Banks that are “too big to fail?”
September 24, 2008 | Subscribe Free
We keep hearing from United States’ leading economists like Ben Bernanke and Henry Paulson that a bailout is needed because some banks are simply “too big to fail.”
This raises some questions about the financial industry going forward: Is any legislation or regulation needed to avoid repeating a similar crisis in the future? Or does the system essentially work well? Is this just an anomaly that requires no long-term response?
Loading ...Key Considerations:
- What does “too big to fail” mean?
- If banks should be allowed to become “too big to fail,” what are the remedies or options when/if a bank flirts with failure?
- What constitutes a financial institution that is “too big?” Who decides? How would it be calculated or monitored?
- What would happen to a financial institution if it was deemed “too big to fail?”
Please Note: The Financial Brand is not suggesting nor advocating any position on this issue. All questions and their phrasing are intended to stimulate thoughts and comments among the readership.
This article © 2012 by The Financial Brand and may not be reproduced.
It was disclosed today that the FBI is investigating the policies and practices of Fannie Mae, Freddie Mac, Lehman’s and AIG (among others). It remains to be seen if dishonesty and illegal subterfuge is involved in the failures. If there was criminal activity, I think that would complicate the question you pose in this poll. The question might become did the size contribute to the criminal activity?
Thanks for the poll. It’s an interesting question in this time folks are questioning the actual impact of Adam Smith’s “invisible hand.”
I feel in a country that broke up Ma Bell, took Microsoft to court (& prevented them from absorbing Intuit) and (long ago) trust-butsted Standard Oil, the government should use policy to encourage practices that best suit consumers and competition. Monopolies and juggernauts should be discouraged especially where practices ultimately lead to reduced levels of home ownership and household savings. This, of course, also requires consumers to take their medicine and not stretch themselves too thin on somebody else’s money.