3 ms·
wow. easy money certainly didn't help, but wow. banks that are too big too fail are a natural outcome of the free-market. It takes government regulation to p
by craigyk 13y ago
wow. easy money certainly didn't help, but wow. banks that are too big too fail are a natural outcome of the free-market. It takes government regulation to prevent their formation, or that failing, to at least limit their risk-taking behavior once they become vital to the world economy. you twice cite the moral hazard that allowed them to over-leverage, but completely ignore that regulations were removed or relaxed that prevented this, and then state lack of regulation as a minor part of the problem.
- dnautics 13y ago> banks that are too big too fail are a natural outcome of the free-market In a freer market (e.g. the free banking era of the 19th century sweden) there were definitely no "banks that were too big to fail". When a bank collapsed, its assets would be auctioned to smaller competing banks, who would pay fair market share. Now, we have the biggest, most politically connected banks that get a government-subsidized rate (typically federal reserve) to take over a failing bank in the name of stability. That dynamic is what causes aggregation and too big to fail banks.