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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

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.

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.