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Four Years Into The Worst Crisis In History And Still No Reform
Posted Nov 03, 2009 10:21am EST by Henry Blodget in Investing, Recession, BankingWashington D.C. has finally begun to talk about financial reform in earnest, with Treasury Secretary Tim Geithner and FDIC head Sheila Bair both making trips to Capitol Hill to outline potential reform plans.
Unfortunately, both plans are lousy, says William K. Black, professor at the University of Missouri Kansas City School of Law.
A former regulator who helped resolve the Savings and Loan crisis in the 1980s, Black says the current reform plans take a terrible doctrine--Too Big To Fail--and write it into law.
Professor Black says Tim Geithner's plan includes a secret list of institutions that are too big to fail and that will always be bailed out no matter what. This explicit protection, even if kept secret (keep dreaming), will distort the market and create the worst form of moral hazard: Bank executives will know that no matter how much risk they take, they'll always be bailed out, and they'll therefore be encouraged to take crazy risks in the hope of scoring huge short-term gains.
A far better answer, Black says, is eliminating "Too Big To Fail" by seizing troubled financial institutions and restructuring them--the same thing the FDIC does with bankrupt banks. Contrary to the fears of the administration, this will not bring the system to its knees: It will resolve the problem quickly and cleanly, with no cost to the taxpayer.
144 Comments
Yahoo! Finance User - Tuesday November 03, 2009 10:31AM EST
I LOVE the idea of just walking into these banks and telling them that they’re too big to fail, so they’re too big to exist (in their present form, at least). AWESOME! Do it!
san - Tuesday November 03, 2009 10:31AM EST
United States of Amercia has gone insane, bring back capitalism!!! You wipe out the bad companies and the good companies take their assets/market share and get stronger. What's going on is robbing the prudent to save the fekless and it's making USA weaker as a nation and prolonging the recovery.
Leo - Tuesday November 03, 2009 10:32AM EST
If Helga posts today on this board, I'm going to report him-her-it for abuse of my eyeballs.
Rosepw - Tuesday November 03, 2009 10:34AM EST
90% of our people are working. These clowns are all coming on to scare us into accepting low, low interest rates. They are making Wallstreet and all the Multinaionals happy with their scare munger talk. On Tv also all I hear is talk about 10% unemployment, so what ? 90% are working. Everyone on my street here in Florida is working. Milk at 8.50 a gallon, Fed needs to raise at lest 1%, that will not derail us. But it would make Wallstreet and The MultiNationals wish they had Diapered up before leaving home.
Yahoo! Finance User - Tuesday November 03, 2009 10:34AM EST
Hey "frankmargel.com" GET LOST. Your asinine comments are boring. On behalf of the "gang" - take your nonsense elsewhere!
Helga - Tuesday November 03, 2009 10:35AM EST
All of you American people are on "Double secret probation".
SANTA SEZ.... - Tuesday November 03, 2009 10:38AM EST
HAVE A VERY MERRY CHRISTMAS AND DON'T BUY A THING!.... I SAY YOU ARE OFF THE HOOK THIS YEAR. ...BLESS YOU!
DOW - Tuesday November 03, 2009 10:38AM EST
Who needs reform. eveything is peachy. Life is good. I'm a happy man.
SANTA SEZ.... - Tuesday November 03, 2009 10:40AM EST
GIVE THE GIFT OF LOVE, KINDNESS AND JOY TO OTHERS THIS YEAR......PLEASE DONT GO INTO DEBT. ...BLESS YOU!!!
Yahoo! Finance User - Tuesday November 03, 2009 10:41AM EST
Everything horrable again?? Whose wheels are being greased this time. The ones who profit from low zero interest rates that is who paying these folks to scare us to death. 90% of our people are working. These clowns are all coming on to scare us into accepting low, low interest rates. They are making Wallstreet and all the Multinaionals happy with their scare munger talk. On TV also all I hear is talk about 10% unemployment, so what ? 90% are working. Everyone on my street here in Florida is working. Milk at 8.50 a gallon, Fed needs to raise at lest 1%, that will not derail us. But it would make Wallstreet and The MultiNationals wish they had Diapered up before leaving home.
sj - Tuesday November 03, 2009 10:42AM EST
Way to go Mr. Black, expose the Financial Oligarchy and crony capitalism of the USA... Listen up folks, crisis began in 2006!!! These "yahoos", no pun intended, which include Geitner and Paulson, are using the USA taxpayer as the "piggy bank" of the financial oligarchy. This is worst than 1929... Greater Depression is imminent.
Whit Chambers - Tuesday November 03, 2009 10:43AM EST
Hey, Black - is not the government involved in more corruption and the fundamental reason the free market "failed"? Why does government promote such credit malfeasance and ponzi pension schemes?
__A_YAHOO_USER__ - Tuesday November 03, 2009 10:43AM EST
Did anyone actually believe Congress would do anything?
Leo - Tuesday November 03, 2009 10:44AM EST
"Popoy - Tuesday November 03, 2009 10:29AM EST ALL BAD NEWS IS HISTORY.... A BETTER TIMES AHEAD....GOOD LUCK...."--------------Popoy, my friend, what parallel universe do you live in? Better times are ahead when our government is acting and spending like a banana republic and the Fed is acting far outside of any constitutional authority? Our "leaders" from both major parties are attempting to make the American people a herd of codependent ninies, and good percentage of us are cooperating. I predict dire times ahead if we don't change course pretty soon.
william - Tuesday November 03, 2009 10:46AM EST
hi y'all my name is Dick... and I am one.. by the way I am an unemployed, educated dick who has nothing good or intelligent to say... so I will continue to live the miserable life I was destined to fulfill...
- Tuesday November 03, 2009 10:48AM EST
Too big to fail = Too big to exist, the math isn't too hard on this. Why is it so hard for politicians to get?
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Tom - Tuesday November 03, 2009 10:31AM EST
No one gets it? Its' easy to understand if you have a basic understanding of Persian and Chinese history. The United States is being forced by our existing hydrocarbon usage to implement a caste system. In a caste system, there is no banking system, no university system, and no medical system. We are actively eliminating our middle class to maintain the wealth of our aristocracy. It is what the Persians and Chinese did to the Indian subcontinent in the 17th and 18th centuries.