We are all learning that smaller is, if not beautiful to behold, a necessary downsizing of our lifestyles, aspirations and commitments. This is not economic fatalism, but just a return to rationalism. We can\u2019t live on borrowed money forever. Eventually, someone pays, likely our children.<\/p>\n
Throughout this economic crisis, we\u2019ve heard that the reason we had to bail out so many financial institutions is that they became \u201ctoo big to fail.\u201d Yet there is little talk about how we downsize financial entities so it doesn\u2019t happen again. Instead, and I must lay some of the blame on Tim Geitner<\/strike> Geithner, we\u2019re making them bigger.<\/p>\n
David Ignatius has a great column<\/a> this morning in The Washington Post about how instead of looking to FDR for inspiration, Obama needs to ask, \u201cWhat would TR do?\u201d<\/p>\n A case study for today’s regulators is President Theodore Roosevelt’s response to the financial shenanigans of 1902, when the railroad barons tried to combine the Great Northern and Northern Pacific lines into a huge holding company called Northern Securities Co. Roosevelt wanted to file an antitrust suit to stop the deal. The financiers threatened that the lawsuit would cause a panic on Wall Street, to which TR’s attorney general, Philander G. Knox, memorably replied: "There is no stock ticker at the Department of Justice." <\/p>\n When Roosevelt ignored the threats and moved to file the trustbusting suit, he received a hasty visit from J. Pierpont Morgan, the reigning financial titan. "If we have done anything wrong, send your man to my man and they can fix it up," offered Morgan. TR responded unflinchingly, "That can’t be done."<\/p>\n<\/blockquote>\n He also points to the previous administration (while Geitner was the NY Fed president) ignored the warnings.<\/p>\n Even AIG knows it’s too big. "AIG’s conglomerate structure is too complicated, unwieldy and opaque," said Edward Liddy, the company’s new chief executive, who came in last fall to try to clean up the wreckage. The tragedy is that this was clear a few years ago, and nobody did anything about it. A former regulator remembers that AIG’s transactions were so tangled and incomprehensible that it couldn’t close its books on time — yet nobody thought to call a halt. <\/p>\n Treasury and Federal Reserve officials have continued to operate on the assumption that in finance, bigger is better — and safer. The argument for these huge, diversified financial institutions has been that in pooling different kinds of risks, they would increase the portfolios’ overall stability. That rationale helped create the monstrosity called Citigroup. It was like the argument for securitization of subprime mortgages — put enough of them together and the danger of default would be less. That didn’t work out too well. <\/p>\n And yet the authorities have continued to act as if greater size will provide greater stability. That was the rationale for pushing a healthy Bank of America to acquire a sick Merrill Lynch last fall. A better response to Merrill’s sickness would have been to leach out the toxic assets and then encourage an orderly breakup of the brokerage firm; it was too big already. <\/p>\n<\/blockquote>\n Meanwhile, apropos of my earlier post today, Robert Reich takes on CNBC and its ilk<\/a> for trying to blame the stock market\u2019s slide since the first of the year on Obama.<\/p>\n","protected":false},"excerpt":{"rendered":" We are all learning that smaller is, if not beautiful to behold, a necessary downsizing of our lifestyles, aspirations and commitments. This is not economic fatalism, but just a return to rationalism. We can\u2019t live on borrowed money forever. Eventually, someone pays, likely our children. Throughout this economic crisis, we\u2019ve heard that the reason we… Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/posts\/361"}],"collection":[{"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/comments?post=361"}],"version-history":[{"count":0,"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/posts\/361\/revisions"}],"wp:attachment":[{"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/media?parent=361"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/categories?post=361"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/griendling.com\/wordpress1\/wp-json\/wp\/v2\/tags?post=361"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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