And Hoenig has my vote too, but what’s really odd is how few of our most eminent economic and financial leaders are in this camp.
Recently, I was very surprised when I watched the KCRW broadcast of a presentation by Alex Blumberg and Adam Davidson, hosts of an excellent series of shows on this crisis. They understand all the fraud, and the overindebtedness, and all that, but yet they sounded convinced of the “too big to fail” mantra.
When asked why, they lapsed into “end of the world” cliches. I still don’t understand why you can’t announce a failure with full guarantees of all depositors and counterparties. That would avoid a run. You’d have to identify up front all the banks that would be saved, to avoid them collapsing in a bank run. But that’s not so hard. Just identify the weakest 6 of the top 19 banks, and announce all at once that they will be wound down over some time, and the others will survive. It’s the big bang method, but sometimes that’s the right way.
And then legislate that “if you’re too big to fail, you’re too big to exist” for the long-term future.
I think some very smart and interested people have convinced some slightly less smart and less interested people of TBTF, and they in turn are convincing not very smart and not so interested people. It’s been a very successful strategy, but we, the dumb public, can ask directly what alternatives to TBTF have been pursued, and what exactly they are, and what the killer problems are. It wouldn’t shock me if that would show us all that the killer problems could be solved. Some people don’t want them solved.
