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Too-big-to-fail banks is a rational compromise. Some Russians might still remember the failure of Sberbank in 90ths which was a disaster for millions of familie

Too-big-to-fail banks is a rational compromise. Some Russians might still remember the failure of Sberbank in 90ths which was a disaster for millions of families (it was the only place to have savings account). You probably cannot imagine what a hell it will be if something like AIG or BoA would allow to fail. At least no government or rich elite could survive such kind of event which very probably will trigger a new period of forceful and bloody wealth redistribution (which is what all revolutions is all about). So govt choices to print its way out of being overthrown. What Iceland did is subtly different. It lets foreign banks to fail, to bear the consequences of their own risky and stupid investments, and refused to tax its own people to cover foreign bankers loses. Russians do even "better", they just says to its own folks "sorry, your money is gone" (what can you do?). Sometimes they bother to invent excuses for foreign investors, such as "tax returns" or "market cobditions", but that's very uncommon event. Usually your money just gone and people who did it are "clever guys".) Notice also how gun ownership indirectly restricts a corrupted government from just plainly robbing it's citizens and promt it to invent some more complicated, less efficient, slow schemes.) So, nothing to see here.

yapcguy 13y ago
AIG failed. A team in London trading CDS broke the company. The only reason why the corpse of AIG was kept alive was because AIG owed Goldman Sachs a lot of money. Taxpayer bail-out funds that went to AIG passed straight through and into the bank account of Goldman Sachs. I recently saw an ad by AIG. It's actually sickening. This company failed. Their assets should have been taken over by good insurance companies who managed their risks properly and did not engage in speculative instruments. By rewarding bad actors like AIG, moral hazard has been introduced into the markets. Anybody who says they support free markets and capitalism must surely agree that AIG should have been allowed to fail. Yes, it would have caused chaos but that's why lawyers and bankruptcy courts exists. With politicians picking the winners and losers, it's no wonder lobbying is such a popular business.
- protomyth 13y ago
  AIG should have been allowed to fail, and I don't think it would have caused as much chaos as we actually got. The insurance parts of AIG (regulated by the states) were good, it was the financial products division (regulated by the feds) that double dipped and failed. The states would have dealt with the insurance parts in a better manner than the fed. GM should have been allowed to go into bankruptcy (given the Feds wanted to kill Buick, the best seller for GM in China) and dig out themselves. [edit] although Iceland's bank and AIG are totally different scenarios
  - hessenwolf 13y ago
    The insurance part needs to run collaboratively across the whole country at least for the economies of scale to kick in. AIG are still a recognisable brand, and an insurance company of that scale is an incredible asset for a society to have (as are Allianz and AXA, etc...) Also, large insurance companies are incredibly complex, and take a very long time to build up. It would be very silly to let something like that go under for short-sighted reasons.
    - icelancer 13y ago
      >Also, large insurance companies are incredibly complex, and take a very long time to build up. It would be very silly to let something like that go under for short-sighted reasons. I agree. AIG shouldn't have been so short-sighted. But since they were, they deserve to fail like every other business who doesn't adequately plan for the future. Oh wait.
    - protomyth 13y ago
      "insurance company of that scale is an incredible asset for a society to have" Not when it means keeping the ill-handled, tax payer killing investment company. It failed and we did a massive disservice to the tax payers by keeping it open.
peteretep 13y ago
> What Iceland did is subtly different. It lets foreign > banks to fail, to bear the consequences of their own > risky and stupid investments, and refused to tax its own > people to cover foreign bankers loses. What? Hundreds of thousands of personal depositors across Europe saw their money go poof in Icelandic banks, and their local governments had to pick up the bill. If you are a tax payer in the UK, for example, you got a gigantic FU from the Icelandic government who said "nah, we're not going to bail out our banks, you guys should instead". You can start with: http://en.wikipedia.org/wiki/2008–11_Icelandic_financial_crisis http://en.wikipedia.org/wiki/2008–11_Icelandic_financial_cri...
- dschiptsov 13y ago
  The decision was about foreign, mostly UK, banks who gave (they call it "invested") money to Icelandic trading desks. These money were denied to pay back taken from Icelandic citizens. Keeping local banks from default on domestic deposits in favor to "foreign investors" (speculators) and letting them to face loses is what the govt of Iceland did, which was a proper decision. Overconfident, high ranked idiots who put funds in an obvious ponzi scheme are those who shall bear the consequences.
- randomafrican 13y ago
  That's exactly what the OP said though..
- peteretep 13y ago
  A simple analogy for you: You are Engla, the mother of little Johnny. One day, at Johnny's school shows up a little girl called Bjork. Bjork seems to come from a nice family, and you like her Mom, Icelandi. One day Johnny comes home from school and says Bjork is running some kind of saving scheme, and can he put his pocket money in it? You remember some of the older kids at school doing something similar one time, so you say sure, because besides, Icelandi seems like a nice lady, and you're sure she's got her eye on it. Johnny gives a bit of his pocket money to Bjork every month, and Bjork's little saving scheme seems to be going really well. Bjork seems a little better dressed these days, and Icelandi is driving a new car. Icelandi is always prattling on at the PTA about how clever little Bjork is. One day, Johnny comes home in tears. Apparently Bjork showed up at school and said she'd lost track of her accounts, and she no longer had any money to give him. You ring up Icelandi, furious, and ask her to refund little Johnny's money. "No no", says she, "I think you'll find it's all on Bjork, and not my responsibility". You note she still has her shiny car. Later that day, you find out Icelandi completely refunded Thor, Bjork's little brother, for all the money he had lost, but every other child at school also lost all their money. Icelandi is hailed on the internet as some kind of popular hero.

yapcguy 13y ago

AIG failed. A team in London trading CDS broke the company. The only reason why the corpse of AIG was kept alive was because AIG owed Goldman Sachs a lot of money. Taxpayer bail-out funds that went to AIG passed straight through and into the bank account of Goldman Sachs. I recently saw an ad by AIG. It's actually sickening. This company failed. Their assets should have been taken over by good insurance companies who managed their risks properly and did not engage in speculative instruments. By rewarding bad actors like AIG, moral hazard has been introduced into the markets. Anybody who says they support free markets and capitalism must surely agree that AIG should have been allowed to fail. Yes, it would have caused chaos but that's why lawyers and bankruptcy courts exists. With politicians picking the winners and losers, it's no wonder lobbying is such a popular business.

protomyth 13y ago
AIG should have been allowed to fail, and I don't think it would have caused as much chaos as we actually got. The insurance parts of AIG (regulated by the states) were good, it was the financial products division (regulated by the feds) that double dipped and failed. The states would have dealt with the insurance parts in a better manner than the fed. GM should have been allowed to go into bankruptcy (given the Feds wanted to kill Buick, the best seller for GM in China) and dig out themselves. [edit] although Iceland's bank and AIG are totally different scenarios
- hessenwolf 13y ago
  The insurance part needs to run collaboratively across the whole country at least for the economies of scale to kick in. AIG are still a recognisable brand, and an insurance company of that scale is an incredible asset for a society to have (as are Allianz and AXA, etc...) Also, large insurance companies are incredibly complex, and take a very long time to build up. It would be very silly to let something like that go under for short-sighted reasons.
  - icelancer 13y ago
    >Also, large insurance companies are incredibly complex, and take a very long time to build up. It would be very silly to let something like that go under for short-sighted reasons. I agree. AIG shouldn't have been so short-sighted. But since they were, they deserve to fail like every other business who doesn't adequately plan for the future. Oh wait.
  - protomyth 13y ago
    "insurance company of that scale is an incredible asset for a society to have" Not when it means keeping the ill-handled, tax payer killing investment company. It failed and we did a massive disservice to the tax payers by keeping it open.

peteretep 13y ago

> What Iceland did is subtly different. It lets foreign > banks to fail, to bear the consequences of their own > risky and stupid investments, and refused to tax its own > people to cover foreign bankers loses. What? Hundreds of thousands of personal depositors across Europe saw their money go poof in Icelandic banks, and their local governments had to pick up the bill. If you are a tax payer in the UK, for example, you got a gigantic FU from the Icelandic government who said "nah, we're not going to bail out our banks, you guys should instead". You can start with: http://en.wikipedia.org/wiki/2008–11_Icelandic_financial_crisis http://en.wikipedia.org/wiki/2008–11_Icelandic_financial_cri...

dschiptsov 13y ago
The decision was about foreign, mostly UK, banks who gave (they call it "invested") money to Icelandic trading desks. These money were denied to pay back taken from Icelandic citizens. Keeping local banks from default on domestic deposits in favor to "foreign investors" (speculators) and letting them to face loses is what the govt of Iceland did, which was a proper decision. Overconfident, high ranked idiots who put funds in an obvious ponzi scheme are those who shall bear the consequences.
randomafrican 13y ago
That's exactly what the OP said though..
peteretep 13y ago
A simple analogy for you: You are Engla, the mother of little Johnny. One day, at Johnny's school shows up a little girl called Bjork. Bjork seems to come from a nice family, and you like her Mom, Icelandi. One day Johnny comes home from school and says Bjork is running some kind of saving scheme, and can he put his pocket money in it? You remember some of the older kids at school doing something similar one time, so you say sure, because besides, Icelandi seems like a nice lady, and you're sure she's got her eye on it. Johnny gives a bit of his pocket money to Bjork every month, and Bjork's little saving scheme seems to be going really well. Bjork seems a little better dressed these days, and Icelandi is driving a new car. Icelandi is always prattling on at the PTA about how clever little Bjork is. One day, Johnny comes home in tears. Apparently Bjork showed up at school and said she'd lost track of her accounts, and she no longer had any money to give him. You ring up Icelandi, furious, and ask her to refund little Johnny's money. "No no", says she, "I think you'll find it's all on Bjork, and not my responsibility". You note she still has her shiny car. Later that day, you find out Icelandi completely refunded Thor, Bjork's little brother, for all the money he had lost, but every other child at school also lost all their money. Icelandi is hailed on the internet as some kind of popular hero.