[quote=davelj]
And the biggest banks need to survive in some form, although I have no issue with wiping out all the common and preferred equity of these pigs.
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Why is it important for the biggest banks to survive? What essential service do they provide that we can’t live with out?
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I mean survive… for now. The only essential service they provide is that we’d have a financial panic if they were allowed to simply fail at once. (The impact of such a failure on all the various businesses that these banks serve is beyond imagination. Take Lehman and AIG and multiply by 20.) My suggestion is that once banks get larger than, say, $50 billion in size – that is, large enough to be a serious concern for The (Financial) System – we require them to hold larger and larger amounts of capital against their assets as they grow. So, for example, small community banks which pose no threat to the greater system would continue to operate under current capital restrictions (say 10 to 1 leverage on risk-based capital), but the largest banks would be required to carry twice as much capital (5 to 1). In other words, banks that are, indeed, “too big to fail” would have to carry enough capital (a boatload more than they carry now) such that the odds of failure would only occur in the event of an alien invasion.
