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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 bradley13 on Monday May 18 2015, @02:27PM
Yes allow insurance for the depositors. But don't reward the worst banksters with huge bailouts. Let them fail, spectacularly, so that they never work in finance again, and those who dodge the bullet sober up lest the same happen to them.
This is an important point. Even those executives who lost their positions were, after a few months, working in the industry again. I'm too lazy to repeat it, but I think I posted a comment on /. at the time, tracing the paths of some of the more egregious ones. Musical chairs, but essentially no one suffered any personal consequences. So, sure, if bailouts are the only way forward, then bail away. But the incompetent idiots who cause the problem should have been held responsible.
Ah, but now we come to it. AFAIK the single biggest cause was subprime mortgages. Banks were stupid to make loans to people who had zero chance of ever repaying them. However, the government essentially forced this situation [washingtonpost.com], first by counting mortgages as low-risk on balance sheets, and second by pressuring banks to make more loans to unqualified buyers (especially minority buyers, who were exempted from serious checks on their income and financial stability).
So among the guilty we need to include the policy setters in the federal government. And just how can we hold them responsible? It's pretty much got to be ropes and lamp posts, because it's a sure thing you will never successfully sue them, much less prosecute them. By the way, these people have also moved on. Just as one example, consider Alphonso Jackson, who was the Secretary of HUD in the years leading up to the 2008 crisis. He was forced to resign [cnn.com]. A couple of years later, and he pops up as Vice Chairman of Mortgage Banking with JPMorgan Chase.
Everyone is somebody else's weirdo.