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Washington Post's Narrow Thinking on Too Big to Fail
The Washington Post's editors apparently never heard of Paul Volcker, Alan Greenspan, or Sheila Bair. How else can can one explain an editorial on dealing with "too big to fail" banks that never once mentions the solution proposed by them and thousands of others -- break them up. Could the Post's editors really be unaware of the prominent group of current and former financial officials who have argued that the only way to effectively rein in too big to fail institutions is to whittle them down to a size where they are not too big to fail?
The Post also repeats without comment the illogical claim that the proposal to tax big banks after the fact to cover the failure of one of their brethren will provide incentives for good behavior. How? If a bank is behaving well, but incompetent regulators (are there any other kind?) allow a rogue bank to behave irresponsibly, then they get stuck with the tab under this proposal. Of course the rogue bank won't care. They will be out of business and won't have to worry about the tax. Where are the incentives here?
Don't the Post's editors think at all before they write one of these things?
--Dean Baker
COMMENTS (14)
I can't stand the WaPo, but I think attributing Tim Geithner's plan to pay in higher taxes after a big failure should be attributed to him. On the other hand, the WaPo should call BS when they see it and apparently they didn't.
And since the article mentions Volcker and Bair specifically, I have to say this blog post seems a little unhinged. Yes, the WaPo doesn't seem to have anti-trust actions brought upon these to big to fail financial institutions, but that isn't the same as two solutions they list from Volcker and Bair.
Volcker to separate banking from investment, which would have some anti trust elements, but not enough in my mind.
Bair says they should regulate and tax, more premiums like FDIC, these large institutions before they fail, so that the bad bank pays too. I don't see that is anti-trust, but they are listing some of her solutions.
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