Monday, June 20, 2011
Too Big To Fail
Former Fed Chairman Paul Volcker, Standard & Poor’s President Deven Sharma, MIT economist Simon Johnson, and former Citigroup Inc. Chairman John Reed are among the 18 members of the FDIC Advisory Committee on Systemic Resolutions. Others include senior executives of BlackRock, Depository Trust & Clearing Corp., the California Public Employees’ Retirement System (CalPERS), Glass, Lewis & Co. LLC, and Freddie Mac.
Panel member Anat Admati of Stanford University recently rallied other influential economists to argue that tougher capital requirements were essential to reduce banks’ leverage and prevent future crises.
The Dodd-Frank financial reform law gave the FDIC new authority to step in when a giant financial institution is teetering and map out an orderly resolution plan to sell its assets without resorting to fire-sale prices. That was a key issue during the financial meltdown in 2008 when several large institutions such as Merrill Lynch, Countrywide, and Washington Mutual saw their liquidity and stock prices rapidly plunge, forcing the government to hurry to find a buyer.
Sorry, no company is too big to fail. The problem is the propping up or the prolonging of the agony that only prolongs a true recovery of the system.