Thread: Dodd Frank & Bank Regulations.

Certainly they deserved to lose their shirts, but the "they" are almost always not individuals. "They" are companies, retirement funds, investors, and other financial institutions. If "they" lose their shirts, then they could go under too. And who owns them? Companies, retirement funds, investors, and other financial institutions. And so on. If they original bank is BIG, then there are too many "they"s.

Unfortunately, in this case, there is a difference between what is deserved and what can be tolerated. Things got so bad in Sep 08, that all lending markets almost seized up. That included the short term lines of credit that are needed for any business of any size to operate on a daily basis. If that had stopped, then business would have stopped. If that happened, an already shaky confidence in the system would have been out the window. Restarting that would have been WAAY more expensive, if ever. The whole system is just so interwoven.

We really need to revert back to a GS type system. Unfortunately, that isn't going to happen.

Originally Posted by CivilWars

If the original owners are pushing their company to invest in toxic products then they deserve to lose their shirts. If the government has the money, which obviously they don't, to prop up mega-banks then do it for the new owners, not the ones that put the company, and possibly the nation, in jeopardy in the first place.

Not sure I'm getting your point. This is exactly what the Gov't bailout did, they gave support to deals whereby the 'good' banks bought the 'bad' banks. That support came mainly in the form of actual cash injection into the "good" banks, along with taking some if not all the bad loans on the books of the 'bad' banks.

The real issue though is that they were in fact all guilty of the hubris that lead to the '08 financial collapse. The Gov't let Lehman go into bankruptcy, then had the ultimate "OH SHIT" moment when they saw the ripples it caused in the debt swaps and derivatives markets, then there was AIG insuring all these same investments. That was when Plan B - and too big to fail came into play. And like it or not politically, the plan worked and averted a great depression. Yes we are still in the shit from it - but it could have been much much worse.

Originally Posted by dreaddman

We really need to revert back to a GS type system. Unfortunately, that isn't going to happen.

It would certainly be difficult - especially considering part of the solution was to allow Investment Banks to become Commercial Banks again. One of the pillars of GS was to separate Investment and Commercial banking.

Originally Posted by iravedic

Not sure I'm getting your point. This is exactly what the Gov't bailout did, they gave support to deals whereby the 'good' banks bought the 'bad' banks. That support came mainly in the form of actual cash injection into the "good" banks, along with taking some if not all the bad loans on the books of the 'bad' banks.

The real issue though is that they were in fact all guilty of the hubris that lead to the '08 financial collapse. The Gov't let Lehman go into bankruptcy, then had the ultimate "OH SHIT" moment when they saw the ripples it caused in the debt swaps and derivatives markets, then there was AIG insuring all these same investments. That was when Plan B - and too big to fail came into play. And like it or not politically, the plan worked and averted a great depression. Yes we are still in the shit from it - but it could have been much much worse.

We(not you and I specifically) have had this debate before on these forums. The government is one minute screaming that banks/companies are too big to fail, and need to be broken up, while the next minute giving money to mega-banks to get even larger. It's just more political double-talk. They create the monster, then deride it when they can no longer control it.

Originally Posted by iravedic

The Gov't let Lehman go into bankruptcy, then had the ultimate "OH SHIT" moment when they saw the ripples it caused in the debt swaps and derivatives markets, then there was AIG insuring all these same investments.

Oops, that's right. Bear Sterns was just the appetizer for the meltdown.

Originally Posted by CivilWars

We(not you and I specifically) have had this debate before on these forums. The government is one minute screaming that banks/companies are too big to fail, and need to be broken up, while the next minute giving money to mega-banks to get even larger. It's just more political double-talk. They create the monster, then deride it when they can no longer control it.

I hear ya - but the events that lead-up to the crisis were decades in the making, spanning multiple presidents and congresses. The Bush treasury and Henry Paulson initially approached it as a stern father figure - and let Lehman go down, then what were they to do? Let the entire financial world coming splitting apart?

We likely won't know the answer to that for more decades. Have we truly solved the problem, or just shifted it somewhere else where it will pop up again at a later date? Sure, we saved some banks and a few other companies that were "too big to fail", but now our government is crumbling under a mountain of debt that nobody on this planet has a remotely realistic idea how we are going to get out of.