bad decisions should lead to failure-openly and publicly
I agree with the Fed on this one. By bailing out our largest banks, we put other banks - anyone who actually manages risk - at a competitive disadvantage.
Right now, we should put all banks on notice that they will be allowed to fail. Give them clear warning. And then, when the next one comes to the public trough for another bailout - let them go into bankruptcy just like anyone else.
We may need to support certain assets to prevent the problems from spreading, but there is no reason the management needs to stay in place. And there is no reason the bank needs to continue as before. When the more careful banks can buy up portions of the behemoth at "going out of business" prices, the culture change will be complete.
PC
Re: Deregulation in general
Tenacious
4/2/2012 1:48:01 PM
there has to be some degree of personal responsibility. We can offer some general oversight, but you can't protect people who are unwilling to take basic precautions from their own lack of due diligence.
Re: Deregulation in general
Drivewaygirl
4/2/2012 1:43:54 PM
Jack, where is the line between prudent regulation and personal responsibility? You had the sense to say no when your car insurance agent offered you a financial product. Should we protect someone who is dumb enough to say yes? Or should this be a buyer beware economy? I don't have a clear perspective yet. I'd just like to hear yours.
Re: Deregulation in general
cat tail
4/2/2012 12:31:41 PM
"Perhaps more important, bad decisions should lead to failure-openly and publicly."
The fact that we bailed out these banks in spite of their bad decisions was a kick in the stomach to many of us, and, yes, undermined our faith in the system (capitalism) we so fervently embrace.
Re: Deregulation in general
Dex
4/2/2012 12:24:03 PM
I think it's about time someone in a position of authority had the guts to state the obvious. I could not agree more!
The Dallas Fed is pretty clear: we save no one.
The Dallas Fed report further suggests that one of the worst effects of Too big to Fail is the erosion of faith in capitalism.
The report lists three ways TBTF has violated basic tenets of a capitalist system:
- Capitalism requires the freedom to succeed and the freedom to fail. Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure-openly and publicly.
- Capitalism requires government to enforce the rule of law. This requires maintaining a level playing field.
- Capitalism requires businesses and individuals be held accountable for the consequences of their actions. Accountability is a key ingredient for maintaining public faith in the economic system. The perception-and the reality-is that virtually nobody has been punished or held accountable for their roles in the financial crisis.
What do you think?
Re: Deregulation in general
tokyogai
4/2/2012 11:21:56 AM
I agree we need a change, but we need to be consistent. Compare Lehman to Cit or bank of America. How do we choose who to save and who to let go?
The report from the Dallas Fed mentioned above is interesting reading. It's surprisingly practical:
Government rescues of troubled financial institutions encourage banks and their creditors to take greater risks, knowing they'll reap the rewards if things turn out well, but will be shielded from losses if things sour.
Deregulation in general
tokyogai
4/2/2012 9:19:22 AM
I think many things were regulated for good reasons. The wholesale dereuglation of the past couple of decades has been responsible for many of the banking and mortgage ills we have. I tend to blam the banks less, as they are just doing what regulation allows. The fact that it did not allow many of these practices in the past is an issue legislators are responsible for changing. Why do we blame the banks and not the regulators? It seems to me that there is plenty of blame to go around.
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