If you are demanding fixing “Too big to fail” you are asking somebody to keep financial institutions artificially small.
Look at it this way, we have 20 widget making companies, everybody needs one for everyday life.
And they all have about the same market share, nobody with more than 10%. So if one widget maker goes down, there’s a disruption in the marketplace but it evens out pretty quickly.
Now let’s assume WorldWideWidgets has great management, and take 12% of the market through superior widgets, marketing, distribution. Flushed with cash, they look around for opportunities, they decide to stick with what they know and buy a few smaller Widget makers. With the acquisitions they grow to 25% of the market.
These moves don’t go unnoticed by their rivals. GlobalWidgets & U.S. Widgets realize they have to do something, so they merge and take 20% of the Market.
This freaks out the National Widget Company and makes a move of buying up whoever is left, leveraging themselves to the hilt. National ends up with 25% of the market as well.
Has any company done anything wrong? No. National has the most risk, but sometimes in business you need to take a risk to succeed.
So now let’s assume, a perfect storm, Both National & WorldWide screw the pooch and go belly up fast, like announce they’ll be shutting down within two months. 50% of the suppliers vanish. For the remaining companies to increase production to meet those needs will take about a year. Without the widgets, there will be rioting in the streets. There will be panic.
Should the government step in now to keep the companies afloat until the widget production can be stabilized?
Or would it have been better for the government to say no to WorldWide initial attempts to dominate the market through acquisitions? And force WorldWide to either invest in other sectors or return their profits to their shareholders. Or do we limit the amount of Debt that US Widgets can take on?
Or are you willing to take your chances in the great Widget Panic of 2010?
Look, I agree with Nicole Gelinas. How do you reduce the size of banks? You saw her video, tell me what she said. She wants to go revisit the deregulation fad of the last 30 years and find out where we went too far and go back to re-regulation. I want that as well.
The goal for any new regulation needs to accomplish the following.
1) More Financial institutions
2) Smaller Financial institutions
How do we accomplish that? What has worked in the past was government regulation.
I never advocated ‘no regulation’ and neither do most conservatives that I know. What we don’t want is more progressive,keynesian,Krugman,big government solutions that have never worked, have made things worse and never will work in the future. We certainly don’t want another 2500 page bill, written in the dark of night, by the same progressives that have destroyed our economy and set us on the path to a fascist fiscal future. And we certainly don’t want it rammed down our throats with no real debate the way Obama and the dems did with the health care bill.
Celinas aruges(if I understand her right)that sensible borrowing limits will take care of the leverage problem in and of itself and that her other solutions, if implemented across the board, will tend to dampen down the need for excessive anti-trust regulations or the need to break up big banks. The banks will never become too big to fail in the first place nor pose a systemic risk to the entire economy if they do fail. They will downsize to fit the new market realities,capital requirements and lending restrictions. What Obama wants to do is beyond even FDR’s wildest progressive dreams.....LOL. Obama’s plan is true crony capitalism and fascism.