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The Register has a eminently readable explanation of why big banks are considered too big to fail, and get government bailouts after mismanaging their financial situations.
We seem to rage every time this happens, Let them go Bankrupt! seems the cry from the man in the street.
But that is a juvenile approach which will hurt far more people than those few officers miss-managing the bank or its funds. Banks don't have funds. Its all your funds. And if the bank fails, you mostly get nothing.
The article explains just what banks are (for those of you who slept through Econ 101), and what they are not. Its worth a read! And don't skip the comments section on the article. Many posters had no problem with bailing out the banks, but railed against bank management officers who rarely or never face any serious charges.
When you look at it this way, the federal "Stress Tests", and Forced Closures (over 500 since 1998) imposed on US banks, large and small, was the right course of action when combine with holding our collecting noses and bailing out the big ones.
Its too bad the stress tests, measuring a bank's ability to withstand withdrawals, loan defaults, and deposit slow-downs from unemployed depositors, weren't imposed far earlier. Local and national Banks have learned at least part of the lesson, and are closing money losing branches at a record rate, in favor of ATMs and digital services.
(Score: 2) by Dunbal on Monday May 18 2015, @09:46AM
Which in some countries are ALREADY covered by a government institution "insurance" - the FDIC. But they get bailed out anyway... bit of a head scratcher that one. But not really. It will trickle down, lol.
(Score: 1, Interesting) by Anonymous Coward on Monday May 18 2015, @04:11PM
Which causes exactly the same problem for exactly the same reason. Here in South Africa, we had zero problems in our banking sector when yours melted down. Because the government (for all their faults in other areas) understands this. Also because we got even stricter banking regulations prior to your meltdown.
Before you go rationalising it as "Third World"--our financial sector is among the most sophisticated and technologically advanced in the world. South Africa has only been considered a developing country since the ANC took over, because they whined and demanded hand-outs. The excuse used was that there are many poor people whose lives aren't like those in developed countries, an argument that could just as easily be applied to the richest country on earth. (I am sad to say that the government has been taking us more in that direction, however.)
(Score: 2) by monster on Wednesday May 20 2015, @08:18AM
The problem is not to bail out the banks, it's bailing them out and returning them to those who ruined it!.
So, there's a too big to fail bank about to fail. Fine, you bail it out (because it's too big to fail, so it's a major risk to do any other way) but the owners lose it. You put the bank to crash into the ground? You receive petty change for your shares, if anything at all. Oh, it wasn't your fault, it was the corrupt Board of Directors? Sue them, you weren't whining when you where cashing out your dividends, nor asked for auditing the books when money was flowing.
If shareholders were more at risk for the actions of the banks they would also be more vigilant about their ways.