Thursday, July 19, 2012

Too Big To Fail Is Too Big To Exist

The title of this post is taken from Simon Johnson's excellent blog article. Professor Johnson sums up the current situation regarding the Libor rate fixing, U. S. banks probable culpability and the role of U.S. regulators.

Now here is a quote, that if nothing else, justifies breaking up these too big to fail banks:  "One argument now being advanced from some financial circles against large fines for the banks involved is that this would reduce their shareholder capital enough to constitute a risk to the financial system."
 Really? Why should investors pay for the malfeasance of criminals that they had no awareness of nor control over? That's the CEO's and Board of Directors authority. Excuse me, but why not take their money and bonuses? This is the same old 'sky is falling' rhetoric used by big business along with government regulations are 'job killing'. No, what is job killing is the increasingly declining trust of investors in financial institutions. 
Professor Johnson quoting Dennis Kellehr of Better Markets, “Slapping handcuffs on these traders has to be the next step,” adding, “Handcuffs, squeeze them, handcuffs, squeeze them and move up the chain.” Mr. Kelleher continued, “This is an open and shut case” and “this is egregious criminal conduct.”

Source: New York Times, Business Day, Economix Blog, "The Federal Reserve and the Libor Scandal, by Simon Johnson, July 19, 2012.

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