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That makes for a nice sound bite but how do you decide it? I'm not even opposed to the idea (I'm overwhelmingly in favor, actually) but what mechanism is used

That makes for a nice sound bite but how do you decide it? I'm not even opposed to the idea (I'm overwhelmingly in favor, actually) but what mechanism is used to establish "too big to fail?" I realize that we can't legislate on the basis of "unforeseen consequences," but legislation by bumper sticker slogan is just as bad.

aschearer 14y ago
Presumably using the same metrics and observations that go into the decision to bail out these organizations?
robryan 14y ago
This probably doesn't work, but couldn't the government have let AIG fail and just focused on returning something to it's creditors?
rjtavares 14y ago
Every antitrust law is affected by that problem. If subjectivity is a problem then you shouldn't be in charge.
OGinparadise 14y ago
I didn't propose a law, it was a principle and details can be worked out. For example you can start by deleting the past 10-20 years that created such monsters. Citibank, BOFA, Goldman Sachs etc were /are too big to exist in the current form so they need to be broken up. If they fail because they made stupid bets for short term bonus cash, they go bankrupt and not many people care.
kahawe 14y ago
>what mechanism Obviously SOME sort of mechanism was used when the decision was made FOR the bail-outs. How about you very simply start there? You can always improve later.
olefoo 14y ago
Here's a metaphor to consider; think of financial crises as forest fires, easy to start and hard to fight when conditions are right for them. Bailouts act to increase the fuel load in areas where they apply, so while they solve the immediate problem (you put out todays fire) you are creating conditions to make future fires worse ( more fuel, faster spreading fires, greater damage ). In a very real way, bailouts have allowed vulnerable institutions to survive to make the rest of the economy more vulnerable than it would have been had the banks been allowed to die.

aschearer 14y ago

Presumably using the same metrics and observations that go into the decision to bail out these organizations?

robryan 14y ago

This probably doesn't work, but couldn't the government have let AIG fail and just focused on returning something to it's creditors?

rjtavares 14y ago

Every antitrust law is affected by that problem. If subjectivity is a problem then you shouldn't be in charge.

OGinparadise 14y ago

I didn't propose a law, it was a principle and details can be worked out. For example you can start by deleting the past 10-20 years that created such monsters. Citibank, BOFA, Goldman Sachs etc were /are too big to exist in the current form so they need to be broken up. If they fail because they made stupid bets for short term bonus cash, they go bankrupt and not many people care.

kahawe 14y ago

>what mechanism Obviously SOME sort of mechanism was used when the decision was made FOR the bail-outs. How about you very simply start there? You can always improve later.

olefoo 14y ago

Here's a metaphor to consider; think of financial crises as forest fires, easy to start and hard to fight when conditions are right for them. Bailouts act to increase the fuel load in areas where they apply, so while they solve the immediate problem (you put out todays fire) you are creating conditions to make future fires worse ( more fuel, faster spreading fires, greater damage ). In a very real way, bailouts have allowed vulnerable institutions to survive to make the rest of the economy more vulnerable than it would have been had the banks been allowed to die.