Among the choices of: a) minimize a current financial crisis
b) avoid future financial crises
c) penalize the law breakers responsible
The feds have done fairly well on a), avoiding a complete collapse
of depositor confidence, but the politicians and rabble-rousers seem
to be focused on c), arguing about exposure and punishment instead
of figuring out how to prevent another collapse.Structuring a system that is more resistant to fraud and other behaviour
that puts the national economy at risk would help. Either effective
oversight or more exposure to market forces might help. Merely punishing
individual or corporate wrong-doers will not prevent another collapse. A firm, banking, investment, or trading, that is considered "too big
to fail" is also not sufficiently exposed to market forces for the
market in its shares to reflect the actual risks to the firm.
In other words, the taxpayers are covering a TBTF bank's risks. We would benefit far more from finding a way to move banking away
from consolidation than we would from jailing or fining the guilty. The country should be able to suffer the complete failure of any
single bank or firm without much more than a small hiccup in our
economy. FDIC rates should reflect risk for depositors
per-institution, and be public, the way bond ratings are.
Stock-holders and bank creditors would be on their own. A nation whose banking industry is dominated by 10 banks cannot be
secure, with around 100 banks of size is at risk, and with 1,000
banks may be able to cope with a few percent of them failing every year. Finding a market solution to counterbalance the ongoing wave of
consolidation would help. |