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This is absurd. Regulating private companies' compensation? Instead, the government should either make sure companies don't get "too big to fail", or make it ve
by ihodes 15y ago
This is absurd. Regulating private companies' compensation? Instead, the government should either make sure companies don't get "too big to fail", or make it very clear that banks don't have the Geithner Put option.
Simple and unobtrusive.
- jwallaceparker 15y ago>> the government should either make sure companies don't get "too big to fail" Exactly. And the best way to do that? Never bail them out.
- jshen 15y ago"Never bail them out." Even if it destroys the economy for everyone?
- guylhem 15y agoUntil you consider that like a road side casualty, some people will use your fears against you. Never bail them out.
- bydesign 15y agoBailing them out is the same as adding RAM to a server to fix a memory leak. The problem isn't a temporary, transitory state - it's a systemic design flaw in a system filled with rogue actors.
- jshen 15y agoRight, you need to combine saving the financial system with systemic change. Letting them fail is equivalent to letting the system crash and the doing nothing.
- nickik 15y agoI just dont understand why people talk about the "financial system". Its a bunch of banks and some of them fail. The only banks that failed are those who are bad.
- sethg 15y agoA financial panic is not an avenging angel that slays the wicked and leaves the righteous untouched. Without the possibility of a bailout, if, say, Citbank went under, this would not only screw Citibank’s depositors—most of whom were hardly in a position to audit Citibank’s books before opening their accounts—but also every bank that had loaned money to Citibank. If a bunch of people who deposited money with Citbank owe money to Wells Fargo, then Citibank’s failure hurts Wells Fargo. And if Citibank’s failure led the depositors at Bank of America to get nervous and withdraw their money, then BoA would be at risk even if it had been prudently managed up until the crisis. And then BoA’s and Wells Fargo’s creditors... etc., etc., etc.
- nickik 15y agoWell yes some banks can be hurt in the process that are not acctully bad but history shows that in most cases bank runs happen on banks that are really bad. If you are a conservative bank you will acctully get a lot of cash (this happend in switzerland) witch you can then lend at high rates to banks that need it (if there wouldn't be the fed pushing the intrest rate down). Witch banks acctully are in a bad place and witch are not will be the task of bankers and private investors. The banks that are acctully good will probebly get survive. So yes there will be some collateral damage but that just cant be avoided in a cycle. It would be much better then the mess we are in know. That all beeing said in a system where you have fractional reserve banking (witch is a bad idea anyway) there is a case (not one that I totally agree with) to be made that we need a "lender of last resort". But beeing a "lender of last resort" is quite diffrent then what the fed did. They literly flooded the hole bankingsystem with cash, knowbody knew what was going on, how will be saved who want, witch banks acctully are still liquid and witch will bust when the flow of cash stops. Why should banks lend to each other if the get free money. If I would get free money, I too would just sit around and wait until the worst is over. If every body does that we acctully have a bigger problem a long rescession instead of a short crash.
- anonymoushn 15y agoShould we always bail them out, even after they begin to predicate their practices on the fact that we will hand them more stolen money when they screw up?
- jshen 15y agoYou act as if there are only two choices, bail them out with no strings attached or let the whole economy crumble. We should bail them out and then imposse serious penalties and regulations. Sadly we didn't do that.
- nickik 15y agoWhy would you bail them out? The banking sector is much bigger then it should be and its natural that the sector shrinks again after a bust. The the economy crumbels when banks fail is just wrong, the world would have much less problems if the bad banks just failed.
- dreamdu5t 15y agoIt wouldn't have destroyed the economy for everyone.
- inthewoods 15y agoHow do you know?
- kahawe 15y agohttp://en.wikipedia.org/wiki/Too_big_to_fail http://en.wikipedia.org/wiki/Too_big_to_fail
- inthewoods 15y agoI love that you link to a wiki article that basically says "it's a theory" - and that's exactly my point. You can't prove that we would have been fine if the banks had failed because we didn't let it happen. Ask yourself this - what if the theory is wrong?
- kahawe 15y agoA lot of what our governments do is based on theories and in this case they obviously decided to step in to protect their citizens. Just the same way, you cannot prove the opposite. De facto you can decide to trust the government you were voting for or against - and me being from Euroland, I rather trust that they don't fuck up too big for important decisions like that. I know this is different in the USA. But, the point isn't so much whether it was all right or wrong, the more important (and frustrating) point is that WHAT they did wasn't done very diligently because at the end of the day, bailout billions were passed out practically for free and nothing changed. The question whether it was right or wrong to intervene is more a philosophical question and how much it has compromised the very foundations of our value system and economy: free market and capitalism.
- inthewoods 15y ago
- jwallaceparker 15y agoWow. It's pretty clear that any comment on Hacker News that advocates free markets will get down voted. Why is this? Do people assume we are Republicans? I am not a Republican. I am not a fan of Fox News. I am a fan of fairness, and after exhaustive study of economics it seems plain to me that the road to fairness is through free markets.
- yxhuvud 15y agoThe problem is that once banks get big enough, they will get bailed out when they fail due to all the vested interest by affluent parties that they shouldn't fail. So the only way to get in a situation where it is an option to never bail them out? It is to keep the sizes small.
- jshen 15y ago"the government should either make sure companies don't get "too big to fail"" That sounds obtrusive. Not that it's wrong, but it is obtrusive.
- michaelchisari 15y agoThis is absurd. Regulating private companies' compensation? Corporations exist due to government enforced contracts, so I find no problem with government deciding to regulate certain markets in order to prevent total collapse of the economy.
- rcthompson 15y agoIf a company would get bailed out with public money upon failure, then it would seem dishonest to call it a private company, since it is effectively gambling with public money.
- ihodes 15y agoI don't mean to target just you, and a lot of people apparently don't know what it is, but before responding to my comment in any way, you should probably look up what a Geithner Put it. Then you'd find that your response looks a little foolish.
- kahawe 15y agoCare to explain this Geithner put in less financial-gibberish terms (than those websites listing it) instead of calling people names?
- ihodes 15y agoI didn't call names, but I'd be happy to elucidate. Krugman's article (the first hit) seems to explain it pretty clearly, but I'll do what I can. A Geithner Put essentially means the banks could take enormous risk because they, simply put, bought a put option the government (with Geithner as analogical proxy) wrote on their bets going south. That is to say, the downside of taking a huge risk was covered by taxpayers with the bailout (= exercise price of a put), and the upside (that compelled the banks to take such risks) was even more appealing with limited losses the put option ensured. It's kind of a tongue-in-cheek way of saying that the banks were insured against collapse via TARP.
- rcthompson 15y agoThanks for the clarification. No offense taken. I hadn't heard that term before.
- Symmetry 15y agoOn the other hand, you could argue that the more arbitrary restrictions there are on institutions that are FDIC insured the closer the market is to laissez faire in practice. Just as long as people follow Taleb's advice and don't extend this to institutions like hedge funds that eat their own risk.