"How Big Banks Threaten our Economy" title of an op-ed by Warren A. Stephans in the Monday WSJ. Stephans says that a mere FIVE banks hold half of all the bank deposits in the entire country. Wow. Should one of those babies fail, an humungous amount of tax payer money would be required to make the depositors whole again.
There is no reason to have banks that big. Big banks get into trouble and go broke just as often as ordinary sized banks. In fact, big banks are more bureaucratic, move slower and are more apt to have empty suits running them. Smaller banks are leaner, faster, and more careful. Problem is, when a really big bank goes down, a lot more people get hurt.
And when you get to something as big as AIG, it's just too big to manage. AIG was put together by a very capable banker named Hank Greenberg. Hank was a financial genius and managed to keep AIG running pretty much single handed. AIG did well until New York Attorney General Eliot Spitzer targeted Greenberg in 2005. Spitzer made a lot of wild accusations in the press, finally filed some charges, which he later dropped. But Spitzer panicked the board of AIG into firing Greenberg. After Greenberg left, AIG spiraled down into catastrophe. Just before the end, AIG was playing the credit default swap market (pure gambling) hoping for a big win to bail them out.
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