4 ms·

Isn't it better to just let them fail next time instead. That would force the big banks to split up themselves.

• deleted 17y ago
  [deleted]
• falsestprophet 17y ago
  We need new legislation to provide for a quick route out of bankruptcy for these financial institutions. Regulators should be able to declare a bank insolvent then -- overnight -- wipe out shareholder equity, convert debt and top up tier 1 capital. For these institutions, a bankruptcy plan should be required like a fire escape plan is required.
  • jeromec 17y ago
    No, I think bankruptcy is little better than failure unless the gov. will pump in funds as well. Take AIG for instance, which backs debt at various levels. Clearing the books of that juggernaut would still send ripples through the system, likely freeze up credit markets, and wreak stock market havoc. I think Greenspan is right about breaking up such institutions.
    • falsestprophet 17y ago
      No, I think bankruptcy is little better than failure unless the gov. will pump in funds as well. That is what topping up tier 1 capital is about. The bankrupt bank may end up being temporarily partially or wholly owned by the government. Clearing the books of that juggernaut would still send ripples through the system, likely freeze up credit markets, and wreak stock market havoc. I think Greenspan is right about breaking up such institutions. I suspect you would then have 100 bankrupt companies instead of one. More careful derivatives regulation is obviously prudent, specifically there really ought to be ring-fenced capital backing up derivative instruments (like is required for proper insurance).
      • jeromec 17y ago
        That is what topping up tier 1 capital is about. I'm sorry, but your strategy makes no sense to me. You're proposing a plan basically equivalent to the gov. standing ready to pump more (taxpayer) money into GM in case they get into trouble? I suspect you would then have 100 bankrupt companies instead of one. You suspect we would have 100 grossly mismanaged companies - that all fail at the same time - instead of one? I don't think so.
        • falsestprophet 17y ago
          You suspect we would have 100 grossly mismanaged companies - that all fail at the same time - instead of one? I don't think so. That's exactly what happened. The global banking system collapsed remember?
          • jeromec 17y ago
            No, not all global banks, and not even all the banks in the U.S. failed. Many smaller banks failed, and some large ones were failing as well, but each case was different and it was all due to system wide chain reactions. Many U.S. banks were fine and even refused to take TARP funds. The difference is that the FDIC is poised to counter small banks failing, but not behemoths like AIG, where (taxpayer) gov. funds are the only answer.
  • fnid 17y ago
    It's interesting you suggest that considering the credit card holder bankruptcy legislation the banks pushed through preventing this very thing for consumers of their products.
• barrkel 17y ago
  At the cost of devastating the economy for possibly a decade or more, sure, that's a fine way to do things. Something like a proper second depression, with a collapse in confidence in almost all banks resulting in massive hoarding, head up north of 20% unemployment. Perhaps we could throw in a world war too.
  • warfangle 17y ago
    California already has an unemployment rate of around 25%- among 18-25 year olds. In fact, if we still calculated unemployment like they did in the thirties - we're ahead of the Great Depression's schedule by about four years (we have the same - adjusted for rule changes enacted by jfk to make the nation's numbers look better - unemployment rate now, one year into the 'recession' As was had five years after the great crash that preceeded the Great Depression) food for thought. (I'm mobile at the moment, or I'd provide sources)
    • berlin-ab 17y ago
      Move somewhere else. You might find there is more work elsewhere.
      • qqqqq5 17y ago
        Moving isn't free, much of that 25% doesn't have extra money sitting around in their bank account.
      • warfangle 17y ago
        I don't live in California, I live in Brooklyn. But my point still stands: a year into this and our unemployment is about the same as it was five years into the great depression. People make light of it because the government's numbers are fudged.
        • fnid 17y ago
          What does this mean? We are moving 5 times faster? We are almost through it? We still have much worse times ahead? This will last at least 5 times as long?
• roundsquare 17y ago
  Maybe, but there is a problem with this approach. Unfortunatly, politicans forget history pretty quickly (at least they act like they do). If something similar happens again in, say, 20 years, there will be preassure on them to do something. In this case, I predict they'll again prop up the banks. Greenspan's solution is meant to solve the root of the problem. Remove the temptation and, in theory anyway, the government will let banks fail. Additionally, if you really beleive in institutions that are "too big to fail" then you can't do this. I'm not sure if I do, and at least one person below doesn't, but maybe Greenspan does.