Ideas, Opinions, Genealogy, and Book Reviews
I’ve written before about breaking up the “too big to fail banks” because of the dangers they present to our economy.
Now both Senator Sherrod Brown and George Will have endorsed the idea, my hope is more people will see the wisdom of this.
George Will’s column on this is certain worth a read.
We don’t need banks that are too big to fail. These Megabanks endanger are financial system. We should cut megabanks down to size.
The Dodd-Frank financial reforms try to prevent these megabanks from endangering the system but can’t guarantee that. The only way to do that is to prevent banks for getting so large that their failure would bring down the entire system. And since several banks have reached that size, they need to be broken into less dangerous pieces.
Jon Huntsman presented such a plan last year but of course did not get the Republican nomination.
Gretchen Morgenstern reported in last Sunday’s New York Times that Richard W. Fisher, president of the Federal Reserve Bank of Dallas, also proposed that too-big-to-fail banks be broken-up. The article also discussed other points on community banks as compared to megabanks. It is an article well worth reading.
Our financial policy is now that certain financial institutions are Too Big To Fail and so they must be tightly regulated and bailed-out by the taxpayers if they do fail, lest they topple the U.S. economy.
Over regulation is a potential problem. Bail-outs of hundred of billions and perhaps several trillion are also potential problems, especially when our government is running large deficits and is trillions of dollars in debt.
Too Big To Fail = Too Big To Exist is the simplest solution. Simply, do not let the institutions reach a size where they threaten the U.S. economy. Some institutions already exceed that size and need to be gradually broken-up or unwound to get under that number.
Jon Huntsman proposed such a plan during his bid for the Republican presidential nomination. I’m sure there are other plans out there.
Too Big To Fail = Too Big To Exist can be shortened to TBTF = TBTE or 2B2F = 2B2E for those who like things shorter. Thus financial institutions will be freer to experiment and take risks. The taxpayers need not regulate so closely and are not on the hook for a bail-out. It is a win-win as far as I can see.
I was very pleased to read Jon Huntsman’s plan on financial reform . Two aspects of it especially struck me.
First, it never made any sense to me to have financial institutions so large that they would be considered too big to fail. That is they are so large that if they were to fail the entire US economy would be in danger. Indeed, I had writen about this over 2 years ago.. Jon Huntsman presents a plan to eliminate this risk by the simplest means possible: not have too big to fail institutions.
Second, he proposes the repeal of Dodd-Frank. This was our government’s regulatory response to the 2008 crisis. I read quite a few newspapers (including both the NY Times and the Wall Street Journal) and I know this regulatory reform is opposed by many in the business community but it seems to me if the goverment is ultimately reponsible for the debts of the big banks, there is a need for extensive regulation. It is an arguable point whether Dodd-Frank got it right. But if there are no too big to fail institutions, a lighter regulatory hand is appropriate.
There are several other aspects to Jon Huntsman’s plan but I just wanted to highlight these. Although Jon Huntsman is way back in the pack seeking the GOP nomination for President, he may be the most qualified and thoughtful in the group.