If this turns out to be true, it could be vey encouraging:

“They are the biggest of the big — the Citigroups, the Goldman Sachses, the AIGs and other financial behemoths. The Obama administration doesn’t want so many around anymore. Financial regulations proposed by the president would result in leaner and simpler institutions that don’t carry the weight of the system on their marble columns.

Around Washington and Wall Street they have come to be known as TBTF — too big to fail. It’s not just size, though. These companies are so far-flung, so intertwined and so precariously leveraged that a single one’s collapse can create systemwide tremors that imperil the finances of millions of Americans.

With that fear in mind, the government stepped in to bail out Citigroup Inc., Bank of America Corp. and American International Group Inc. with tens of billions of public money last year. Looking to avoid such a costly intervention, President Barack Obama’s regulatory plan calls for large, interconnected companies to pay a heavy price for the systemwide risk they pose.”

I’ll believe it when I see it . . .


Administration plans for end of ‘too big to fail’
Megabanks may be slimmed down, told to prepare plans for own demise
Associated Press, July 5, 2009


Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “The End of Too Big to Fail ?”

  1. Ducky62 says:

    “we’ve always been at war with Eastasia”

  2. investorinpa says:

    Sounds more like a way to discourage any of the top 11-25 banks from entering into the top 10 more than anything else.

    Not sure if anyone else noticed, but the FDIC closed 7 banks this weekend…SEVEN!! Terrible!

  3. Steve Barry says:

    Here’s my 2 cents…take all the banking functions that are absolutely required for the financial system to function (mortgages, consumer deposits, insurance, credit cards, etc.) and regulate them like utilities. There will be several large institutions and they will have a guaranteed rate of return and will be highly regulated. They will not do anything crazy and must provide universal services to all. Take other functions such as investment banking, M/A, private equity and keep them separate and lean. These companies will not be allowed to grow TBTF. They will need to be highly competitive to survive. If they fail, too bad.

  4. alfred e says:

    @BR: “I’ll believe it when I see it”

    I’m with you on that one.

    Damage control? Interesting. Taibbi’s article may have gotten more play than he realizes.

    But other things are adding up as well. The unemployment report was a bomb. And the velocity of stimulus money is ZERO.

    BS Obama is trying to stay above the fray and keep his hands clean, but there’s a growing consensus that “Change you can believe in” is “business as usual”.


  5. tbapple says:

    Hey Barry et all.,

    I agree with S.B., above, and most of Goldman doesn’t fit the new bank business model. At least not the guys and gals making eight figures.

  6. Pat G. says:

    “I’ll believe it when I see it . . .”

    Absolutely agree!

    “These companies are so far-flung, so intertwined ”

    Intertwined with world governments, their policies and their politicians ($$$). Ain’t happening… Me thinks this is more about jawboning foreign holders of our debt into thinking that the USG has somehow seen the light or got religion about their ways, so they won’t be hesitant to gobble up some more. It’s a head fake.

  7. batmando says:

    @ SB
    Uh-yuh, been saying the same thing (to) myself for a while now.
    Tony Blankley on Left Right & Center this morning trotted out the chestnut that the “need” for the repeal of Glass-Steagall was so that U.S. financial institutions would stay competitive against Euro-banks et.al. and re-regulating U.S. institutions now could hamstring them against the new Asian financial giant(s).
    He conveniently failed to observe that those Euro-banks have taken hits every bit as bad as their U.S. competitors, all the “profits” the U.S. firms made in the brave new post-Glass-Steagall area have evaporated, and their sh8t trail is mortgaging the futures of me, my daughter and her kids.
    Totally agree, our banking should be as strait-laced as the Canadian banks and let IBs, M/A and PE roll dice for their own accounts only.
    I’m not holding my breath though for O’s boys (Summers et al) let the chips fall where they may.

  8. JasRas says:

    Hmm, What I read is just short of the end… The end would entail first asking these companies for the dismantling plans and then acting on them immediately instead of waiting for yet another inevitable failure. I am a bit disappointed with the whole “bank regulatory stuff”. We do not need more regulations that are not enforced, we need enforcement of existing rules which means hiring people to do this enforcement. More regulations only serve the politicians and their self-edification. It makes them feel like they “did something”… I have a feeling there are some very qualified people on the streets that once worked for Wall Street and would now make excellent enforcers.

    Sadly, the same holds true for healthcare. What I see is a moving of costs from the private ledger to the public ledger and very little address the system and the costs. Some very effective things could be done to improve healthcare without screwing the system up. Strong nudges in some things like the makeup of the doctor population. Jawboning about preventive care means nothing if you do not incent future docs to go in to general medicine and family practice. We have a system that rewards specialization. Specialization makes a good living while the family doc we have a romantic notion of is only making 5 figures… It’s a nice talking point, but without scholarships, tax incentives, and some medicare, medicaid changes, you have nothing.

    And what about calling a bad idea, a bad idea? Public health insurance companies???!! Motivated by “growing earnings” to keep Wall Street happy. GEEE, do you thing that might impact the system in several ways? Premium costs? Docs getting paid on a timely basis? They aren’t blind to how the companies drag their feet at the end of the quarter….do you think there’s a reason to drag feet on paying out that huge float?? Hmmmm. These companies need to be re-Mutualized so that their focus is on their mutual shareholders, which are the policyholders. This one simple act could fix more problems that all the proposed crap in D.C.

    How about requiring companies of a certain size to have their own Med-check facilities and bear the costs? Ahemm…..Wal-Mart?? How ’bout steppin’ up to that one?

    What about lengthening the patent on truly novel drugs that help with the human condition and not just ED? Long patents for disease drugs, shorter for frivolous drugs? Do you think that might incent the pharmas? How about a sliding scale on the patent based on the benefit to the population and how the drug is priced? More affordable gets a longer patent, less gets less…

    How about some directives from the FDA? Some challenges like what we saw in the effort to encourage private space flight? Certain highlighted cures that the FDA will issue “PREMIUM protections”…

    How about using the IRS to incent people to get active? Deductions for YMCA/fitness memberships, deductions for kid’s sport fees (since public schools are shifting more and more of this to the private arena), tax incentives to businesses that have facilities for their employees….

    Look, none of this stuff is hard. A little thinking outside the box, a little thinking about carrot/stick relationships, using multiple govt agencies to direct an agenda….focus groups without lobbyists and money involved… Real people who live the system every day.

    The banks are screwed. C, BAC, JPM, WFC, etc need dismantled now. Their existence in the current state is a detriment to thousands of good little banks all over the nation… Even dinosaurs got right sized before they were annihilated by a comet. The largest dinos were not in the final period, but the prior one. Evolution figured out they were too big… let’s hope we can figure it out too.

  9. Thor says:

    Let’s at least give BO the benefit of the doubt. You must all admit, that the administration to even announce this took us a bit by surprise. I certainly wasn’t expecting it, were any of you? Yes, we should all still remain skeptical given what we’ve seen from the administration so far, but let’s at least give them a little bit of credit for even suggesting it.

    [BR: Yes, but its terribly late — and as the crisis has settled down, the odds of a substantial legislation getting passed without major lobbying effort to waterit down]

    Also, perhaps the MSM is finally wising up to the fact that the economy isn’t really getting better. See below

    A second half recovery is suddenly not a sure thing

    [BR: This was in the Weekend Linkfest]

  10. Thor,

    you mean, after U$D ~12 Trillion of Bailouts, it’s a good time for them(44′s admin.) to be jawboning, and for us to “give them a little credit for it”?

    and, the MSM wising up? Hello, the second-half is Here.

    hard to keep up the ‘Sunny’ forecasts, when peep are looking for Noah’s plans..

    2Q ‘earnings’ are coming in soft, the “1H ’10 is the green patch” BS will start soon thereafter..

  11. james hogan says:

    @ FrancoisT:

    The story in the link you provided would make one helluva movie.

  12. danm says:

    Nothing will be done until we reach part 2 of the credit crisis.

    Things are still looking too stable now for government to do anything drastic.

  13. Bruce in Tn says:


    I am content with the economics of the thing…Obama was elected and I suppose the plan to stop a deleveraging populace was well thought out…big banks were saved and here is where we are.

    But, this week, Obama meets with the Russians…let me let you read something:

    All three leaders were trying to establish an agenda for governing post-war Germany. Churchill’s Soviet policy differed vastly from that of Roosevelt, with the former believing Stalin to be a “devil”-like tyrant leading a vile system.[1] In 1943, U.S. Ambassador to the Soviet Union William Christian Bullitt, Jr.’s thesis prophesied the “flow of the Red amoeba into Europe”. Roosevelt responded to Bullitt, Jr. with a statement summarizing his rationale for war time relations with Stalin:[2]

    I just have a hunch that Stalin is not that kind of a man. . . . I think that if I give him everything I possibly can and ask for nothing from him in return, noblesse oblige, he won’t try to annex anything and will work with me for a world of democracy and peace. ”
    —Franklin D. Roosevelt, 1943

    ….I know FDR is Obama’s hero, but he seems so inexperienced and I am concerned Putin is going to take real advantage here…Stalin got Roosevelt to agree to 50 years of communism for Eastern Europe, and we won’t hear what is brokered this week…

  14. matt says:

    “I’ll believe it when I see it . . .”

    If I see it, I’ll know that someone put something in my drink.

  15. [...] We are seeing belated glimmers of understanding of the credit crisis from the White House. Still nothing on the Ratings Agencies, and Glass Steagall, and too little on Derivatives and leverage, but at least there seems to be some recognition on TBTF (see The End of Too Big to Fail ?). [...]

  16. call me ahab says:

    I saw this story- and it had me wondering- why now? Why wasn’t this postulated months ago- PR possibly? I wonder how much will come of it

  17. Onlooker from Troy says:

    I agree with the skeptical outlook on this. Sounds like posturing to assuage the critics and foreign govts. I agree with SB re: banks being utilities. But you know they’ll fight tooth and nail to keep that from happening. They just can’t stand the thought of not having their hands on all that capital to play with and lever up.

  18. flipspiceland says:

    Only one thing wrong with Obama’s programs, ideas, and thinking:

    If it isn’t in Congress’ interest, he can stuff them.

    The few at the senior positions in the Senate are royalty and THEY will decide what gets done and what doesn’t.

    How do you think Paulson got away with his Trillion dollar giveaway to Golman Sucks, and the Chinese?

  19. DeDude says:

    They understand that you have to make change by getting the incentives right. That is the kind of change that you can believe in (and that will work). Will it make it through the wall of congressional lobbyists and the last minute late night “change” in wording of bills – that remains to be seen. Give them an A for trying and lets see later what grade the democratic congress gets for succeeding.