Is this a Samson for the Too Big To Fail institutions?

Michael Hirsh has an interesting column in Newsweek discussing the TBTF issue. He reports on the comments made by Ben Bernanke's economics mentor, Stanley Fischer.

What makes it so interesting is that Stanley Fischer is from within the TBTF institutions himself.

Fischer was not only Bernanke's teacher; he was also one of the preeminent economic officials of the '90s, the era of the "Washington consensus" bias in favor of deregulation. After leaving the IMF he became vice chairman of Citigroup—the corporate embodiment of the too-big-to-fail problem. So it was all the more remarkable to hear Fischer apparently jumping to the other side of the issue and chiding his former student at the annual Jackson Hole, Wyo., conference for central bankers last week. Fischer also seemed to take aim at his former allies from the deregulatory '90s, Larry Summers and Tim Geithner. "We seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis," said Fischer, who is now the governor of the Bank of Israel.

We have a free-market system dominated by institutions so huge and "systemically important" that they don't have to play by free-market rules. Excessive risk-taking is built into the system because bailouts are; the promise of the latter begets the former. And as The Washington Post reported Friday, the problem is getting worse rather than better: nurtured by government bailouts and a hands-off approach to their size, the biggest banks are getting even bigger and, therefore, harder to control. Both Bernanke and the Obama administration are acutely aware of this "moral hazard" problem and have sought to address it. But the biggest undercurrent of worry at Jackson Hole was that reform efforts were getting bogged down in political bickering... many at Jackson Hole talked about resistance on Capitol Hill, which is particularly susceptible to Wall Street lobbying.

Worth the read, and a letter to Obama and your legislators.

Since Guambat resides on Guam, he can't vote for President and has no Congressman nor Senator, he can only peck away at the keyboard and grumble.

Grumble, grumble.


Post Note:

Banks 'Too Big to Fail' Have Grown Even Bigger

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

"It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."