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The problem is a problem of networks. Let's say CS are insolvent, if they do go bust, then the problem is you then need to figure out all the creditors and pay

The problem is a problem of networks. Let's say CS are insolvent, if they do go bust, then the problem is you then need to figure out all the creditors and pay them in order. It's possible you could do that eventually, and everyone else is solvent. But firstly, lots of CS counter parties are going to collapse whilst you just figure out who you're going to pay. Secondly, it's quite likely that some of the counter parties you're defaulting against are therefore themselves insolvent. But thirdly, it doesn't matter, because the market is going to go mad dropping anyone who could possibly be a counter party to CS (because CS can't pay), the result being a further collapse and contagion to other banks. So sure, you can say that customers should be allowed to withdraw, but that's not a practical solution. You're saying "I think the first people in the run on the bank should get paid". The real problem is that this became clear in 2007, and nothing was really done to fix it.

deleted 4y ago
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tjs8rj 4y ago
That’s well and good but the result should be that bail out happening as an investment on fair market value (in this case, borderline bankruptcy value) - and now the tax payer owns that firm (perhaps sold off asap at a profit for the tax payer). If you’re taking bail out dollars, you give up equity just like any other investment to save you. An eminent domain of sorts. Of course, all the usual criminal and civil charges for wrongdoing. The point being: getting a bailout should be a terrible situation for the company too, there should be no incentive to play so riskily expecting that bailout to save you - if it comes, you might as well have gone under anyways, the result for you as an executive should be the same, but the externalities of firms that are too big to fail are mitigated
- SilverBirch 4y ago
  I think you should look into what actually happened with the bank bailouts. In the UK the government took ownership stakes in both RBS and HBOS, in the US the government took equity in AIG. The US government actually made $20Bn profit from that deal in the end. The money the US loaned to banks under TARP actually got paid back with interest, netting the US Gov a profit on that as well. These bailout programmes also came with executive pay restrictions. The regulations on bank stability since then are the reason why lots of banks are struggling to make money (they simply can't make money the ways they used to). I know that people wanted the bankers to suffer for the damage they caused. And yes, there was a complete failure to actually criminally or civilly pursue the people responsible. Yes that was bad. But the 2008 bailouts were actually incredibly effective, and wiping out shareholders would largely have just robbed pension funds.

deleted 4y ago

[deleted]

tjs8rj 4y ago

That’s well and good but the result should be that bail out happening as an investment on fair market value (in this case, borderline bankruptcy value) - and now the tax payer owns that firm (perhaps sold off asap at a profit for the tax payer). If you’re taking bail out dollars, you give up equity just like any other investment to save you. An eminent domain of sorts. Of course, all the usual criminal and civil charges for wrongdoing. The point being: getting a bailout should be a terrible situation for the company too, there should be no incentive to play so riskily expecting that bailout to save you - if it comes, you might as well have gone under anyways, the result for you as an executive should be the same, but the externalities of firms that are too big to fail are mitigated

SilverBirch 4y ago
I think you should look into what actually happened with the bank bailouts. In the UK the government took ownership stakes in both RBS and HBOS, in the US the government took equity in AIG. The US government actually made $20Bn profit from that deal in the end. The money the US loaned to banks under TARP actually got paid back with interest, netting the US Gov a profit on that as well. These bailout programmes also came with executive pay restrictions. The regulations on bank stability since then are the reason why lots of banks are struggling to make money (they simply can't make money the ways they used to). I know that people wanted the bankers to suffer for the damage they caused. And yes, there was a complete failure to actually criminally or civilly pursue the people responsible. Yes that was bad. But the 2008 bailouts were actually incredibly effective, and wiping out shareholders would largely have just robbed pension funds.