How to end Too Big To Fail

Explore the business, economy, finance and trade aspects of human society.

Moderators: Calilasseia, ADParker

How to end Too Big To Fail

#1  Postby UtilityMonster » Apr 29, 2013 6:58 pm

Excellent article by Gretchen Morgenson on a new piece of legislation that would do much to end the problem of Too Big To Fail. Of course, the chances of passing it are slim to none, as corruption is the meta-issue, but it is an interesting idea nevertheless.

Read full article here: ... d=all&_r=0

The legislation, called the Terminating Bailouts for Taxpayer Fairness Act, emerged last Wednesday; its co-sponsors are Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican. It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future.

For starters, the bill would create an entirely new, transparent and ungameable set of capital rules for the nation’s banks — in other words, a meaningful rainy-day fund. Enormous institutions, like JPMorgan Chase and Citibank, would have to hold common stockholder equity of at least 15 percent of their consolidated assets to protect against large losses. That’s almost double the 8 percent of risk-weighted assets required under the capital rules established by Basel III, the latest version of the byzantine international system created by regulators and central bankers.

You can oftentimes tell the merit of something by the quality of its opponents:

Standard & Poor’s, for example, published a report forecasting a possible credit crisis resulting from passage of the bill, “further reducing economic growth prospects.” With more money in a capital cushion, there would be less money to lend, the banks say.

And Tony Fratto, a strategist who represents the large banks, called the bill’s capital requirements “a penalty rate.” He added in an e-mail: “This bill is being introduced in the context of significant improvements to the safety of the financial sector. By historical and international standards, large U.S. banks are very safe.”

The fact that large banks are subsidized by the Federal Reserve, giving them a reduction in borrowing costs exceeding 50 basis points, gives them a leg up against small banks, which would not be bailed out were they to fail, because there would be less contagion resulting.

I'm curious about any other thoughts this fine board has on dealing with the problem of too big to fail. I've heard some people, like David Leonhardt, say that big banks that are too big to fail are a fact of life. They will always be quasi-public institutions now, with outsized bonuses, due to the nature of the global economy and the requirements to be competitive. I'd be interested to hear further elaboration on this perspective or why you think it is wrong.
The question is not, "Can they reason?" nor, "Can they talk?" but rather, "Can they suffer?"
User avatar
Posts: 1416
Age: 30

Country: United States
United States (us)
Print view this post

Ads by Google

Re: How to end Too Big To Fail

#2  Postby Macdoc » Apr 29, 2013 8:03 pm

They aren't and they were not until the separation of mortgages and banks and insurance was dismantled in the past three decades.
It's an international issue and the scale makes it a daunting issue even for nation states as the amount of "stateless" money floating about is in the trillions.

In pursuit of the $21 trillion
by Paul Collier
/ March 27, 2013 ... ameron-g8/


Everything Is Rigged: The Biggest Price-Fixing Scandal Ever
The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix

Read more: ... z2RsrD70hC


It can be rolled back at the nationstate level or corralled a bit on the international level...both are in progress with the US fining the international banks.

What I think will happen ultimately at the consumer and small business level will be P2P lending

Peer-to-peer lending - Wikipedia, the free encyclopedia - Cached
Peer-to-peer lending (also known as person-to-person lending, peer-to-peer
investing, and social lending; abbreviated frequently as P2P lending) is the
practice ...



Peer-to-peer lending does not fit cleanly into any of the three traditional types of financial institutions--deposit takers, investors, insurers[2]--and is sometimes categorized as an alternative financial service.[3]

The key characteristics of peer-to-peer lending are:

* it is conducted for profit
* no necessary common bond or prior relationship between lenders and borrowers
* intermediation by a peer-to-peer lending company
* transactions take place on-line
* lenders may choose which loans to invest in
* the loans are unsecured and not protected by government insurance
* loans are securities that can be sold to other lenders

Early peer-to-peer lending was also characterized by disintermediation and reliance on social networks but these features have started to disappear. While it is still true that the emergence of internet and e-commerce makes it possible to do away with traditional financial intermediaries and that people may be less likely to default to the members of their own social communities, the emergence of new intermediaries has proven to be time and cost saving, and extending crowdsourcing to unfamiliar lenders and borrowers open up new opportunities.

even up to mortgages and small business loans .....disintermediation will come to the banks. People with money are tired of getting a pittance in interest and small business borrowers like me of getting hosed on charges and forced into using the credit card system for basic operating loans..
( of course no problem if you want to buy a house which is another issue that needs attention )

It's being fought tooth and nail tho as the financial community wants to hold on to it's charter.

Withdrawing the charter of big banks is one way...won't happen tho.
Travel photos >
EO Wilson in On Human Nature wrote:
We are not compelled to believe in biological uniformity in order to affirm human freedom and dignity.
User avatar
Posts: 17156
Age: 73

Country: Canada/Australia
Australia (au)
Print view this post

Return to Economics

Who is online

Users viewing this topic: No registered users and 1 guest