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> My argument is not that the financial system as a whole needed no saving, but rather that it was done in a way which encourages massive and perverse systemic

> My argument is not that the financial system as a whole needed no saving, but rather that it was done in a way which encourages massive and perverse systemic risks. Absent follow-up regulation, I definitely agree. > A failed bank like Citi should have been handled like smaller banks at the same situation were handled - taken over by the government, shareholders wiped out, new honest management installed, and criminal referrals made as appropriate. In addition, they should've broken up the bank to smaller units that will not be too big to fail. Sure, I can get behind that. I do suspect that part of not doing so was pragmatic. Once you get to a certain scale just swapping out management without massive knock-on effects is very hard and the whole point of the intervention was to minimize knock-on effects. Twitter was a few thousand employees and I wouldn't wish that kind of handover on my worst enemies let alone one of the pillar retail banks. Can you imagine just replacing leadership at Apple and assuming it'd go well? > Edit: fairness is also important. A large, politically connected, bank benefited from bailouts that smaller, less well-connected banks and regular people did not get. You owe the bank $1M it's your problem, you owe the bank $100M it's their problem and if the bank owes everyone $400B it's the government's problem. Certainly not fair, but pragmatic. btw, based on your reply I think our positions are probably much closer together than they are far apart. I want Glass-Steagall back.

oldgradstudent 4y ago
> You owe the bank $1M it's your problem, you owe the bank $100M it's their problem and if the bank owes everyone $400B it's the government's problem. Certainly not fair, but pragmatic. Yes, except that the government has the powers (and had them in 2008) to handle the situation. > btw, based on your reply I think our positions are probably much closer together than they are far apart. Agreed. > I want Glass-Steagall back. Glass-Steagall was explicitly repealed to allow the merger of Citicorp and Travelers Group which created Citigroup. Robert Rubin, Clinton's treasury secretary, who promoted for the repeal, joined Citi immediately after leaving government and served as chairmen. He made around $140 million until he had to resign because of the financial crisis. Citi was too big, too connected, and too corrupt. As long as it so large, it will not be effectively regulated, and it will be bailed out again and again. If there is no effective regulation, and no legal sanctions, management has a strong financial incentives to take actions that are likely to bankrupt the bank. There's a great paper about it by two winners of the Nobel Memory Prize in Economic Science. It is based on the lessons of the Savings & Loan crisis. George Akerlof and Paul Romer: Looting: The Economic Underworld of Bankruptcy for Profit https://www.brookings.edu/wp-content/uploads/1993/06/1993b_bpea_akerlof_romer_hall_mankiw.pdf https://www.brookings.edu/wp-content/uploads/1993/06/1993b_b...

oldgradstudent 4y ago

> You owe the bank $1M it's your problem, you owe the bank $100M it's their problem and if the bank owes everyone $400B it's the government's problem. Certainly not fair, but pragmatic. Yes, except that the government has the powers (and had them in 2008) to handle the situation. > btw, based on your reply I think our positions are probably much closer together than they are far apart. Agreed. > I want Glass-Steagall back. Glass-Steagall was explicitly repealed to allow the merger of Citicorp and Travelers Group which created Citigroup. Robert Rubin, Clinton's treasury secretary, who promoted for the repeal, joined Citi immediately after leaving government and served as chairmen. He made around $140 million until he had to resign because of the financial crisis. Citi was too big, too connected, and too corrupt. As long as it so large, it will not be effectively regulated, and it will be bailed out again and again. If there is no effective regulation, and no legal sanctions, management has a strong financial incentives to take actions that are likely to bankrupt the bank. There's a great paper about it by two winners of the Nobel Memory Prize in Economic Science. It is based on the lessons of the Savings & Loan crisis. George Akerlof and Paul Romer: Looting: The Economic Underworld of Bankruptcy for Profit https://www.brookings.edu/wp-content/uploads/1993/06/1993b_bpea_akerlof_romer_hall_mankiw.pdf https://www.brookings.edu/wp-content/uploads/1993/06/1993b_b...