Tony Petroski

Too Big to Fail vs. Too Political to Regulate

I'm in the cut down the Too-Big-to-Fail camp, also known as the Bull Moose party, because time and again, the Too-Political-to-Regulate path doesn't work. The regulated capture the regulators and it leads to corruption of the political process along with the very failures the regulators are supposed to prevent.

The author recalls Continental Illinois.

I recall Chrysler in the mid-70's. The same arguments were made in favor of a bailout for them at that time. I remember (and have to laugh) at the amounts involved. $600 million was given as the figure sought by Chrysler to save their business.

I argued at the time (when I was in knee pants) that 1) There is no constitutional provision for the federal government to tax one citizen in order to take his money to give it to another. 2) Giving $600 million to Chrysler prevented banks from lending that $600 million to businesses with more promising prospects. 3) Chrysler's failure wouldn't be the disaster it was portrayed: Ford and GM would be comparatively stronger and the two could purchase up whatever assets they could use along with employing a portion of the laid-off Chrysler workers and the overall business of making American cars would be stronger although the medicine would be bitter in the short-run.

We know what happened: The political pressure to bail out Chrysler was too much. Chrysler got their bailout. Lee Iacocca became famous (although he was never able to parlay his fame into political power) and the Chrysler bailout entered the lore as a great success.

Now we know the next chapter of the Chrysler story. A second bailout, this time along with GM, amounts that dwarf $600 million, the institution of Tsars for the first time outside of Russia, and a still-bloated auto system that will drag on the economy for many years to come. The same arguments apply to all businesses, not just banks that are TBTF.

Too-Big-to-Fail doesn't mean that we have to kill all the birds so as to catch the few with swine flu. It means we have to make sure the flocks don't get so large that they block out the sun, and the smaller flocks can still fly (hopefully not all of them to China and Brazil).

Expect a Near-Term Setback in Real Estate

From the article:

"If the then pending expiration of First-Time Homebuyer tax incentive (before its renewal) and the push of real estate and tax agents to help sales along, helped to drive home purchase activity ahead of the decline begun in early October, then perhaps significant demand has been pushed forward."

Quite so. And the seasonal nature of the market means that we are entering a slow period.

The interesting question is, after April 30th 2010 (why should buyers think that this is the last subsidy?) how will the market respond.

Interest rates are as low as they go outside of Japan.

Good article Mr. Kaminis.

10 Reasons to Believe That We're in a Depression

Mr. Clark: Entertaining article.

"However, in the 21st century, cheap land, cheap labor and a younger demographic profile, suggests that in 20 years, the reins of power will be in the adolescent hands of a rapidly growing Asia."

Maybe. But they don't have cheap land, and their labor is getting more expensive, and they don't have a democratic means of transferring power.

The 21st Century is just getting started. The U.S. hasn't gone the way of Rome yet and we're in the Age of Obama.

We have more to contribute than military security (see how things go when the Pax Americana is spoiled) and entertainment. We have football, and the world will give up soccer once they see the alternative.

CIT Group: Taxpayers' Investment Is Virtually Worthless

Professor Wilson has spoken the truth.

Bury this enterprise, check your wallet to see if there's anything left (I suspect there is), and let's get on to the next subsidy.

Britain Moves on Too Big to Fail

"The U.K.’s top treasury official Sunday said the government is starting a process to rebuild the country’s banking system..."

"this is huge news."

Indeed, it is.

Tell us who the "top treasury official" is and get started on the book that will tell us the rest.

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

Let's suppose this proposed change had been in place in 2008. Are we saying that the government would not rush in to bail out the too-big-to-fail institutions but would instead say: "Goldman, we're assessing you 2.5 billion as Lehman is now underwater"?

This proposal is even less likely to be implemented than the idea of letting the Lehmans of the world fail while doing nothing to shore up the remaining (now weakened) institutions. There's no substitute for breaking up these institutions ATT style to an asset size of less than 10 billion or another reasonable standard, whichever is less.

Senator Dodd Is Trying to Save Lenders from Themselves

From the article:

"Senator Dodd is not just helping borrowers out: he is saving the banking lobby from itself."

Senator Dodd is not helping borrowers out. First he helped himself to all the perks he could grab including favors from financial institutions that are under his purview, now he's trying to stay in office by buying votes.

It won't work, the Kennedy/Dodd axis is finished.

Long or Short the Financials?

Long, then short.

David Einhorn: Break Up Too Big to Fail Institutions

From the article:

"As I see it, there are two basic problems in how we have designed our government."

Forgive me, but when did that pipsqueak design anything?

Ultimately, Who Benefits from Too-Big-To-Fail

Good article Mr. Chokshi.

"However, with billions of taxpayer dollars directly supporting these operations along with potentially trillions in implicit guarantees/backstops, it appears that preserving these types of institutions is the real economic risk."

Let's get on with the job of breaking up the "too big to fail" institutions. Why do we hesitate?

Why Is the Chamber of Commerce Defending Big Banks?

If you're going to write an article like this, at least venture an opinion on the main topic, "Why is the Chamber of Commerce Defending Big Banks?"

As for the "Consumer Protection Agency," any small businessman knows that this proposed agency will not protect any consumers, morph into a parking place for out-of-work Democratic politicians and their camp followers and will eventually turn on small business with ever more regulations and paperwork.

Notable Market Action: October 13, 2009

From the article:

"Meredith Whitney downgrades shares of Goldman Sachs (GS) from buy to neutral with a $186 price target.

Goldman Sachs downgrades Meredith Whitney after her 15 minutes of fame run out."

Very funny Mr. Capitalist.

I'm used to seeing: "Citigroup just upgraded J.P. Morgan Chase. from sell to neutral. JPM just upgraded Citigroup from underperform to market perform."

The Problem with Smart Bankers

From Mr. Salmon:

"Maybe in future they’ll be more suspicious of things they don’t really understand, but I’m not holding my breath. That’s what regulators are for."

Maybe in the future the pack of Northeast liberals who dominate the establishment media will "be more suspicious" before they remain locked to the Democratic party and the likes of smart fellas like Summers, Rubin, Geithner and while were at it, Obama.

Debunking the 'Too Big to Fail' Myth Once and for All

Summarizing the article: Geithner and the Obama administration has used loopholes to funnel money to the too-big-to-fail institutions. They could certainly find some loopholes (besides using good-old antitrust laws) to break up the institutions.

Pass some fresh legislation and do things by the rule of law.

Regulation won't work because of "regulatory capture" by the industries.

Legislation won't get anywhere because, in your lengthy article, you didn't find the space to write the obvious: Wall St. is a place to park yourself if you are a Democrat (and a few Republicans) out of office and awaiting your next turn. You get wealthy by providing cover for the Wall St. firms, and then once your party is back in power, you can resume your service to the public.

Fannie and Freddie serve similar purposes.

Too Big to Fail - Everyone but Washington Knows What Needs to be Done

Mr. Harrison:

"Last week I was at the Clinton Global Initiative Annual Meeting to listen to their ideas on how to solve some of the world’s most pressing problems like poverty and education. I may have more to say about this topic in a later post,"

You have to be kidding. Clinton Global Initiative?

I await your missives on poverty and education.