Too big to fail,to fix or not?

[sjay]

My first inclination is to separate commercial and investment banking so we don't have to repeat future bailouts of too big to fail.But it seems if that's done then we won't have banks big enough to compete for global financing. I would like opinions on this,but please keep the partisan politics out,which manages to ruin about 80%of the treads.

 

[eflatminor]

My first inclination is to end the federal reserve and allow banks to compete in a free market. If you don't like them engaged in commercial and investment banking, do business with another bank. You'd have choice without the current ultra-cronyism that is today's banking market.

 

[EdwardBaiamonte]

but please keep the partisan politics out,which manages to ruin about 80%of the treads.

would you like to keep partisan politics out of our country and voting booths too??? Democracy is partisan political debate! and its always been a debate about freedom versus government.

it is 100% meaningless to say partisan politics ruins threads when the central issue of our time is the partisan political battle between freedom and government.

 

[EdwardBaiamonte]

then we won't have banks big enough to compete for global financing.

1) I've seen no evidence of this

2) you could break them up under anti-trust logic and satisfy even conservatives in many cases

3) you could not worry about it as long as there is a good living will in place with specific procedures for an orderly funeral in the even of fatal, untimely death.

 

[waltky]

'Too big to fail' causes markets to fail...

Bernanke: Too Big To Fail Means 'Market Is Not Allowed To Work'
August 7, 2012 – Federal Reserve Chairman Ben Bernanke said that large financial institutions that were too big to fail and needed government bailouts were bad for the market because the presumption of a government bailout meant that “the market is not allowed to work.”

Bernanke, speaking to a conference of financial and economics school teachers, said that too-big-to-fail banks were one example of the combination of government and market failures that can hurt the economy. “Finally, I’d mention the too-big-to-fail problem, which is sort of a combination of government and market failure,” Bernanke said on Tuesday at the event in Washington, D.C. “Institutions which are so big and complex and interconnected that their failure would possibly bring down the financial system -- there is a strong presumption in the markets that the government will protect those institutions and that means that [the] market is not allowed to work, in a sense.”

Bernanke said the presumption of a government bailout of such large companies stopped the market from functioning efficiently by allowing investors to make risky deals with these large banks, or not care about what the banks do, because the investors think the government will just bail them out. “[P]eople who lend money to those institutions say, ‘Well, I don’t have to worry about whether they’re making good investments or taking too much risk because I believe that if they get into trouble the government will protect them,” he said. Bernanke explained that because investors could count on government, they were more likely to engage in the type of risky behavior that could lead to another financial crisis. “That obviously leads to very bad allocations [of capital], it leads to increased risk in the system,” he said.

Bernanke also praised the free-market concept of the invisible hand moving through the economy, saying that teaching it to students was one of his favorite things as an educator. He said that markets were responsible for the massive wealth creation seen around the globe over the past century. “One of the most exciting moments in teaching economics is when kids understand the invisible hand idea, the idea that markets can achieve such complex economic outcomes without any kind of central planning,” he said. “It’s pretty clear to everybody that, looking around the world, markets have played a tremendous role in creating the wealth that we see in rich countries and in emerging markets that are becoming rich,” he said. “So markets are an amazing thing and getting students to appreciate what markets can do is a very important part of teaching economics.”

Bernanke also warned that markets did not operate perfectly, pointing out that things such as natural disasters or human failings could cause markets to fail. “Markets also have problems, and there are also market failures,” he said. “There’s monopoly, there’s externalities [wars, natural disasters, etc.], there’s many other things that can go wrong in markets.”

Source

 

[expat_panama]

...separate commercial and investment banking so we don't have to repeat future bailouts of too big to fail...

Sounds vague.

Regulating banks requires actually looking them clearly and coming up with specific law changes. What we're getting from the old time news sources is mindlessness complaining. Sure, lot's of morons pay for that crap but it won't regulate banks. If you've got a specific law change for correcting a specific problem, then please share. The economy is important and good input's always needed.

 

[martybegan]

My first inclination is to separate commercial and investment banking so we don't have to repeat future bailouts of too big to fail.But it seems if that's done then we won't have banks big enough to compete for global financing. I would like opinions on this,but please keep the partisan politics out,which manages to ruin about 80%of the treads.

To me, the 2008 financial crisis was a unique event in history, caused by the phenomenon of marketization of mortgages into securities.

The underlying issue was that, unique to finanical investment, the situation created was one in which EVERYONE was winning. Usually in speculation and investing there are winners and losers. People selling stock short, then getting screwed when the price goes up. People betting on the scarcity of a commodity (think Trading places) and losing money when the prices actually falls.

With Mortgage Backed Securities EVERYONE was winning. The new homeowner won because he got access to a house he/she previously couldnt afford. The real estate company made money on the increasing costs of houses during sales, the mortgage company made money in selling the bundles of mortgages, local governments made money on the increased property taxes, securites firms made money on the comissions selling the MBS's, Insurance companies like AIG made money on the default swap fees, and the federal and state governments made money on the increase in corporate and personal income taxes.

Everyone made money, but the good times were based on the assumption that housing prices would keep going up, demand would remain stroing, the homeowner could afford the mortgage they got, and any downturn would only be short.