The oxymoronic quote of the month!
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The subject is taking control of too-big-to-fail banks. And the quote is:
“Of course you want to set up a system where an institution dreads the day it happens because management gets whacked, shareholders get whacked and the board gets whacked,” said Edward L. Yingling, president of the American Bankers Association. “But you don’t want to create a system that raises great uncertainty and changes what institutions, risk management executives and lawyers are used to.”
via Trying to Rein In ‘Too Big to Fail’ Institutions – NYTimes.com.
I don’t? What if I want to change absolutely everything that the institutions and executives are used to — guaranteed paychecks, taxpayer bailouts, esoteric financial instruments, trades of use to no one but traders, consumer-be-damned attitudes. And if I don’t change all of that, how the heck am I going to inspire dread in anyone?
Having said all that –
For the record, the legislation that Congress seems to be considering might finally put some bite in Washington’s bark:
A senior administration official said on Sunday that after extensive consultations with Treasury Department officials, Representative Barney Frank, the chairman of the House Financial Services Committee, would introduce legislation as early as this week. The measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution..
I think wiping out the shareholders is harsh — can’t they be treated at least a bit like creditors? — but the idea of throwing the bums out warms my heart. So does this:
The White House plan as outlined so far would already make it much more costly to be a large financial company whose failure would put the financial system and the economy at risk. It would force such institutions to hold more money in reserve and make it harder for them to borrow too heavily against their assets.
It seems to me, though, that there’s an easier way to accomplish a lot of this. With so many assets concentrated in so few financial institutions, couldn’t they be forced to break up under existing anti-trust legislation? And wouldn’t that solve the problem of too-big-to-fail once and for all? It sure would — particularly if its coupled with hefty regulation — I’d prefer abolition, but don’t know if they could make that stick — of derivatives, credit default swaps, and the other useless esoteric instruments that nearly toppled our economy.
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I’m inclined to agree that break-up is a better answer than government takeover. But, the cautionary tale is what happened to Ma Bell. She was broken up, all her children prospered, and then, as anti-trust zeal waned, piece by piece she came back together again, larger and stronger than ever. With the banks, I think there’s more collusion than monopoly so we get less leverage from a breakup.
All-in-all, I’ll stick with my proposal that we just tax all their undeserved profits, retroactively. I’m really no fan at all of government takeover.
I’d love to see the law you’d draft to allow retroactive taxation!
Re: Ma Bell, I disagree start to finish. AT&T was working perfectly when the government broke it up — unlike the hugely dysfunctional banks. I remember thinking it was a silly idea at the time. And it hasn’t reclaimed its monopoly by a longshot — we have Verizon, we have Sprint, we have all kinds of folks playing in the phone space that used to be the exclusive terrain of Ma Bell. Even manufacturing — remember Western Electric — used to be part of the phone conglomerate. Nokia, Mobil, Samsung, none of them would have had a chance. And I wonder if we’d have the IPhone.
In response to another comment. See in context »[...] This post was mentioned on Twitter by Derek Powell, Tweets Tube. Tweets Tube said: The oxymoronic quote of the month! http://bit.ly/4uGPsD [...]
I agree.
The horse is pushing the cart in this piece of legislation. Fine, in the next meltdown the guilty will get punished, so taxpayers will have justice done and perhaps shareholders and executives will have some sense of consequence. Yet, this is something that could have been done with the last crisis in a bankruptcy court.
Congress seems blind to the obvious: It is imperative we avoid another meltdown.
Britain is moving to break up the too big to fail. ING is breaking up. It is a mystery why we can’t do the same by just putting FDR’s safeguards back in place.
The funny part (well, maybe not so funny) is that I think Congress really does worry tremendously about another meltdown — I just don’t think it knows what it’s doing when it comes to avoiding one.
In response to another comment. See in context »I did read something in Huffington Post about Soros putting some money into examining the tenets of free market economics. Finally someone examining how the economy may actually work.
In response to another comment. See in context »well, depends how much money — and who he’s funding. But yeah, best case scenario, a non-partisan expert comes up with definitions and solutions. Longshot — but a gal can hope…
In response to another comment. See in context »