Recently I posted a blog titled Too Big to Fail = to Big to Exist. Today’s Homework is an op-ed in the New York Times written by Paul Volker. Obama appointed Volker to his economic advisory team because of his 60 years as a commercial lender, policy maker, and even as chairman of the Federal Reserve.
He says “The phrase ‘too big to fail’ has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times.”
He then goes on to explain that economies need banks to provide certain functions:
· Safe place to deposit cash but where it is still easy to get when needed;
· Credit for businesses and people.
After describing why we need banks, he describes how “bank capital [placed] at risk in the search of speculative profit rather than in response to customer needs” is a danger to economic systems world-wide.
And then he says if a bank is too big to fail it is too big to exist, only he uses different words. He asks for a new “resolution authority” that would be authorized to intervene when a mega-bank is about to fail. This “resolution authority” would not protect stockholders and management. Nor would it protect other banks or people who had loaned money to the mega-bank.
Volker says, “To put it simply, in no sense would these capital market institutions be deemed ‘too big to fail.’ What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.
I’m glad Obama is listening to Volker.
Homework: http://www.nytimes.com/2010/01/31/opinion/31volcker.html?
He says “The phrase ‘too big to fail’ has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times.”
He then goes on to explain that economies need banks to provide certain functions:
· Safe place to deposit cash but where it is still easy to get when needed;
· Credit for businesses and people.
After describing why we need banks, he describes how “bank capital [placed] at risk in the search of speculative profit rather than in response to customer needs” is a danger to economic systems world-wide.
And then he says if a bank is too big to fail it is too big to exist, only he uses different words. He asks for a new “resolution authority” that would be authorized to intervene when a mega-bank is about to fail. This “resolution authority” would not protect stockholders and management. Nor would it protect other banks or people who had loaned money to the mega-bank.
Volker says, “To put it simply, in no sense would these capital market institutions be deemed ‘too big to fail.’ What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.
I’m glad Obama is listening to Volker.
Homework: http://www.nytimes.com/2010/01/31/opinion/31volcker.html?
RSS Feed