Good stuff on breaking up the banks from The Baseline Scenario. I find the idea of hard GDP caps on bank growth pretty attractive, both because this avoids another layer of needlessly complex financial regulations and mitigates the risk of a systemic, industry-wide collapse.
Will
Will writes from Washington, D.C. (well, Arlington, Virginia). You can reach him at willblogcorrespondence at gmail dot com.
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Focusing on the size of the bank group is meaningless. The real issues was and still is their business practices. Bad practices will end in failure no matter what the size. Gov’t interference which doesn’t allow failure doesn’t teach anyone a lesson. The revolving door from Wall St. to the White House doesn’t help either.Report
We’re never going to be able to micro-manage every bank’s financial practices, and even if we could, the regulatory system would be dominated by insiders. If you cap the size of financial institutions, however, you can prevent bad business practices from bringing down the entire industry.Report
It is just an excuse for more gov’t interference. Besides you don’t really know if capping the size will really help or may have other unintended consequences, such as putting US firms at a disadvantage vis-a-vie other global firms. Not to mention who exactly is going to decide which size is “just right”?Report
Wasn’t the part where we poured billions into the industry also government interference? Or does it not count when they hold a pistol to a hostage and say “bail us out or your entire financial system gets it”?Report
Yes it was gov’t interference and the gov’t shouldn’t have done it. The fact that the gov’t already interfered once is not an excuse for more gov’t interference. Or maybe it is for some people.Report
Do you work in the financial markets?Report
The point is that the economists in general agree that had the government let one of the big players go down in flames we would have been facing a wholesale collapse of the finance section of our economy. Annoyingly finance is kind of the oil that most of the other sectors of the economy use to keep on turning. Had the finance sector gone kablooey then we would have been looking at a wholesale seizing up of the entire economic machine, quite possibly to the level of mobs on the street. So simply allowing them to collapse would have been government malpractice of a significant degree. Now that we’ve intervened (arguably been forced to intervene) something needs to be done to make sure it doesn’t happen again.Report
Crazy opinion alert:
“bringing down the entire industry” is the best way to prevent bad business practices for two-three generations.Report
haha, amazing.Report
This strikes me as something that businesses will be able to game.
I don’t know how, of course… but, and here’s the point, neither do the businesses (yet) nor do the people who will make the regulations.Report