Here’s a list of biggest US Banks. Top 3 are:
- Bank of America
- JPMorgan Chase
- Citigroup
All have assets of approximately two trillion dollars.
These banks are companies that play with risk and reward. It’s simple math. If you add in the possibility of a bail-out by the U.S. government then the risk is significantly reduced for companies (such as these banks) that the government considers “too big to fail”.
Just like we enforce the break-up of monopolies, the regulatory power of the government needs to break up companies which are “too big to exist”. But more importantly, it needs to prevent the creation of new such companies through some regulatory mechanism such as a “too big to fail” tax. Tax “excessive” size. If you don’t like it, then the alternative is we have to let these giants fail, and suffer the consequences on the financial system. Period. Otherwise, the tax payer incentivizes “excessive” risk-taking.
Please let these giants fail. There is no way the country would have suffered as much as we have, nor as much as Henry Paulson forewarned.
It is difficult and costly to become politically connected. The politically connected get the best treatment by the political system. The biggest/richest corporations are in the best position to exploit their political connectedness. They will just leverage it to avoid measures such as the “too big to fail tax”. I say the next sentence as if we actually had a say in the matter: given the choice between the two options we should pick the option that would allow all companies to fail, to reintroduce real risk into decision-making.
Government essentially begins by shielding these giants from competition through elaborate barriers to market-entry of all shapes an sizes (allowing them to seize more market share than they otherwise would have, which of course makes them grow bigger than they otherwise would have…growth to the point of becoming too big to fail) and then their losses are socialized. And a proposed solution is “keeping the barriers to entry, continue socializing their losses, but tax them for reaching a certain size”? Wouldn’t it make more sense to remove the possibility of being bailed out and to systematically eliminate all state-created and state-maintained barriers to market entry?
If you were the only show in town you wouldn’t much care what your customers thought of how you invested their money. You were the only place where they could store it and beat inflation. As soon as you introduce one additional bank you suddenly will become very preoccupied with their operations because you want to offer at least as good of a deal as they are offering. With the removal of barriers to market entry you allow potential competitors to enter the market, making every market participant have to worry more still that they are offering the best deal.
I really like the fact that you recognize that the bail-outs make it so that the tax payer incentivizes excessive risk taking.
http://www.youtube.com/watch?v=QMMtKfzURtE
http://www.youtube.com/watch?v=MGnFwt645og