Too Big to Fail
....The two got a firsthand look at the "too big to fail" phenomenon in 2001, when a broker-dealer firm in Minneapolis got into trouble. The firm's counsel made an interesting argument: If it was allowed to go under, the lawyer said, it could disrupt economic activity in the Midwest.
That turned out not to be true, but Stern and Feldman say the idea that government might be expected to step in is dangerous, because it encourages people to take risks they shouldn't.
Their book, which has just been reissued in paperback, proposed a series of changes that are now being considered at the highest levels of government. Leaders in Washington have talked about establishing a "systemic risk regulator" — an idea Stern and Feldman wrote about five years ago.
"Right now, we don't have an entity — an oversight entity, a government entity — that thinks to itself, 'What happens if this institution gets into trouble and is going to fail. What would we do about it at that time?' "
Feldman says. "The primary focus of most supervision is to prevent them from getting into trouble. And I think it sounds like a generic thing — 'Well, you change your focus.' That's not trivial. That's important. Because it's by focusing on what we would do if they got in trouble that this stuff gets revealed."
Procedures To Avoid Banks 'Going Nuclear'
If large institutions fail, they argue, the system needs something akin to the procedures nuclear reactors have when they get into trouble — some way to safely shut the institution down. That would make it clear that the government won't be coming to the rescue, which in turn should discourage risky behavior.
Stern and Feldman were in Washington, D.C., recently on what amounts to a book tour: a talk at the Brookings Institution. Much of the discussion centered on next steps in solving the financial crisis, but some in the audience wanted to know why the authors' warnings in "Too Big To Fail " hadn't been given more attention.....................
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A Future Too Big to Fail: Ecological Ignorance and Economic Collapse
by Chip Ward
"Too big to fail." It's been the mantra of our economic meltdown. Although meant to emphasize the overwhelming importance of this bank or that corporation, the phrase also unwittingly expresses a shared delusion that may be at the root of our current crises -- both economic and ecological.
In nature, nothing is too big to fail. In fact, big is bound to fail. To understand why that's so means stepping away from a prevailing set of beliefs that holds us in its sway, especially the deep conviction that we operate apart from nature's limits and rules.
Here's the heart of the matter: We are ecologically illiterate -- not just unfamiliar with the necessary scientific vocabulary and concepts, but spectacularly, catastrophically, tragically dumb. Oh yes, some of us now understand that draining those wetlands, clear-cutting the rainforests, and pumping all that CO2 into the atmosphere are self-destructively idiotic behaviors. But when it comes down to how nature itself behaves, we remain remarkably clueless. ...
Before Wall Street there was Main Street
I recall the time when banks were community institutions that were limited by law to being single outlet community service organizations. It was called unitary banking. Each bank was rooted in and expected to serve the needs of its community.
Deregulation unleashed a wave of consolidation through mergers and acquisitions that shifted the focus from serving Main Street to making as much money as possible for Wall Street. To have a financial system that works, we must reverse the deregulation process and restore the concept of community banking. Nothing less is going to solve the problem.
Wall Street holds government hostage
In a March 8, 2009 CBS Sixty Minutes interview with Sheila Blair, head of the FDIC, it was noted that when one of the smaller banks fails, it is taken over by the FDIC. The depositors are protected by the FDIC. The owners, however, lose everything.
In the interview with Blair, which comes toward the end of the segment documenting the FDIC take over of a small failed bank, she notes that the FDIC doesn't have the jurisdiction to take over the large Wall Street financial conglomerates that bear the major responsibility for the financial collapse. As the moderator points out, the owners and managers of the small banks are left with nothing. The big banks get government bailouts.
Of the latter Blair says, "Going forward, I think we need to really review the size of these institutions and whether we should do something about that, frankly... I think that may be something that Congress needs to think about...
I think taxpayers rightfully should ask that if an institution has become so large that there is no alternative except for the taxpayers to provide support, should we allow so many institutions to exceed that kind of threshold?" ......... More Here