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The problem is that they will be broken up "poorly". The bigwigs will keep the good parts, and give the crappy, debt-ridden parts to the government, or let them

by jorgem 17y ago

The problem is that they will be broken up "poorly". The bigwigs will keep the good parts, and give the crappy, debt-ridden parts to the government, or let them fail. Kinda like GM (although I'm not sure there were any good parts).

gaius 17y ago
This is exactly what Northern Rock did in the UK. http://www.independent.co.uk/news/business/news/plans-for-northern-rock-to-split-into-a-good-and-a-bad-bank-1802781.html http://www.independent.co.uk/news/business/news/plans-for-no... Compared to Gordon Brown, Greenspan is an economic genius.
tmsh 17y ago
Another problem is that a former Fed chairman should know how to break up the banks instead of simply saying 'break up the banks'. There's already a clearly defined line in which to break up each bank. It's called the Chinese wall. http://en.wikipedia.org/wiki/Chinese_wall#Finance http://en.wikipedia.org/wiki/Chinese_wall#Finance However, by converting the major investment banks to bank holding companies, Paulson basically got rid of this division. There should be risk-taking investment sides of large investment firms which do not have the luxury of being bailed out (i.e., people who trade CDSs, etc.), but equally there should be large commercial banks that form the backbone of our financial industry and provide the largest channels of liquidity. And these two sides of the company (buy side and sell side) should always be separate companies. But obviously there need to be people with actual investment banking experience or who know enough of how the industry works, but also have an interest (which to most financiers would appear highly irrational) in fairness for the general public. Such people just don't exist yet. Hopefully in the future they will tho. Anyhoo.
- roundsquare 17y ago
  I respectfully disagree with using the Chinese Wall (only a little bit though). Seems like it would work in general, but I believe there are groups that sit on top of the Chinese Wall. Stil, its a reasonably good place to start.
  - tmsh 17y ago
    Good point. Like you say there are those who oversee both sides. It is inherently problematic to have anyone oversee both sides.... But people always assume that the worse case scenario is that if the sell side gets screwed, well that means some corporations (which are clients on the buy side) have dumped stocks on some poor, unsuspecting semi-wealthy retirees. Or if the buy side gets screwed, some investment adviser has leaked information to one of his or her clients about a company's new issue of shares or something. But where the American public gets screwed is in the case where financial instruments are developed that, like the occasional large-scale computer bug, get into some sort of perfect storm / infinite loop. The markets have a way of dealing with that though, but they can't deal with it when the sell-side is attached to the buy-side -- and can't be afforded to fail. Anyway, just thoughts off the top of my head. Lots of people interpret buy side / sell side in different ways. But there is definitely a tendency to overlook how these banks are structured. The structure is not all that complicated, but of course it's not really in the bank's interest to analyze and fix it -- not unless you have a very long-term interest in the health of the industry or something.

by jorgem 17y ago

gaius 17y ago

This is exactly what Northern Rock did in the UK. http://www.independent.co.uk/news/business/news/plans-for-northern-rock-to-split-into-a-good-and-a-bad-bank-1802781.html http://www.independent.co.uk/news/business/news/plans-for-no... Compared to Gordon Brown, Greenspan is an economic genius.

tmsh 17y ago

Another problem is that a former Fed chairman should know how to break up the banks instead of simply saying 'break up the banks'. There's already a clearly defined line in which to break up each bank. It's called the Chinese wall. http://en.wikipedia.org/wiki/Chinese_wall#Finance http://en.wikipedia.org/wiki/Chinese_wall#Finance However, by converting the major investment banks to bank holding companies, Paulson basically got rid of this division. There should be risk-taking investment sides of large investment firms which do not have the luxury of being bailed out (i.e., people who trade CDSs, etc.), but equally there should be large commercial banks that form the backbone of our financial industry and provide the largest channels of liquidity. And these two sides of the company (buy side and sell side) should always be separate companies. But obviously there need to be people with actual investment banking experience or who know enough of how the industry works, but also have an interest (which to most financiers would appear highly irrational) in fairness for the general public. Such people just don't exist yet. Hopefully in the future they will tho. Anyhoo.

roundsquare 17y ago
I respectfully disagree with using the Chinese Wall (only a little bit though). Seems like it would work in general, but I believe there are groups that sit on top of the Chinese Wall. Stil, its a reasonably good place to start.
- tmsh 17y ago
  Good point. Like you say there are those who oversee both sides. It is inherently problematic to have anyone oversee both sides.... But people always assume that the worse case scenario is that if the sell side gets screwed, well that means some corporations (which are clients on the buy side) have dumped stocks on some poor, unsuspecting semi-wealthy retirees. Or if the buy side gets screwed, some investment adviser has leaked information to one of his or her clients about a company's new issue of shares or something. But where the American public gets screwed is in the case where financial instruments are developed that, like the occasional large-scale computer bug, get into some sort of perfect storm / infinite loop. The markets have a way of dealing with that though, but they can't deal with it when the sell-side is attached to the buy-side -- and can't be afforded to fail. Anyway, just thoughts off the top of my head. Lots of people interpret buy side / sell side in different ways. But there is definitely a tendency to overlook how these banks are structured. The structure is not all that complicated, but of course it's not really in the bank's interest to analyze and fix it -- not unless you have a very long-term interest in the health of the industry or something.