Skip to content


Simon Johnson Explains ‘Too Big to Fail’

By Simon Johnson

[T]here remains sharp disagreement on what exactly would end too big to fail.  The main views fall primarily into three camps.

The view of Senator Dodd, Democratic congressional leadership more broadly, and the White House – and actually the big banks themselves (e.g., Jamie Dimon in Wednesday”s Wall Street Journal) –  is that the creation of a “resolution authority” would, at a stroke, effectively remove the perception and the reality that some banks are too big to fail.  The basic idea here – as elaborated on by Sheila Bair this week – is that the Federal Deposit Insurance Corporation (or potentially another agency) would expand the powers it currently has to “resolve” – i.e., takeover and liquidate in an orderly manner – banks with federally insured deposits; in the future, it could do this for any financial institution.

The view of leading Republicans is that the Dodd-Dimon approach would just formalize the existence of TBTF banks.  Peter Wallison and David Skeel, for example, argue strongly that the FDIC has no competence in winding down large complex financial institutions – and they are certainly correct that this task would be quite different from closing small or medium-sized banks while protecting depositors.  But their proposal – which seems to also have the support of Senator Richard Shelby (ranking Republican on the Senate Finance Committee) is that we should just allow big financial firms to fail outright, i.e., to run through the usual bankruptcy procedures.

At a rhetorical level, “let ‘em fail” has some appeal.  But as a practical matter, it is a complete nonstarter.  Remember that when Treasury Secretary Hank Paulson decided to let Lehman fail in September 2008, credit markets immediately choked and the global economy teetered on the brink of a Second Great Depression. 

When another mega-bank starts to meltdown, any future president – no matter how libertarian or interventionist by inclination – will face the same horrible moment of decision: Let the financial system collapse or provide an expensive rescue.  It is striking in this context that Mr. Wallison and others from the right used to be outspoken proponents of downsizing financial institutions that had become so large that they were assessed (correctly, as it turns out) Too Big To Fail – but that was when the debate was about Fannie Mae and Freddie Mac.

The third approach, articulated most clearly so far within the Senate by Ted Kaufman (D., DE) is much simpler and more direct: Break up these mega-banks.  As even Alan Greenspan said in October 2009, “If they”re too big to fail, they”re too big” (see Chapter 9 of 13 Bankers).

There is no evidence for economies of scale or scope – or other social benefits – from banks with assets above $100 bn.  Yet our largest banks have balance sheets around $2 trillion and Mr. Dimon defiantly affirmed last week – in his letter to shareholders – that JP Morgan Chase should be allowed to grow bigger, if it so pleases.  But any such growth would not be outcome of any fair or normal market process.  Rather it would reflect the Too Big To Fail implicit subsidy on which Mr. Dimon can now draw, manifest in the form of lower funding costs.

Mr. Dimon may or may not be a good manager of risk, but he will not run JP Morgan Chase for all time.  Sooner or later, one or more our biggest banks will run into serious trouble.

And at that moment, it will matter a great deal whether “biggest bank” means assets of 2-4 percent of GDP (as we propose) or 20 percent of GDP (roughly our current situation) or over 100 percent of GDP (the problem of RBS, the largest UK bank, which essentially failed in 2008).

Making our largest banks smaller is not sufficient to ensure financial stability.  As we review in 13 Bankers, there are many other complementary measures that make sense – including higher capital requirements, more transparency for derivatives, and generally more effective regulation.  But reducing the size of our largest banks is absolutely necessary if we are to reduce the odds of another major financial catastrophe.

Make our largest banks small enough to fail.  There is simply no other way to really end the problem of Too Big To Fail.

View the original article at Veterans Today

Related Posts with Thumbnails

Posted in Politics.

Tagged with , , .


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.

Support #altnews & keep Dark Politricks alive

Remember I told you over 5 years ago that they would be trying to shut down sites and YouTube channels that are not promoting the "Official" view. Well it's all happening now big time. Peoples Channels get no money from YouTube any more and Google is being fishy with their AdSense giving money for some clicks but not others. The time is here, it's not "Obama's Internet Cut Off Switch" it's "Trumps Sell Everyones Internet Dirty Laundry Garage Sale". This site must be on some list at GCHQ/NSA as my AdSense revenue which I rely on has gone down by a third. Either people are not helping out by visiting sponsors sanymore or I am being blackballed like many YouTube sites.

It's not just Google/YouTube defunding altenative chanels (mine was shut), but Facebook is also removing content, shutting pages, profiles and groups and removing funds from #altnews that way as well. I was recently kicked off FB and had a page "unpublished" with no reason given. If you don't know already all Facebooks Private Messages and Secret Groups are still analysed and checked for words related to drugs, sex, war etc against their own TOS. Personally I know there are undercover Irish police moving from group to group cloning peoples accounts and getting people booted. Worse than that I know some people in prison now for the content they had on their "secret private group". Use Telegrams secret chat mode to chat on, or if you prefer Wickr. If you really need to, buy a dumb phone with nothing for the NSA/GCHQ to hack into. Ensure it has no GPS tracking on it and that the battery can be removed. These are usually built for old people to get used to technology storing only a set of numbers to call. However they have no games, applications to install or other ways people can exploit the computer tracking device you carry round with you most of the day - your smart phone. If you are paranoid ensure that you can remove the battery when travelling around and do so to prevent GPS tracking or phone mast triangulation. Even with your phone in Flight mode or turned off, it can be turned on remotely and any features like front or back cameras, microphones and keylogging software can be installed to trace you.

So if your not supporting this site already which brings you news from the Left to the Right (really the same war mongering rubbish) then I could REALLY do with some..

Even if it's just £5 or tick the monthly subscription box and throw a few pound my way each month, it will be much appreciated. Read on to find out why.

Why?

Any support to keep this site would be appreciated. You could set up a monthly subscription for £2 like some people do or you could pay a one off donation as a gift.
I am not asking you to pay me for other people's articles, this is a clearing house as well as place to put my own views out into the world. I am asking for help to write more articles like my recent false flag gas attack to get WWIII started in Syria, and Trump away from Putin. Hopefully a few missiles won't mean a WikiLeaks release of that infamous video Trump apparently made in a Russian bedroom with Prostitutes. Also please note that this article was written just an hour after the papers came out, and I always come back and update them.

If you want to read JUST my own articles then use the top menu I have written hundreds of articles for this site and I host numerous amounts of material that has seen me the victim of hacks, DOS plus I have been kicked off multiple hosting companies, free blogging sites, and I have even had threats to cease and desist from the US armed forces. Therefore I have to pay for my own server which is NOT cheap. The more people who read these article on this site the more it costs me so some support would be much appreciated.

I have backups of removed reports shown, then taken down after pressure, that show collusion between nations and the media. I have the full redacted 28/29 pages from the 9.11 commission on the site which seems to have been forgotten about as we help Saudi Arabia bomb Yemeni kids hiding in the rubble with white phosphorus, an illegal weaapon. One that the Israeli's even used when they bombed the UN compound in Gaza during Operation Cast Lead. We complain about Syrian troops (US Controlled ISIS) using chemical weapons to kill "beautiful babies". I suppose all those babies we kill in Iraq, Yemen, Somalia and Syria are just not beautiful enough for Trumps beautiful baby ratio. Plus we kill about 100 times as many as ISIS or the Syrian army have managed by a factor of about 1000 to 1.

I also have a backup of the FOX News series that looked into Israeli connections to 9.11. Obviously FOX removed that as soon as AIPAC, ADL and the rest of the Hasbra brigade protested.

I also have a copy of the the original Liberal Democrats Freedom Bill which was quickly and quietly removed from their site once they enacted and replaced with some watered down rubbish instead once they got into power. No change to police tactics, protesting or our unfair extradition treaty with the USA but we did get a stop to being clamped on private land instead of the mny great ideas in the original.

So ANY support to keep this site running would be much appreciated! I don't have much money after leaving my job and it is a choice between shutting the server or selling the domain or paying a lot of money just so I can show this material.

Material like the FSB Bombings that put Putin in power or the Google no 1 spot when you search for protecting yourself from UK Police with "how to give a no comment interview". If you see any adverts that interest you then please visit them as it helps me without you even needing to give me any money. A few clicks per visit is all it takes to help keep the servers running and tag any tweets with alternative news from the mainstream with the #altnews hashtag I created to keep it alive!

However if you don't want to use the very obvious and cost free ways (to you) to help the site and keep me writing for it then please consider making a small donation. Especially if you have a few quid sitting in your PayPal account doing nothing useful. Why not do a monthly subscription for less money instead. Will you really notice £5 a month?



css.php