Sunday, May 17, 2009

the too big to fail situation.

From Naked Capitalism:

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Sunday, May 17, 2009

Links 5/17/09

Listen to this article. Powered by Odiogo.com
Can You Die From Lack of Sleep? Slate

James Lull, Ponzi Scammer, Drives Truck Off Cliff The Day Of His Sentencing Huffington Post

Debunking The Notion Of Too Big To Fail Barry Ritholtz

Japanese Housewives Back in the Game? Japan Economy Watch

Europe in deepest recession since War as Germany suffers Telegraph (hat tip reader Dwight)

Faith-Based Economics John Mauldin

Proving Me Wrong Michael Panzner

The Exuberance Glut Or The Dollar-Euro Short Squeeze Race Tyler Durden

Antidote du jour:



"Debunking The Notion Of Too Big To Fail
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By Barry Ritholtz - May 16th, 2009, 3:30PM

Interview and analysis with Mariner Kemper of UMB Financial regarding about the testifying of Sheila Bair before the congress on the too big to fail situation.

4:16

Bloomberg"

Me:

Don said...

In general, I agree with Kemper, but I don't agree that size doesn't matter, only complexity. It is only the size, number, not complexity, of the holding companies, that makes them TBTF, and the amount of money that depends upon them. If the HCs were smaller, then bankruptcy could be allowed to work itself out, no matter how tediously complex. After all, the FDIC is currently seizing smaller banks, and other financial concerns are going bankrupt.

My answer is narrow/limited banking, precisely because I don't want the bedrock of our financial system resting on regulators perceptions to any great degree. You can rely on that if you have a solid base to fall back upon.

The small banks have a good gripe because, strictly speaking, they're on the hook for the FDIC. They'll be taking a big hit before the taxpayers do as regards the FDIC at least.

You cannot get away from the concept of "Too big to fail", if that means that the government would sit idly by during debt-deflation. I cannot imagine that in any real world scenario. In that sense, I think we're fooling ourselves about fixing the system to avoid that.

Don the libertarian Democrat

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