Not atypically, I start the morning with links from the indispensable Mark Thoma.
1. Steven Randy Waldman waxes Austro-Keynesian. Read the whole thing. His peroration:
It is not technocratic economists who will win the day and pull us out of our cul-de-sac, but angry Irishmen and Spaniards who challenge, on moral terms, the right of German bankers to impose vast deadweight costs on current activity because they lent greedily into what might easily have been recognized as a property and credit bubble.
Predicting the outcome of a contest between technocratic economists and angry citizens is difficult. That is why Simon Johnson has to hedge his bets on the outcome of the euro crisis.
More financial firms — with none too big to fail — would mean less concentrated financial power, less concentrated risk and better access and service for American businesses and the public. Even if they were substantially smaller, the largest firms could continue to meet any global financial demand either directly or through syndication.
Sounds like the head of the Federal Reserve Bank of Kansas City wants to Break up the Banks.
READER COMMENTS
WFSmith
Dec 2 2010 at 8:54am
Agreeing with Mr. Hoenig: smaller banks.
Taking the idea one step further, less federal control and more state regulation throughout the entire spectrum of decision making and legislation. Allow state legislatures to compete with eachother in the arena for social and economic issues. Diversify the process.
Floccina
Dec 2 2010 at 10:01am
Smaller banks would make bailouts tougher but I think that we should work on the feedback problems in banking first. I think the feedback problem is the main problem. Lately I have started to think that there are feedback problems for banks while property prices are rising not just when they are going down.
Alex J.
Dec 2 2010 at 10:20am
Many smaller banks aren’t better than a few big ones if the small ones all fail at the same time for the same reasons. One small bank failure is obviously less bad than one big bank failure, but if the small banks face the same incentives as the big banks, they will behave in the same way.
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