Simon Johnson

Bill Daley and ‘Too Big To Fail’

MIT Professor Simon Johnson recently argued that Bill Daley’s appointment as Obama’s Chief of Staff signals that “too big to fail,” as it relates to our largest financial institutions, is here to stay.  Personally I never thought it was in doubt.  With Geithner at Treasury and Dodd-Frank further codifiying “too big to fail,” its been clear for some time that the bailout net is larger than it’s ever been, and is not being pulled back. 

Lehman’s Failure Taught Us Nothing

Several commentators have reacted to Senator McConnell’s floor statement regarding the Dodd bill as a defense of “doing nothing”.  And accordingly argue that such a position would be, in the words of Simon Johnson, both dangerous and irresponsible.  This familiar canard is based upon the oft repeated assertion that the failure of Lehman proved that we cannot simply let large financial companies enter bankruptcy.

A Libertarian Dilemma

What is to be done with the nation’s largest financial institutions, 19 of which have been officially designated as “too big to fail?” When thus guaranteed government protection, such institutions can be expected to take excessive risk and generally operate recklessly. Profits on risky ventures remain privatized, while losses become socialized. That is what happens when you bet with other people’s (that is, taxpayers’) money. I have called the system “casino capitalism.”

Subscribe to RSS - Simon Johnson