Now there is a quaint little saying that burst on the scene with the banks goiung south because of their disastrous practices It has been thrown around the media circuit like a cheap hooker on crack….but what does that really mean?
First of all, wiki defines it as this:
a phrase referring to the idea that in economic regulation, the largest and most interconnected businesses are so large that a government cannot allow them to fail because said failure would have a disastrous effect on the economy.This means that it might encourage recklessness since the government would intervene (e.g. by bailing out the company) in the event it was about to go out of business.[1] The phrase has also been more broadly applied to refer to a government’s policy to bail out any corporation. It raises the issue of moral hazard in business operations.
You know the names AIG, Goldman-Sachs, Wells Fargo, and the list goes on….but if they are that big, what can be done to stop this situation?
The newest Nobel winner for economics has said in Bloomberg:
There’s no easy way to deal with the question of institutions whose failure might pose a threat to the financial system, said Oliver Williamson, co-winner of this year’s Nobel Economics Prize.“There is no silver bullet,” Williamson, 77, said at a news conference yesterday at the University of California at Berkeley, where he is professor emeritus. “There is no instant answer that I or any of my students or any of my colleagues would be prepared to advance on that.”
Williamson is a founder of organizational economics — the study of how institutions are created and developed and how they affect growth. In research that may have applications to the financial crisis, he suggested that it is better to regulate large companies than to try to break them up or limit their size.
Before I go on, let me say about that statement— all the right wing pundits are all over Obama for not accomplishing anything to deserve the Nobel…..and now I ask….I would think the a Nobel economists would have a better answer than that….but what do I know?
If one believes in capitalism, and if one believes in the “free markets” then too big to fail is just absurd….if they make disastrous decision and commit disastrous acts, then they should succeed or fail on their own merits….government interevention or bailout only allows these companies to continue to make bad decisions and practices which in turn will allow all this misery to come again and again…..
I know what too big to fail means to economists, but that’s probably not what a lot of ordinary people think (or thought at least). Too big to fail was thought to mean too big and therefore too well run to fail.
Now, of course we know differently. However, I would both agree and take issue you with you. Initially, the roots of the problem we now have was caused by the excesses and recklessness of these “big guys” in exactly the way described above.
But to me the REAL problem was and is government – particularly the US government, but Gordon Bloody Brown is as bad too.
Initially, scared of losing money themselves and what the voters’ reaction might be too, the US government took the “too big to fail” attitude and supported AIG and the big lenders and THEN they got scared again but this time at the voter reaction and let Lehman fail, which is what directly initiated the global collapse of all our economies. Why?
Gordon Brown took ages to make up his mind and then decided to pump enormous sums of money into Northern Rock bank when it was far too late and investors were running scared and all the shit that these people had been covering up was starting to come to light. Why?
If the various big economies in the dveloped world could have been prepared and present a common, united and above all CONSISTENT front, none of this would have happened! A few greedy and filthy rich bastards might have made a bit less to PRIOR to the collapse, but it would have been no more than a brief slow down.
The US government made one hell of a fuss about the size of Microsoft, (although I always thought that was, I more likely to be at the behest of its competitors), whilst they did NOTHING about the REAL greedy assholes like Madhoff, Lehman, AIG and so many more. Why?
The problem is of course that many of these huge conglomorates ARE too big to allow them to safely fail since each of them has a turnover that is considerably larger than many quite substantial countries. Some rival the turnover of the US.
But I repeat, if the G7, G10, G20, or whatever synthetic block of the big economies you care to create could simply AGREE and then act calmly and consistently to gradually control these dreadful greedy bastards, we might eventually have a smooth running capitalist based economic system in the world.
But then again, is that likely when you look at the ridiculous slanging matches and uninformed filth that spills out of the mouths of the protagionists in the great healthcare “debate” in America?
Quin, how do you have enough energy and brain power to think so deeply at this early hour….lol….I digress….sorry…..first of all, in the US it was Clinton and the boys that axed the regulations that allowed these companies to get so big…..there was NO one watching their actions….if we do not want government interference then they need to croak…that is the free market….btw….the a/holes on Wall Street are about to get huge bonuses….companies that took taxpayer money…and the American taxpayer is silent…..Ron White again , “you cannot fix stupid”.
How about relying not only on regulations, but also considering Paul Volcker’s advice from experience: being too big is itself a problem that can and should be remedied? I’ve just posted on it at http://euandus3.wordpress.com/2009/10/25/bigger-banks-too-big-to-fail/
You might want to read the article I read: http://www.msnbc.msn.com/id/33477077/ns/business-the_new_york_times/
euandus thanx for the visit and the comment…..In my opinion, yes….by all means do just that……I think Obama has too many people linked to the industry for there to be substantial progress on remedies….just a thought…I will stop by and check out your post…thanx for the invite…..