One of the signs at the protest was Too big to Fail is too big to Allow
If we simply stopped rescuing our banks, the incentive to take unreasonable risks would be self-correcting. Financial ruin would bring down those who couldn't stay away from the cliff.
We could still insure the deposits and save the individual investors, - they didn't do anything wrong after all. Maybe we just need to stop saving the banks and brokerages?
Re: Too Big to Fail
PAW
10/4/2011 10:24:54 AM
I agree. Let them (big financial institutions) fail.
I am on the fence when it comes to letting the big banks fail. I like the reasoning behind it, you have to pay the price for your actions; but that being said I worry that it would cause more harm than good.That is my fear for letting them fail...
If there were no safty net, I am not sure the risk vs. reward model would be enough to keep banks out of trouble.
Re: Too Big to Fail
ProfR
10/4/2011 11:58:11 AM
TelecomFreq, You are correct. This is not a black and white problem. We got into some of this trouble because banks were pushed to give mortgages to buyers who should not have had mortgages. Pushing too hard now will just get the banks to pull back more and get more mortgages foreclosed and more businesses not able to get loans.
I agree that we need to fix "The System" but it will be interesting to see how this would be done.
TelecomFreq
If we dismantle the big banks, we may see some shocks inside the market, but I doubt it will bring the system down. The main street investors get the insurance from FDIC & SIPC. If the government put the TARP money into FDIC & SIPC, I don't see there is much risk to regular people.
On the contrary, Fed put most of the money onto these big banks, and extend these monsters' life, so they can do more damage to our economy. Think about what happened to AT&T, if the government did not dismantle the Monster, we may still pay $2 per minute for a long distance call.
I think its unfair to compare the large banks to AT&T, I think the government was right to break up that monopoly. I think there are enough big banks so that it is not a monopoly.
dont get me wrong, I am not for the big banks, or helping them do what they want, but at the same time I dont think they are a monopoly and we should not treat them as such.
TelecomFreq
You are right that big banks are not monopoly, but they are in the form of Oligarchy. We are not pursuing perfect competition here, but we shall not let several big banks kidnap the whole economy. As a tax payer, I definitely don't want to bail out them again - Most likely Fed & Benanke is preparing for another round of bail out.
We already has Fed, Treasury, FDIC , SPIC, why do we need these big banks? We can have a good life with small regional banks like PNC, MTB, ZION. Actually these small banks are doing much better than BAC, Citi, Chase.
I think the major reason we still have these monsters is they are big contributors to the Politicians and have strong lobbists in the Congress.
Re: Too Big to Fail
AskAsa
10/4/2011 3:42:12 PM
Very good points Value Hiker. I have a lot of respect for some of the smaller banks that still operate closer to the model I remember as a kid--where customers were known by name and loans were made on collateral, character, credit -- and common sense.
Value Hiker,
I feal the same way, I dont want my tax money spent on a bailout, and the big banks are a scary thing. But at the same time I have a fear of what will really hapen to the economy if we let the large banks fail.
Nobody can predict the damage of the failure of a big bank. I bet Fed doesn't know either. However, during the recent darkest hour in our financial history, Lehman Brother's bankrupcy did not terminate the economy of this country, even it did hurt us a lot.
We all know we need to make big change, now rather than later. Unfortunately, the audacity of hope did not give Mr. Obama the courage to fight against the Wall Street.
We do not need to eliminate all big banks in one shot. We can do it step by step, steadily dissolve these monsters and establish a better financial system over a period of time.
Though that sounds like a great plan, and I would be for it in that manner. I dont see it happening, I agree with you that it more than likely needs to happen, and going about it in a regulated way makes much more sense then letting them fail. But, money is power and they have all the money.
ValueHiker,
You make a great point. We have almost bankrupted FDIC and yet the banks got all the money -- so they could start incinerating it again, apparently...
--Scott
Re: Too Big to Fail
Dex
10/4/2011 2:49:06 PM
Disturbing commentary all around about the priority we have set -- an agenda basically skewed against the average person.
It is unfair game for main-street investors
Value Hiker
10/4/2011 12:21:32 PM
Good article, Scott. I want to add one more point
The System likes: Head I win, tail you lose
Investors like: Fair Play
Re: It is unfair game for main-street investors
yalanand
10/5/2011 4:33:52 AM
"The System likes: Head I win, tail you lose
Investors like: Fair Play"
@Value Hiker so true. I totally agree with you. All that investors are demanding is fair play. It makes no sense to invest when you know that you are always on the loosing side.
Re: It is unfair game for main-street investors
PredictableChaos
10/5/2011 3:57:10 PM
@yelanand, valuehiker
You, me and everyone likes: Heads I win, tails you lose
When you buy a car, you want quick and good gas mileage. Workers want higher pay and fewer hours. Investors want value and growth. Countries want low unemployiment and low inflation. Desire for these things is universal and not a bad thing.
The problem is that "The System" seems more than capable of getting a deal where winnings belong to Wall Street (or the banker or the broker or the lobbyist), and losses belong to the you and me (FDIC, Fannie Mae, various bailouts, FSLIC, etc.)
Re: It is unfair game for main-street investors
Value Hiker
10/5/2011 11:59:04 PM
One good example about the power of lobby and corruption of the system is the well known tax loophole of hedge fund managers.
While individual investors pay regular income tax on their salary, the hedge fund managers pay capital gain tax on their compensations. Most likely, you and me will pay 30% on our regular income, while these big players paid 15% on their million dollar paycheck.
It makes little sense: in economic terms, the hedge fund managers (also known as investment advisors) perform a professional service, much like engineers, lawyers or doctors, and receive remuneration for their labor. Why shall they get special treatment.
The public has been angry at this for a long time, but the strong lobbists hired by hedge fund & private equity industy blocked every attempt to close the loophole.
Scott, What's the short explanation for this dichotomy? Does it stem from the creation of the Fed in 1907? Weren't policies put in place after the crash in 1929? I just end up perplexed trying to understand how the hell we allowed this mess to grow not only unchecked but with the tacit approval of legislation and regulation that favors The System.
RE : You Versus the Wall Street System
yalanand
10/5/2011 2:36:22 AM
Scott, great article. You have mentioned some of the key points which the investors are demanding for. I still dont understand Why is the system turning a blind eye to the investors demands ? It would be interesting to see what will happen if all the investors threaten to boycott wallstreet.
Laurence Fink, the chief executive officer of BlackRock Inc., the world’s largest asset manager, said he understands the concerns of the protesters.
“These are not lazy people sitting around looking for something to do,” Fink, 58, said Oct. 5 during an event in Toronto. “We have people losing hope and they’re going into the street, whether it’s justified or not.”
Re: Blackrock CEO: People losing hope
tokyogai
10/6/2011 8:48:48 AM
His statements make me wonder if he really understands. How can you understand the pight and then do nothing or propose nothing? It seems Black Rock could have some influence if it pushed for some changes.
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