dagblog - Comments for "Obama's Too Big to Fail Rules Too Late to Matter"

Thanks for that comment,

Deadman — Tue, 07 Jul 2009 06:32:00 +0000

Thanks for that comment, Matt, and welcome to dagblog, but i don't really buy that excuse about the government lacking legal authority to handle AIG for one second. The Fed/Treasury, in their attempt to combat the credit/mortgage crisis, have done all sorts of things that have had zero precedent and bordered on the 'do they have the authority' line? I do think that trying to allowing AIG to go bankrupt or even trying to take it into receivership and extricate it from all of its counterparty obligations and transactions would have been the straw that broke our credit system's back.

i agree that the rules being discussed by the obama admin seem eminently reasonable in that they don't outright ban financial companies of a certain size but are requiring a fair amount of added regulations and precautions to make it more unlikely a financial insitutition will find it profitable to get too big.

but like i said, if the system as a whole engages in dangerous speculation, it's very unlikely one or two large companies will be the main culprits.

Really, the reason the

Matt Osborne — Tue, 07 Jul 2009 05:19:28 +0000

In reply to Obama's Too Big to Fail Rules Too Late to Matter

Really, the reason the government couldn't allow AIG to die was that no legal authority existed to manage its bankruptcy. It wasn't a bank, so it didn't fall under FDIC rules. Moreover, the FDIC doesn't even have enough people today to cover the small and regional banks that are failing. So IMHO, the most significant thing about the report from AP is the idea that big financial institutions would have to prepare a kind of "last will and testament" to manage their assets in the event they fail.

Great post, D. The government

Michael Wolraich — Mon, 06 Jul 2009 23:13:23 +0000

In reply to Obama's Too Big to Fail Rules Too Late to Matter

Great post, D. The government being too big to fail is point is pithy. It's good to have you back on the economy watch.

Now that the immediate peril of complete financial collapse has lessened, I'm warming up to austerity measures. But how to do it? A health care program will inflict real cost, at least in the near term, so where can we get some savings? The Iraq withdrawal will help, but that will be offset by additional operations in Afghanistan. Repealing the Bush tax cuts is critical, and if the economy recovers, there will also be higher tax revenues. But I doubt that these changes will be sufficient to put the U.S. on a sound footing, especially as the baby boomers retire. The only two massive government programs besides health care are social security and the military. I suspect that either will be incredibly difficult to reduce for political reasons, as would raising additional taxes. So where does that leave us?

Second, what can we do to enforce future discipline? That is, even if Obama and Congress manage to reduce our debt a bit, how do we keep a future government (Republican or Democratic) from putting us right back where we started, as G.W. did after Clinton. It's nice to talk about changing our culture, but how does one go about it?