Big Banks Fail
In the Wall Street Journal on Tuesday morning, Charles Calomiris, a leading banking expert, published an op ed entitled “In the World of Banks, Bigger can be Better.” http://online.wsj.com/article/SB10001424052748704500604574483222678425130.html It begins,
“Legitimate concern about the risks to taxpayers and the economy posed by banks that are “too-big-to-fail” has prompted some observers, among them Simon Johnson, former chief economist of the International Monetary Fund, to favor draconian limits on financial institution size. This is misguided. There are sizable gains from retaining large, complex, global financial institutions—and other ways to credibly protect taxpayers from the cost of government bailouts.”
And the article goes on to make the detailed case for keeping intact our largest banks – in contrast to the recently expressed views of two former Federal Reserve chairs (Paul Volcker http://www.nytimes.com/2009/10/21/business/21volcker.html?_r=2&scp=2&sq=volcker&st=cse, Alan Greenspan, http://dealbook.blogs.nytimes.com/2009/10/15/greenspan-break-up-banks-too-big-to-fail/) and – late Tuesday – the current governor of the Bank of England (Mervyn King, http://www.ft.com/cms/s/7056b56a-bda8-11de-9f6a-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F7056b56a-bda8-11de-9f6a-00144feab49a.html&_i_referer=http%3A%2F%2Fbaselinescenario.com%2F2009%2F10%2F22%2Fbig-banks-fail%2F), who are calling for these banks to be broken up in some fashion. Read the rest of this entry
http://baselinescenario.com/2009/10/22/big-banks-fail/#more-5295
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The Consensus On Big Banks Begins To Move
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Just when our biggest banks thought they were out of the woods and into the money, the official consensus in their favor begins to crack. The Obama administration’s publicly stated view – from the highest level in the White House - remains that the banks cannot or should not be broken up. Their argument is that the big banks can be regulated into permanently low risk behavior.
In contrast, in an interview reported in the NYT this morning, Paul Volcker argues that attempts to regulate these banks will fail:
“The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company.”
Volcker may not have the ear of the President (as the NYT points out), and Alan Greenspan – also arguing for bank breakup, but along different lines – might also be ignored. But watch Mervyn King closely. Read the rest of this entry »
http://baselinescenario.com/2009/10/21/the-consensus-on-big-banks-begins-to-move/
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