tag:blogger.com,1999:blog-4321422627188917599.post6786088062685278170..comments2023-12-21T03:53:20.907-08:00Comments on The Liberator Today: More Evidence the Greeks Will DefaultB-Daddyhttp://www.blogger.com/profile/13880092017105841256noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4321422627188917599.post-67902129005908189992012-02-23T03:12:24.324-08:002012-02-23T03:12:24.324-08:00"Too big to Fail" was a political choice..."Too big to Fail" was a political choice. At the root, I think, is our elected officials strong desire to not admit that, despite numerous warnings, they allowed and encouraged the problems to develop, starting with the repeal of Glass Steagall (the Dodd Frank "fix it" bill after the 1929 crash). The choice to allow "too big to fail" has subverted the capitalist system. Risk isn't risk if the government is willing to change the rules. GM, Citi, and several more should have been allowed to go bankrupt and reorganize under government protection. The common stockholders should have been wiped out (they took the ultimate risk and received the ultimate reward from the housing mess) and the executives who overleveraged should have been replaced instead of rewarded.<br /><br />Instead, we've opted for "too big to fail." Too late to back up? Probably. We could use a good example, though. The current solution is like a tight rope walker halfway across the wire. All he needs is to keep walking and a period of calm weather. The problem is several years old and we still don't have any structural answers ready for the next squall.<br /><br />Basel III is a start. It incorporates and updates risk based lending practices to prevent overleverage. As I mentioned, it also limits overall lending, and due to the current fragile nature of bank balance sheets, there is a move to postpone implementation. After all, it's only been 3 years. Discussions are underway as I write. Reminds me of the Bush strong dollar policy...we support a strong dollar (just not yet).<br /><br />In my opinion, IF more government is the selected answer, the best response would be to establish a government agency as part of Treasury to liquidate and restructure "too big to fail" corporations when they fail. Management would have the ultimate incentive to manage risk.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4321422627188917599.post-86696023012314412672012-02-20T18:19:07.698-08:002012-02-20T18:19:07.698-08:00Anonymous,
Hadn't considered that angle. What...Anonymous,<br />Hadn't considered that angle. What is to be done to improve the risk profile of their balance sheets? How do you think too big to fail plays into this. Appreciate your comments.B-Daddyhttps://www.blogger.com/profile/13880092017105841256noreply@blogger.comtag:blogger.com,1999:blog-4321422627188917599.post-68614056754025899672012-02-20T06:16:58.923-08:002012-02-20T06:16:58.923-08:00Preventing bank over leveraging was the point of t...Preventing bank over leveraging was the point of the Basel III accords, which the banks, both here and in Europe, are busily lobbying to ignore. Their reason is that risk based lending prevents them from making loans due to the fragile state of their balance sheet. Circular logic anyone?<br /><br />I suspect that if we can't get some bank lending going prior to the election, Mr. Obama will announce that we are temporarily suspending participation in the Accords. After all, what's more important, a healthy financial system or getting reelected?Anonymousnoreply@blogger.com