How to cut megabanks down to size • Hacker News Board

Re: How to cut megabanks down to size

#41

Post by josephlord » Sun, Jan 20, 2013, 10:09 PM UTC

ataggart wrote: post #25

josephlord wrote: post #14

Earlier quoted context omitted.

Smaller banks survived this crisis with relatively few failures but that has not always been the case (e.g. Savings and Loans crisis). However the fact that they can fail is critical and a sufficient reason to break them up even if it won't make them better. Banks that are too big to fail are too big to be allowed to exist. Government protection only for the commercial/retail part is an obvious but insufficient requi…

It's not clear to me how "bigness" matters. The article makes clear that small banks were exposed to disciplining market forces, but for large banks such forces were obviated by government protection. Worrying about size seems to miss the point.

How much collateral damage will there be if they fail? This is the reason the banks got bailed out, they are big and complicated so can't be unpicked and wound up.

If they were smaller the collateral damage is smaller and wind up manageable. There are real reasons for not letting big banks fail so we need to avoid them getting that big and complicated so they can be allowed to fail.

Re: How to cut megabanks down to size

#42

Post by rayiner » Sun, Jan 20, 2013, 10:24 PM UTC

ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

Because it's a narrative with no basis in fact? The smaller banks were the ones hardest hit by the popping of the financial bubble. GS/MS/JPM didn't need the bailout, Lehman and Bear Stearns failed in a free market manner, and Merrill Lynch was bought out. It was the smaller banks that really needed the bailout money.

Re: How to cut megabanks down to size

#43

Post by tokipin » Sun, Jan 20, 2013, 10:25 PM UTC

alexqgb wrote: post #10

pdog wrote: post #8

We already know how. The political will just isn't there.

Bullshit. If you're talking about the American people, the political will is there in spades. But thanks to gerrymandering and the filibuster, their voices been successfully nullified. The GOP holds the House by a wide majority, even though their members in it received fewer votes than the "minority" in opposition. And while the GOP has a numerical minority in the Senate, they still control the chamber since it (alon…

http://rslc.com/_blog/News/post/REDMAP_2012_Summary_Report

Re: How to cut megabanks down to size

#44

Post by rayiner » Sun, Jan 20, 2013, 10:26 PM UTC

rwmj wrote: post #13

I'm confused by this. The large banks are (arguably) more efficient because of economies of scale, eg. less duplicated management, purchasing power. So it's probably not a good idea to limit the size of banks which is what this article seems to propose, because that'll make banking more expensive. But the flip side is: why don't we just let megabanks go bust? If they go bust, the government steps in, briefly national…

It's like asking why we don't let a structurally unsound skyscraper just go bust. Not a problem in isolation, but not really safe in the midst of a crowded city block.

Re: How to cut megabanks down to size

#45

Post by [deleted] » Sun, Jan 20, 2013, 10:31 PM UTC

alexqgb wrote: post #10

pdog wrote: post #8

We already know how. The political will just isn't there.

Bullshit. If you're talking about the American people, the political will is there in spades. But thanks to gerrymandering and the filibuster, their voices been successfully nullified. The GOP holds the House by a wide majority, even though their members in it received fewer votes than the "minority" in opposition. And while the GOP has a numerical minority in the Senate, they still control the chamber since it (alon…

[deleted]

Re: How to cut megabanks down to size

#46

Post by glesica » Sun, Jan 20, 2013, 10:31 PM UTC

rayiner wrote: post #42

ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

Because it's a narrative with no basis in fact? The smaller banks were the ones hardest hit by the popping of the financial bubble. GS/MS/JPM didn't need the bailout, Lehman and Bear Stearns failed in a free market manner, and Merrill Lynch was bought out. It was the smaller banks that really needed the bailout money.

Merrill Lynch hardly failed in a free market manner. It was bought out based on guarantees from the taxpayers IIRC. GS also got help from the SEC in the form of a temporary ban on shorting. I'm not saying you're wrong, just that you've over-simplified the situation... there really aren't any free markets when it comes to finance.

Re: How to cut megabanks down to size

#47

Post by SilasX » Sun, Jan 20, 2013, 10:42 PM UTC

rayiner wrote: post #42

ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

Because it's a narrative with no basis in fact? The smaller banks were the ones hardest hit by the popping of the financial bubble. GS/MS/JPM didn't need the bailout, Lehman and Bear Stearns failed in a free market manner, and Merrill Lynch was bought out. It was the smaller banks that really needed the bailout money.

Really? So it was the credit unions that were decimated by the crisis? Or did you just mean the "smaller of the giants"?

Re: How to cut megabanks down to size

#48

Post by knodi » Sun, Jan 20, 2013, 10:44 PM UTC

The banks will never let this happen. The banks have become too powerful.

Re: How to cut megabanks down to size

#49

Post by eropple » Sun, Jan 20, 2013, 10:48 PM UTC

ttar wrote: post #28

raverbashing wrote: post #16

Earlier quoted context omitted.

Yes BUT it's also a form of "insurance". If there's a suspect a bank won't be able to honor deposits, bank run ensues, THEN the given bank can't honor deposits obviously, because no bank works like that today, that is: self fulfilling prophecy It's a necessary evil (for the customer's sake)

If you don't trust the bank, don't put your money there. Otherwise, put your money at the Bank of the United States, backed by and owned by the full faith of the US taxpayer. I will not bail out private money making banks via the FDIC via my tax dollar. If you put money into a private bank, then when it fails, you should lose that money.

I will not bail out private money making banks via the FDIC via my tax dollar.

Never in American history has the FDIC had to take a "tax dollar" during a bank failure. The government does back it, yes--but the amount of private money in the FDIC makes it extremely unlikely that bank failures even at the scope we were looking at in 2008 will tap them out.

Re: How to cut megabanks down to size

#50

Post by RockyMcNuts » Sun, Jan 20, 2013, 10:49 PM UTC

rayiner wrote: post #42

ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

Because it's a narrative with no basis in fact? The smaller banks were the ones hardest hit by the popping of the financial bubble. GS/MS/JPM didn't need the bailout, Lehman and Bear Stearns failed in a free market manner, and Merrill Lynch was bought out. It was the smaller banks that really needed the bailout money.

1) that's factually incorrect, 2 of the top five Wall Street firms failed (Lehman and Bear Stearns).

2) the other 3 (Goldman, Morgan Stanley, Merrill Lynch) would have failed after Lehman, the entire financial system had to be backstopped by the government. (If you look beyond pure securities firms, the largest insurance company (AIG) failed as well as the largest bank (Citibank - it effectively got nationalized and shareholders were wiped out, look at a stock price chart (http://finance.yahoo.com/q/bc?s=C&t=my&l=off&z=l...)

The lesson learned is that the financial system can't survive a failure like Lehman without a government backstop.

So, pick your poison, either 1) permanent government backstop and some regulation to go with, it, ie don't let bankers run leveraged hedge funds on the public dime, take all the profits in good times and stick taxpayers with the bill when it goes south.

Or 2) smaller banks that can fail without taking the whole system down.