ B witty?
———————–
Do you have ANYTHING to add? Seriously?