Ask Me Help Desk - Too big to fail

Too big to fail

Hello:

Now, I don't know what that means to YOU. But, to ME, it means that IF we let corporations get that big, and they fail, WE the TAXPAYERS get hurt. Seems to me that if we stopped them just short of getting too big to fail, and they fail, it's THEIR stockholders that get hurt - NOT us. That seems right to me.

Therefore, financial reform should include downsizing corporations that are too big to fail, to just the RIGHT size where it doesn't hurt us if they do fail. And, we need to prevent ANY corporation from ever getting that big again.

Is that wrong?

excon

Ah, just which particular companies are you theorizing about Exie? So many small businesses have already gone belly up in the last few years it's scary.

I can see clearing away some dead wood in the companies that are too big and also cutting back or totally eliminating a lot of the perks they get such as bonuses for just being the CEO, etc. I never saw that kind of yearly pat yourself on the back anyway. Why give Mr. Big the bonus and totally skip over the people who actually DO the work for the company? Why not just pay the people who actually work (and not just sit in an office pushing paper around all day for a few hours like Mr. Big does) the money they deserve for doing a good job.

Quote:

Originally Posted by twinkiedooter

Ah, just which particular companies are you theorizing about Exie? So many small businesses have already gone belly up in the last few years it's scary.

G'morning, twink:

Well, I was just going to include banks, but AIG isn't a bank. So, the criteria I'm using is just "too big to fail", rather than what they, particularly, do. GM, for example, was deemed by some as too big to fail. Or, maybe we should just give up on the notion of "too big to fail" and just let ANY of 'em drop dead. But, I don't think THAT'S a good idea either.

I'm not talking about destroying them - just breaking 'em up. We broke the Standard Oil Trust up into about 37 companies, and they ALL did quite well.

excon

We already have antitrust laws on the book. They are enforcable .So I don't see a need for further law in that regard.

If the zombies were allowed to fail then we would not have been hurt any worse than we were when the GS exec embedded in the government decided it was a good idea to scare Congress into bailing the zombies out .

Sen. Dudd's new legislation would institutionalize too big to fail and all it's related moral hazards . Not only that ;but the bill allows the government to designate companies as too big to fail whether they are or not.What they will succeed in doing is creating the equivalent of Fannie and Freddie in every sector of the economy.

It will be a self fulfilling prophesy . Who would invest in a private company not backed by the gvt. When a much safer bet is investing in the gvt backed company ? And what would prevent these gvt backed companies from taking on recklessly risky positions when the gvt is backing them ? In fact;the gvt. Mandated Fannie and Freddie to take on risky business and that contributed directly to the whole financial system crisis.

What is needed instead is distressed institutions that are sinking to become consumed by private enterprise. That is why there are bankruptcy laws and courts.

We know it works because in a moment of rare sanity Lehman Brothers was allowed to collapse during the bailout craze.. its businesses and assets were all sold off to four different buyers within weeks of the filing of its petition for bankruptcy .Life goes on .

Hello again, tom:

I wasn't asking about the bill, because I don't think bill calls for what I'm calling for. I just asked your opinion on MY proposition. MY proposition has nothing to do the government owning or backing anything.

excon

Companies usually become too big because interconnectiveness creates monopolies .And as I said in my response anti-trust laws are already in place to deal with that .

I don't believe in too big to fail so I would not put artificial restraints on the size of companies based on some legislator's criteria of what is too big to fail.

The market will weed them out quite well on it's own . I think the real hazards are in not letting them fail . Failing businesses are just as vital to a free market as successful businesses are . The failures creates new opportunities.
That is naturally occurring and doesn't need central planners in Washington to decide which businesses succeed and which fail ;or which are too big for their own good.
Instead of thinking failure is not an option we should think in terms of failure being necessary component of the market.

Quote:

Originally Posted by tomder55

I don't believe in too big to fail

Hello tom:

That's the key. I do.

excon

Lehmans failed even as the government desperately tried to save it because they thought it was too big to fail... you the taxpayer wasn't hurt. Zombies got bailed out (and in the case of Chase got government money even when they told them they didn't want it),and the taxpayer got hurt.

So it's only when there is a perception that something is too big to fail when there is the panic response in Washington .

The only people we should give a damn about is people who made bank deposits in investment banks . The solution then is to protect them through FDIC which the investment banks should be happy to fund ,and to hell with the rest of the investors (except GS investors who were apparently defrauded according to recent news ) .

Quote:

Originally Posted by tomder55

Lehmans failed even as the government desperately tried to save it because they thought it was too big to fail .....

Hello tom:

That isn't what happened at all. They LET Lehman fail because they believed like you do, it won't hurt, But, immediately after Lehman failed, the credit markets LOCKED up threatening to take down the entire economy. It SCARED Paulson and Bush, and all of a sudden they became BELIEVERS in too big to fail, and bailed 'em out.

Now my libertarian self agrees with you except for one regard. We, at one time, had regulations in place that would have prevented banks, and ultimately the insurance companies, from getting as big as they got. They only way they GOT too big to fail, is through LOBBYING congress for repeal of those laws instead of competing in the marketplace for market share. That ISN'T the free market at work. That' MONEY at work and the corruption it buys. Therefore, I'm all for regulations that will break up any company that is too big to fail, and prevent it from ever happening again.

excon

Sorry the credit market did not freeze because of Lehman. Letting Lehman go was the best thing that happened in 2008 .
It was incoherent government reaction that brought on the crisis.

Libor was down for a total of 24 hours before it rebounded after the Lehman announcement .

But after Paulson went nuts and drafted the 2 1/2 page draft of TARP ,which gave him total power on what to do with bailout money ,then the credit markets froze. It was his chicken little act that convinced everyone that the banks were in worse shape then they were. Subsequent events have proven this narrative the correct one as miracle upon miracle ;banks are capitalized up the kazoo and are not lending much of it because working with the government is a much better deal .They are given gvt debt for nothing and invest it in safe gvt bonds. I wish someone would offer me that deal!!

Quote:

Originally Posted by excon

Hello:

Now, I dunno what that means to YOU. But, to ME, it means that IF we let corporations get that big, and they fail, WE the TAXPAYERS get hurt. Seems to me that if we stopped them just short of getting too big to fail, and they fail, it's THEIR stockholders that get hurt - NOT us. That seems right to me.

Therefore, financial reform should include downsizing corporations that are too big to fail, to just the RIGHT size where it doesn't hurt us if they do fail. And, we need to prevent ANY corporation from ever getting that big again.

Is that wrong?

EX

The taxpayors only get hurt when the government backs a company - like fannie and freddie - as Tom pointed out.

Take a look at the companies on the Dow Jones:

Walmart, Exxon, At and T, Mcdonalds, Microsoft : all huge companies. But if a Walmart fails, and is not backed by the government via taxpayors, then its competitors like Target will fill the void and other small businesses will fill the void. If Microsoft fails, Apple and dozens of other companies would step in. Etc.

It is when the government backs certain companies that those companies become to big to fail. GM could fail but Honda, Toyota, Ford, Hyundai, VW etc would fill the void.

G&P

Exy.. I don't understand a lot about this.. but I think your right!

Ex does not like corporations . He thinks America should be all mom and pop businesses that have no possibility to compete globally. He claims that big corporations stifle competition which is not true. Look at the banks . There were a handful of them that the government deemed too big to fail . But do these large banks really stifle competition ? No of course not ,there are thousands of smaller banks and investment companies serving all types of clients and communities. Inthebox points out major retailers that are huge . If they fail would people stop buying ? No... established and new business would take their place and people laid off from the failed business get hired by their competitor.

Yes ,if it is demonstated that a company holds a monopoly in the business then it is not a good situation. But there are already anti-trust laws to handle that ;and if Congress wanted to do something useful they would revisit those laws and see if they need tweeking ;instead of finding tax money ,or printing money we don't have ,to ensure that executives that ran their companies into trouble get rewarded .

Quote:

Originally Posted by tomder55

Ex does not like corporations . He thinks America should be all mom and pop businesses

Hello:

Tom likes corporations that are too big to fail. I don't know why. He has a short memory.

excon

This discussion keeps reminding me of the anti-trust breakup of Ma Bell. It took a decade or more to sort out which companies were viable, but AT&T is back up there in the top companies again.

Consumers did pay for it, however. Rates went way up but options exploded and the concept of customer service bloomed.

On the phrase "too big to fail," I think the government is sticking its nose in where it doesn't belong, again.

Quote:

Originally Posted by Catsmine

Consumers did pay for it, however. Rates went way up but options exploded

Basic service rates went up for a while until competition set in but long distance rates went down almost immediately and have stayed that way.

But ATT again is a premier phone service making among other things exclusive deals with Apple Iphone etc. However ;if Apple were smart ,they would allow iPhone service on any available phone company . In this case exclusivity stifles business.

Totally agree tom. The iPhone users there and in Canada feel the same way. Then there's Apple locking people in to the App Store, the iPad locking-in is even worse.

Along that line, Apple has apparently declared war on Adobe, locking you in even more. I'm one of those guys that Apple won't get a as customer because of their exclusivity.

Quote:

Originally Posted by speechlesstx

Along that line, Apple has apparently declared war on Adobe, locking you in even more. I'm one of those guys that Apple won't get a as customer because of their exclusivity.

That's 2 of us. The Mac OS is much better than Windows, but Jobs & Co.'s business plan is so anti-consumer that "I'm a PC."

Quote:

Originally Posted by excon

I wasn't asking about the bill, because I don't think bill calls for what I'm calling for.

It sure sounds like it does just that to me...

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"This bill has been written specifically to end any notion of any kind of a bailout by the American taxpayer again," Dodd said Thursday. "Our bill stops bailouts by imposing... tough new requirements on Wall Street firms. Being too big and too interconnected will cost these firms dearly. And should that not be enough, our legislation, regulators can use the new powers in our legislation to break these firms up before they can take down the economy of our country."

But as tom said, we already have laws on the books for that. I think Congress is looking at it all wrong, instead of reforming a formerly private industry they need to reform themselves.

Quote:

Originally Posted by speechlesstx

It sure sounds like it does just that to me... But as tom said, we already have laws on the books for that.

Hello Steve:

Good for Dodd.

The anti trust laws AREN'T for this, though. It's a tool designed to fix a fundamentally DIFFERENT problem - monopoly's. It won't work because we ain't never had "too big to fail" before. The IDEA, of course, is the same.

You don't, like tom, believe that a company can't get too big, so that if and when it failed, would take US down with it, do you? To me, that proposition is laughable.

excon

Quote:

Originally Posted by excon

You don't, like tom, believe that a company can't get too big, so that if and when it failed, would take US down with it, do you? To me, that proposition is laughable.

My question is who is too big to fail?

Hundreds of banks failed during the S&L crisis and it didn't take the US down .

Quote:

Originally Posted by tomder55

hundreds of banks failed during the S&L crisis and it didn't take the US down .

Quote:

Originally Posted by speechlesstx

My question is who is too big to fail?

Hello righty's:

Uhhh, I don't know, but NONE of the ones tom is talking about were. Plus, we could have 100's of community banks go bust today, and they wouldn't bring us down. But, they're not the one's I'm talking about either.

Let me be specific here. There are ELEVEN banks that are too big to fail in ANYBODY'S book, even toms. Among them are BankofAmerica, Chase, Wells Fargo, Citibank and Goldman Sachs. I'll throw in AIG too, just because.

Even though one could argue whether the takeover of GM and Chrysler was a good thing or not, they weren't "too big to fail". But, BANKS, when they get THAT BIG, have a hold on our national nuts.

excon

Didn't they tell you ? With as many Goldman employees on the govt. payroll the name has officially changed to Government Sucks.

So instead of anyone "too big to fail" we'll just get everyone wanting to be big enough to be protected from risk, right?

Quote:

Originally Posted by speechlesstx

So instead of anyone "too big to fail" we'll just get everyone wanting to be big enough to be protected from risk, right?

Hello again, Steve:

This ain't rocket science. There's this line. Banks ABOVE that line are too big to fail. As it stands now, if THEY collapse, WE have to protect them cause they'll take us down with them... That's why we need to break 'em up so they're just BELOW that line.

Once they're BELOW that line, they AREN'T too big to fail, so they ain't protected from nothing. They FAIL. It's FINE with me.

excon

If the SEC enforced the rules and regulations then these banks could not have done these things that brought the system down. Kind of like the immigration laws that are not enforced. Aren't Paulson and Rubin ex- Goldman Sach's employees? Didn't Obama get close to $900,000 from GMS during the election campaign? Is he going to give the money back with interest?

G&P

G&P

First of all, where's the line and second of all that doesn't change the premise of everyone wanting to be big enough to be protected from risk.

Quote:

Originally Posted by inthebox

If the SEC enforced the rules and regulations then these banks could not have done these things that brought the system down.

Hello again, in:

I don't disagree at all. But, how much regulation are you going to do when you come from a belief system that tells you that government IS the PROBLEM, and free markets are better?

I believe in a strong cop on the beat. I don't believe the cop should be an ex bad guy, or wants a job as a bad guy when his shtick as a cop is over.

excon

You see ;that line is in the ether . There is no defining line that can be proven because there has never been a case where the failure of a company ;let alone an industry had "brought the country down" .
The chicken-little act by former Sachs official Hank Paulson was more a matter of self interest I believe .

The biggest shame of it was that he convinced McCain and Boehner to go along.
But there was a significant block of Republicans like Thad McCotter that saw threw the charade.

Quote:

Originally Posted by speechlesstx

First of all, where's the line and second of all that doesn't change the premise of everyone wanting to be big enough to be protected from risk.

Hello again, Steve:

I guess it IS rocket science. Like I said, I don't know where that line is. But, I ain't a lawmaker. Once they determine WHERE that line is, they pass a law breaking up the banks to just under that size.

Here's how we can come up with a number. Take what the Democrats say, and double it. Don't worry, the Dems'll cave. They LOVE bipartisanship

Now, I agree with you. There's going to be a mad scramble for corporations to get OVER that line, because they'll know they'll be bailed out... But, if there's a COP on the beat enforcing the law, there won't BE any corporations OVER that line. As a dedicated right winger, you know about that law enforcement stuff, don't you?

excon

You don't believe the cop should be an ex bad guy, huh? Shame the White House doesn't believe that.

http://home.comcast.net/~lcmgroupe/2...hite-House.jpg

Let's start with Fannie and Freddie. Those are the only banks I know of that have enough clout to bring us down. They are so interconnected with the government they are almost one in the same. Their execs come right out of the ranks of the political class so they can get their payday for being public servants .

Now that I think about it ;it was only through the regulatory process that many of these banks were able to grow in the 1st place.
The guarding against systemic risk by securtization was completely a political calculation... a reward for going along with government mandates to offer risky loans.
I say if there weren't the type of regulations imposed /awarded then the banks most likely would not have grown to the extent they did to begin with. You cannot have a free market when risk is not a major component of decision making ;and the government did everything they could to cushion the risks in exchange for the banks being the lead agencies in their social engineering .

Quote:

Originally Posted by tomder55

I say if there weren't the type of regulations imposed /awarded then the banks most likely would not have grown to the extent they did to begin with.

Hello again, tom:

Let me see if I understand you. If they were FREE to do whatever they chose to do, they WOULDN'T have grown that big?? But, BECAUSE they were OVER REGULATED, THAT is what caused them to get so big.

Really? Is THAT what you'd like me to believe?? Guess what?

excon

You are one coflicted dude. You switch back and forth between regulate the hell out of them to caveat emptor . Or is it caveat emptor for me but not for thee ?

Indeed the whole real estate bubble that caused the crisis was the result of social engineering schemes by clowns like Andrew Cuomo (then at HUD) with the help of Fannie and Freddie .

Quote:

He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans.

Who said that ? Not FOX News ,this quote is from the ultra-liberal Village Voice.
Andrew Cuomo and Fannie and Freddie - Page 1 - News - New York - Village Voice

It describes a system that demanded the banks do the very risky things everyone now condemns as part and partial with an environment of deregulation. In fact it was over regulation that caused the crisis.

Quote:

Originally Posted by tomder55

Indeed the whole real estate bubble that caused the crisis was the result of social engineering schemes by clowns like Andrew Cuomo (then at HUD) with the help of Fannie and Freddie .

Hello again, tom:

Yeah, those are the right wing talking points. They're just not true. Yes, Fannie and Freddie were mismanaged. But saying THEY brought the system down, is like saying mismanaging the gift wrapping department would bring down Nordstroms.

The bubble was caused by banks taking worthless mortgages, repackaging them into derivatives nobody understood, and then sold them to unwitting investors, like pension funds.

excon

Yes you are right in that if the banks could not bundle the crap then they would've collpased to the size you contend they should be because they would be operating otherwise at a government imposed loss. They had no choice short of losing their shirts but to create the derivative instrument once the government imposed those conditions on them.

Quote:

Originally Posted by tomder55

They had no choice short of losing their shirts but to create the derivitive instrument once the government imposed those conditions on them.

Hello again, tom:

Those are more right wing talking points. If Fannie and Freddie went bankrupt under the pressure of the Democrats, there would have been nothing more than a ripple in the economy. The FDIC would have paid off some stuff, and NOTHING more would have happened.

Besides, there were MANY community banks who CHOSE not to participate and didn't lose their shirts. The banks that DID lose their shirts didn't understand the collateralized debt obligations they themselves, created and got stuck with them in THEIR portfolios. They created them, sold them, and bet on them simply because of the fees they generated.

When THEY failed, we either propped them up, or we'da gone down the tubes with them.

excon