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Yes, I'm well aware. However, the consequences are much greater (obviously) the bigger the corporation. Hence the need to split up these TBTF companies.
297 cosponsors.
Yes, I'm well aware. However, the consequences are much greater (obviously) the bigger the corporation. Hence the need to split up these TBTF companies.
Thread is kind of funny....
The US govt is in worse shape that all of the TBTF's combined.
The US govt gave these TBTF's money for one reason...they wanted to control them. It is people like OBAMA's dreamscape.
The worst offender, is guarding the lesser offenders.
Would be funny...if people actually saw it for what it is.
I'm sure the collapse of the banking system, and America's economy as we know it with it, had nothing to do with it.
You've got it mixed up SouthernFried. The banks own Congress, not the other way around.
How is it worse for bigger corporation?
Yes, it affects more stock holders.
Yes, it affects more jobs.
They need to fail to keep them from repeating.
However, if we let them fail, we don't have the domino effect of having to do the same for more. CEO's try their best to make a company recover instead of being the one who failed. It's not a failure for the CEO when he get's billions to keep the copmpany alive, and still be able to pay executives big bonuses.
What do you want? Corporations that are too big, getting bigger and never in fear af failure? Big enough to actually control this nation like OCP in Robocop because the can buy every politician?
OK....
An Omni Comsumer Products (look-alike) and a Delta City (look-alike) are in our future thanks to people like you.
And if congress ever wanted to get out of their control, this was the time to do it.
Let them fail!
Who would pay for all those junkets then WC?
An Omni Comsumer Products (look-alike) and a Delta City (look-alike) are in our future thanks to people like you.
This is actually one of the few things I agree with on WC. If they fail, people will adapt. The important thing is that individuals regain power.
You misread me. I'm in agreement that we should only have big corporations if those corporations are able to fail without wrecking our entire economy. If those corporations get to such a ridiculously large size, then they should probably be split up into sister corporations. (To be honest, I don't have a good answer for this.)How is it worse for bigger corporation?
Yes, it affects more stock holders.
Yes, it affects more jobs.
They need to fail to keep them from repeating.
However, if we let them fail, we don't have the domino effect of having to do the same for more. CEO's try their best to make a company recover instead of being the one who failed. It's not a failure for the CEO when he get's billions to keep the copmpany alive, and still be able to pay executives big bonuses.
What do you want? Corporations that are too big, getting bigger and never in fear af failure? Big enough to actually control this nation like OCP in Robocop because the can buy every politician?
OK....
An Omni Comsumer Products (look-alike) and a Delta City (look-alike) are in our future thanks to people like you.
I understand the pragmatic reasons for the bailout, but as Winehole has pointed out, the moral hazard in letting banks perform badly without consequences is heinous.
OK, my mistake.
In general, we agree on this topic.
http://www.interfluidity.com/v2/3531.htmlI’m sympathetic to the view that financial regulation ought to strive not to prevent failures but to ensure that failures are frequent and tolerable. Rather than make that case, I’ll refer you to the oeuvre of the remarkable Ashwin Parameswaran, or macroresilience. Really, take a day and read every post. Learn why “micro-fragility leads to macro-resilience”.
Note that “micro-fragility” means that stuff really breaks. It’s not enough for the legal system to “permit” infrequent, hypothetical failures. Economic behavior is conditioned by people’s experience and expectations of actual events, not by notional legal regimes. As a matter of law, no bank has ever been “too big to fail” in the United States. In practice, risk-intolerant creditors have observed that some banks are not permitted to fail and invest accordingly. This behavior renders the political cost of tolerating creditor losses ever greater and helps these banks expand, which contributes to expectations of future bailouts, which further entices risk-intolerant creditors. [1] In order to change this dynamic, even big banks must actually fail. And they must fail with some frequency. Chalk it up to agency problems (“you’ll be gone, i’ll be gone“) or to human fallibility (“recency bias”), but market participants discount crises of the distant past or the indeterminate future. That might be an error, but as Minsky points out, the mistake becomes compulsory as more and more people make it. Cautious finance cannot survive compe ion with go-go finance over long “periods of tranquility”.
So we need a regime where banks of every stripe actually fail, even during periods when the economy is humming. If we want financial stability, we have to force frequent failures. An oft-cited analogy is the practice of setting occasional forest fires rather than trying to suppress burns. Over the short term, suppressing fires seems attractive. But this “stability” allows tinder to build on the forest floor at the same time as it engenders a fire-intolerant mix wildlife, creating a situation where the slightest spark would be catastrophic. Stability breeds instability. (See e.g. Parameswaran here and here. Also, David Merkel.) We must deliberately set financial forest fires to prevent ac ulations of leverage and interconnectedness that, if unchecked, will eventually provoke either catastrophic crisis or socially costly transfers to creditors and financial insiders.
Squirrels don’t lobby Congress, when the ranger decides to burn down the bit of the forest where their acorns are buried. Banks and their creditors are unlikely to take “controlled burns” of their ins utions so stoically. If we are going to periodically burn down banks, we need some sort of fair procedure for deciding who gets burned, when, and how badly. Let’s think about how we might do that.
"Let’s think about how we might do that."
Still thinking? nothing
Just like the FDIC takes over failing banks, the FDIC should have taken over, yes NATIONALZED, all the big financial ins utions that were, by any measure, bankrupt in 2008/09, and some still are if their accounting wasn't fraudulent.
Money is utility, like water, electricity, roads, SEWAGE!
I roughly agree with most of that.
I've been recommending a stronger resolution authority for years, boutons. odd how you reflexively mock posters whether they agree or disagree.
EEK! You have posted a solution!
What the man? Where is the "look at what stupid thing the other team is doing?" stuff?
/sarcasm.
So now we need to ask, how best to do that?
We need some way of capping banks so that none of them get too large.
Ideas?
Ok, now give us a solution you and yours can get behind, other than letting large financial ins utions catastrophically collapse in a chain reaction domino, because that was tried in the GD, and it didn't work too well.
"how best to do that"
Well, this is all academic hot air, since the financial sector OWNS the country, the legislators, the regulators.
So there's really nothing that can be done, other than expel hot air.
The derivatives market (aka bets on bets on bets, all legally binding) world wide far exceeds the worlds total GDP.
And what about the shadow (unregulated) banking system?
Gecko/Ryan fully intend to kill any and all financial regs that were imposed post-2008. Coupled with them not enforcing any remaining regulations, and we're sure to have yet another world financial system disaster in the next few years. The 1% will escape with $Ts, the 99% will be totally screwed deeper and harder than ever. And there's no way to prevent it.
abandon hope all ye who enter here. except, you ain't exactly Dante.
A tighter liquidity restriction could be a tool and, I know you're not a fan, but you've got to let anything outside of a restricted class fail.
IOW, keep your liquidity at xxx. Any en y crossing that line does so without protection other than FDIC insurance for account holders.
One pond for little fish, one pond for big fish. Banks who want do individual banking things like checking/savings/small loans/mortgages get to play in the little fish pond. Banks who want to do commercial/investment/underwriting stuff have to play in the big fish pond. You have to pick one or the other. Each pond has it's own cap on the percentage of the pond's assets a single bank can own. You won't be able to completely keep the ponds separate, especially when dealing with things like mortgages. But when mortgages that originate from small pond banks get bundled and moved over to the big pond you can still make the small pond banks hold a stake in the individual mortgages they sold to keep them on the hook for some risk.
I am all for letting companies fail. Negative feedback works wonderfully.
How about a sliding scale of liquidity/capital reserves, that gets (HA) progressively more restrictive the larger you get? (equity is a better word than "liquidity" here. You can be very liquid, and still be insolvent)
Capital cushions should be scaled up very quickly past a certain point would work wonders. If you want to be "too big to fail", then you have to have a huge cushion of surplus capital sitting around.
The larger the "E" part of the A-L=E, the more you can cope with large swings in your asset valuation.
It would be a very simple, easy tool to measure, and would encourage a lot of smaller compe ors who would specialize in certain things.
That's an intelligent approach at first blush. BTW, when I was tossing around liquidity, I was referring to the liquidity ratio that the Fed imposes...deposits on hand : outstanding loans.
*edit* Should there be concerns around a Bank having large amounts of surplus capital laying around that is basically, doing nothing?
I'm not under the impression that if a large financial ins ute fails, that it would be catastrophic.
How does it hurt the borrowers?
It only hurts the investors, which no matter where you invest, has some degree of risk.
The large financial ins utions own each others debt, and stocks.
So... if you get one ins ution that gets hammered and collapses, its stock becomes worthless, and drags down the stock valuation of others right off the bat. That ins utions debt then falls in value.
The other banks almost certainly have impaired assets of the same kind as the one that failed, so their capital cushion is affected. Additionally, they have to take the hit on their balance sheet from writing down losses for the first domino bank, and losses from the rest of the sector in general.
Their liquidity is affected, because no one will do short term lending. This means they then have to sell non-cash assets into a declining market to meet cash needs, generally at a loss. This flood further feeds a downward pressure on asset prices.
The weakest 2nd domino then finds itself insolvent, collapses, its stock becomes worthless, and drags down the stock valuation of others right off the bat. That ins utions debt then falls in value.
The other banks almost certainly have impaired assets of the same kind as the one that failed, so their capital cushion is affected. Additionally, they have to take the hit on their balance sheet from writing down losses for the first AND SECOND domino bank, and losses from the rest of the sector in general.
The next weakest 3rd domino falls... etc.
This is why people were so freaked out when Lehman failed. It was the first domino, and it would not have been the only one without the bail out, propping up the dominos that had oh-so-conveniently lined themselves up and were essentially holding guns to their heads threatening to kill themselves if the government did not step in and take their losses public. Moral hazard at its finest.
Yes, there should be concerns. Investors would then pressure the bank to give it out as dividends so they can take it elsewhere an invest it. Sort of self correcting in a beautiful way.
There will be some equilibrium between this impulse, and the efficiencies of scale of large ins utions. If you want to pay the costs of having so much cash/equity sitting around, then an efficient market says you are getting some benefit.
This is an example of what I would call a good regulation that imposes a rule/boundary, but lets the market figure out how best to structure things, IMO.
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