Comments on: Systemic Risk | Was Lehman Brothers too big to exist?

By: Bank Nationalisation must follow failure to meet stress test for solvency « The Bankwatch

Wed, 04 Mar 2009 08:54:52 +0000

[...] is not necessarily feasible or acceptable to have them taken over by each other. We get into the too big to exist problem that could forsee further crises in the future. There are 19 banks undergoing stress [...]

By: Colin

Colin — Wed, 25 Feb 2009 01:34:19 +0000

I understand the sentiments expressed, but i have one question – define risk taking? Define the estimate of risk that society will accept in a company before the impact of that company is such that society is affected?

I am as (more) capitalists that anyone, but I see a potential here that capitalists even don’t understand.

Thoughts?

By: Broox Peterson

Broox Peterson — Tue, 24 Feb 2009 15:19:17 +0000

Size matters if it is true that what can go wrong will go wrong (regardless of all too human attempts to “regulate”), and the financial industry is so concentrated that there is no viable option except a taxpayer bailout. I wish economists would start investigating the constraints of size instead of simply touting the doctrine of “bigger is better”. The antitrust laws were enacted in the late 1800′s on evidence that too much concentration is harmful to competition. I submit that we have evidence now that financial concentration creates excessive and unnecessary systemic risk.

By: Credit Union Warrior

Credit Union Warrior — Tue, 24 Feb 2009 13:49:48 +0000

Where we get into trouble is when we start mis-defining the problem. Size had nothing to do with this mess. Over-leveraging, risk-taking, overly complex investments, irrational prospecting, and questionable oversight had much more to do with the financial meltdown than the size of any bank, be it investment bank or retail bank. “Too big to fail” was a judgement made by the exact same people who allowed this credit crisis to take shape. In actuality, I believe our solutions have become the crisis…much more so than simply letting the free market punish failure and reward success.

Don’t punish growth…just make sure that said growth isn’t an artificial by-product of unbridled risk-taking. That’s where we failed. Limiting an organization’s ability to grow is the wrong solution to the wrong problem. Instead, limit how leveraged a company can become. Make sure ratings agencies know what they’re doing before they can issue a judgement on any investment. Make sure that our monetary policies are rational.