GeminiAtlas

Is This the End of 'Too Big to Fail'?

Not sure why Congress likes to make big complicated to police regulatory schemes (and too easily gamed) that will in all likelihood fail to prduce the desired outcome. Unless of course, failure to regulate IS the real desired outcome. Given the current campaign finance structure, it would not take too long to figure out why...

In any case, if they are too big to fail, it means they are too big, period. Accordingly they would need to be charged a risk premium to be "too big to fail" as right now they are free-riding the risk to the taxpayers. Since the congress is so keen on "progressive" tax schemes, then maybe it can be progressive in leverage ratios (fat chance). in that regard, the risk premium to be paid would be in reigned-in lending ratios. Basically, the bigger you are as a bank, the more conservative the lending ratio you are allowed. So the huge mega-banks are required to be 10-to-1 or something like that, and the smaller regional banks can be allowed a higher ratio, since if they fail, it is not systemically risky as if Citi were to founder. Of course, one might suppose that the big banks might try to make riskier loans to make more money under such a regime. But that would happen anyways, much better bad loans at 10:1 then 30:1. On another note, under such a scheme, maybe the big banks would be "encouraged" to spin-off/sell-off disparate operations/portfolios into different smaller companies in order to shrink themselves and be able to lend at higher ratios again.

The Road to Economic Hell

Many of you are saying capitalist but the more proper term would be "cronyist." You rant against the "greedy" capitalists "stealing" and buying off politicians, etc, etc. Since when is that capitalism? If you can't get the definitions right then arguing about socialism vs. communism vs. capitalism vs. anarchy etc. will be pointless. Cronyism exists in all human systems to some degree. When you rant about the policy decisions of the politicians (which are certainly idiotic since they almost never seem to account for the law of unintended consequences) and call that capitalism, you are quite mistaken. When big business rent-seeks (to get tax breaks or subsidies or pork or whatever) congress to make more regulations(which only a team of lawyers can decipher) that install barriers to entry to the usually smaller and more innovative companies, that is anti-capitalist, not capitalist. Sure they are doing it to keep the profits going for themselves, but it doesn't do big business favors in the long run. The decrease in competition as a result of rent-seeking makes them stagnate, atrophy, then grow to depend on the government for help.

Lehman's CDS Mess: Who's on the Hook?

So what happens when the Gov't comes to the rescue of the banks which might have to payout on 21 Oct? Mr. Paulson will recapitalize the banks (to keep them from imploding), but that new capital will go immediately to pay off the CDS "winners." And there the gov't (and taxpayers) will be holding the bag of loser banks which would be fairly anemic due to the payouts. I would hope the winners will gladly lend to the losers some more cash, but for a high interest rates. I hope the players don't see the opporunity for "risk mitigation by giving it to the government." Then there could be rush by the players to put the whole exposure on the government which will kick the can down the road to a worse day of reckoning.
Also, PrudentMan, a term more appropriate for the power brokers would be cronyistic. Capitilistic=free market,