Greenspan: 'If they're too big to fail, they're too big'

Well, for one, FDIC (Federal Deposit Insurance Corp.) will close a bank before it completely fails and redistribute its assets (such as loans) to other banks that are stable enough to take on the debts without risk of failing if the loans are defaulted.

If a bank did completely fail, and debts did completely disappear, this would cause inflation, the amount of removed debt would determine how much. This is because when you place money into the economy and then do not take it back in you have more currency. The more currency you have in circulation the more money it takes to buy something.

Three basic things dictate most of this

Currency pool > population/demand > income

One thing to remember is that money in holding is not considered in circulation... hence China's holdings and their inherent threat and bargaining power.

Currency pool / population = cost

if

Cost > income = not survivable

Of those three basic economic objects which ones do we have control over? Income and currency pool are the answers obviously. You have to continually increase income for people to be able to afford to live (food/shelter), which means you also have to increase currency pool. Thankfully this is a standard rate of need, and no one currency is able to circumvent it to gain a competitive edge (conservatives try to by not raising minimum wage, but they bandy words and say it is for the little business man which is BULLSHIT, it is to line the coffers of the wealthy who can leverage huge returns on a slight currency advantage, and then we are hit with huge wage hikes, after a period of avoidance, that cripple small businesses... which looks to prove the conservatives point).

moving on!

$10,830 - poverty line for an individual
$7.25 - minimum wage

For those of you able to follow, that is 28.7 hours a week being payed minimum wage.

Minimum wage must stay higher than the poverty line for an individual to account for dependents, one dependent raises the line to $14,570, or 38.64 hours a week at minimum wage.

Now, back to bankruptcy. If a bank collapses, and its balance sheets disappear, that banks loans when unpaid add to the currency pool, and drive up the cost of my slice of bread. If the bank is Citigroup, and they add tens of billions to the currency pool, what happens to your average friendly McDonald's employee? What happens to your employer which suddenly has to pay twice as much for everything because other companies are making pricing adjustments?

Well, I can tell you exactly what happens, and so should you after having lived it for the past 2 years or so. Service industry crumbles. Services have a problem, they can not raise price without raised perception in value. If I raise the price of my web services for instance, and I am not able to show new value to you having a web page made by me, you are not going to buy it because you do not see the price as fair. Commodities, physical objects on the other hand, you will look around and find the quality you are looking for, hold it in your hand, and proceed to the cash register. So under inflated costs, the service industry has to either lay people off, or prove their value... most have to lay people off to be able to afford operations. Then the commodities take a hit. The stores sales are down because the service industries people are out of work and money, and then manufacturing starts feeling the pinch, it is a huge mess.

For further explanation, read books, and Google 'systemic risk'... or take a class in economics and pay attention this time. Sorry for being hostile about it, but the utter lack of grasp, and pure ignorance across the board of this subject really pisses me off! If people would just educate them selves, and not vote in ass holes, we would not have politicians and greedy corporate business taking advantage of you and the system left and right.

Thanks for all that information but you still didin't answer my question. You didn't mention anything about the loans suddenly becoming due. If you are performing under the terms of your loan, just because your loan was transferred to another bank because your bank failed, doesn't mean that suddenly you have to cough up your entire principal balance.

I do not recall, nor can I find anywhere that I have said that you must do so when a loan is transferred. Though, quite often there is a clause in your contract for the loan that says the bank can call in the balance at anytime... My grandfather lost a ship yard one payment cycle away from out right owning it 60 some odd years ago, at the time he could never even find a lawyer to represent the case. I also know someone who lost an incredibly valuable piece of land from such a rider, they were not so close to owning it though... the later has been in court for about 7 years now... so if you know someone that has experienced this... good luck to them.

But now that he isn't getting a check from the gov. and big co., he is stating fact? Yeah, Allen, you are a crook, but you might just make sense now that you are not purchased.

jubal,

Aren't there already government agencies in place to ensure monopolies in the free market don't develop?

Hmmm, wonder why those don't work? Could it be because those corporations funnel millions to greedy politicians to look the other way?

Yet you want to hand the government even more power. Insanity at its finest.

Perhaps, but don't forget about the revolving door between corporations and cabinet and Csar positions or heads of agencies, like the one you mentioned, charged with preventing monopolies.

Microsoft is a good example of a company in America that has a virtual monopoly on operating systems for PCs. They were taken to court and charged with anti trust violations and they merely got a slap on the wrist. Where as in Europe they were treated the way they should have been treated here.

You are right about the money lining the campaign coffers of politicians, but many of those in the pockets of giant corporations also have accounts in foreign countries where it would be easy for a multinational corporation to make deposits in foreign accounts, far away from those charged with enforcing ethics.

You can't say poof, I am rid of you toxic asset... it does not work that way, this is why you have to go through a legal process controlled by elected officials in a bankruptcy, the poof your gone toxic assets are absorbed by the economy... and if there are to many of them, well, economy goes poof I'm gone!!!

Idiocy like this is why I do not get involved at current very often any more.

FAIL

Consequences of what you suggest:

Effects of bad assets are absorbed in incalculable ways by a very broad range of industry that is blindsided at the mere prospect.

Companies that other wise provide competition and provide employment fail un-neededly, and allow for companies in other nations to take their market share.

The dollar suffers while the economy stuggles to find its basis, and other currencies florish making the argument to move away from the dollar as a reserve currency all but necessary.

The dollar is dumped by all major holding banks world wide.

It takes 10,000 dollars to by a loaf of bread because the inflation rate jumps from 3% to 500% in one day.

_________________________________

Yeah, the day you become in charge of the economy is the day I move to Germany or Denmark.

See, the problem you are having is that you are completely ignoring what the rest of the world will do. This time and every other time they are going to bail there economy out as soon as possible because it gives there economy the competitive edge, and that edge out weighs the cost... if you snooze you loose, that is the name of every game you will play in life, and that includes the struggle to be the number one economy in the world.

Now, if you are going to play arm chair economist, at least read a little about what you are speaking of first... fox news and Jim Jones are not real sources of information, and you are not inherently smarter than the millions of people before you.

I do not interject into conversations unless I have previous knowledge of what I am speaking about, I suggest you take up the habit as well.

Good night kid

I hate it when people delete there comments and leave yours hanging and not making any real sense

The federal government has had this power since 1890 with the Sherman Anti Trust Act, Theodore Roosevelt was the first person to use it. In 1903 when Theodore Roosevelt insisted congress create the Department of Commerce and Labor (which has since been split into two departments) and the Bureau of Corporations we gained the ability to monitor such industries to more effectively use the the anti trust laws... of course there us is still seldom at best... to such an extent that the majority of the population is not even aware of their existence... you I am sorry to say are a case in point.

MilchMann,

You actually just proved his point. Government regulatory agencies are already in place. How are these companies getting "too big to fail?"

Really now?

"An increase in the government's power to break up these companies is long over due. This would be a good way to start taking our country back." - Kelly61

So bearing in mind what I said, why does the government need more power to accomplish these things? A spine, and gumption to actually do what is good and necessary for the country is needed... more power on the other hand? Not so much sir.

So tell me again, how did I prove his point? And furthermore, was I trying to disprove it? Or just enlighten him to pre-existing conditions?

I think you have misinterpreted the term. To big to fail means that if the company fails it is so large and so deeply rooted that it drags everything down with it. The reason these companies were bailed out was not that they are favored, but because they would have obliterated the economy if they had failed.

MilchMan is right. If the big four would have failed, all loans would become due and payable and there would be absolutely no banks open.

A better idea would have been to split the companies before the bailouts were initiated... no one thought of it though, including me.

Good point M/M

Deficits which Bill Clinton cleaned up. And it seems like I remember his wife running for President, but no, we had to have the Messiah, didn't we. And don't give me that "jobs Americans won't do" bullshit. There are no jobs Americans won't do to feed their families and keep them safe. My Grandfather was a migrant farmer during the Great Depression, Americans can and will do anything, and once every one of them has a job, then we can give jobs to the illegal aliens.

Hey JohnA I work in construction and I can tell you when an ad is placed, brazilians and others from central america come to try to get work in droves, I do not get many poor white guys showing up looking for the job or blacks looking. Its not any racist or anything like that but the number of foriegners who want to work is amazing. And for non skilled grunt work I pay 15 bucks an hour

tommic

Foreign workers is not the problem... a lack of general wealth in the middle and lower class is the problem.

Think about it: we have a class in our society called the working poor.

$15 an hour is 30K a year, which is more than livable. 7, on the other hand, is not even close.

We need to hike the minimum wage and KEEP it adjusted for CPI inflation permanently, and we need to tax the shit out of anyone who is making more than 20x his cheapest worker. Heck, why don't we go back to taxing the shit out of the top 1%, too?

All of these things are NEVER discussed, or someone will call out "socialist," or "communist."

People need to start recognizing that the reason we don't have a healthy economy is the same reason that the savings and loans failed. There isn't enough wealth spread around. A healthy DOW does not a healthy economy make.

wow there are still bitter hillary voters out there? just because her husband was an economic genius does not mean she is one.

It's not a bureaucratic philosophy, it's a fucking basic truism.

If a company cannot fail without taking the entire economy along with it, it's too damn big.

How does that have ANYTHING to do with government deficits?

It is the acceptance of the bureaucratic philosophy (should I say perception) that they are too big to fail (and then ignoring all signs to the contrary), that makes it a fucking basic truism.
The FED has been and still is complicit to the failures of the financial markets...when all is said and done it is they who are left standing and having the last laugh.

If the fed is at fault for this, why is it that we had the same problem with over sized corporations squeezing the life out of the economy in the late 1800's long before the FED's creation? Theodore Roosevelt was key in the role of increasing the federal governments role in interstate commerce... banking, oil, steel, and tobacco industries all were held accountable by the teddy bear and his paddle shifting ford.

Some how we forgot about trust busting for quite some time though... until the late 70s when we broke up large banks and defined investment banking.

By the way there are three remaining entities of standard oil left from the mandatory split in 1911. Cheveron, Exxon, and Mobil... well I guess there are really only two now are there not... because two of them merged together, which do not quote me on, but I am pretty damn sure is illegal for a trusted busted company to re-merger even if it is 90 years later.

Funny how this keeps happening under conservative rule.

MilchMann - The operative word that I was applying to the FED here is complicity, which btw cares not for or about party affiliations other than to use them to maximize their own advantage, IMHO.

If you say so man... my only possible response is that I hope that made sense in your head...

I was simply conveying (or so I thought) that supposedly the FED is non-partisan, none-the less they've been complicit in much of our economic woes...certainly you don't think of them as innocent pawns?

Giving ;money to the criminals who caused this mess by Bush and Pauly without restrictions makes what GM got look like a drop in the ocean.

And the parasites think they are entitled to giant bonuses even when their shareholders, who are the real owners of the companies, take it in the shorts because of their greed and gambling with the company.

Which is exactly why we shouldn't have bailed them out in the first place. We gave them free money, what did you expect them to do with it? And now you want to bitch about how they spent it? And it's not like Obama hasn't doled out his fair share with his stimulus bill, so we're all to blame, every one of us.

It's a complex question, to be sure.

Regardless, these problems wouldn't have existed in the first place if wealth was more evenly distributed throughout the society.

Perhaps, but artifically redistributing wealth through taxation is definately not the right way to promote the growth and compitition. Bailing out societies is just as bad as bailing out corporations, neither leads to anything good.

I disagree.

The artificial redistribution of wealth already happened in the opposite direction.

How does taxing the shit out of the rich and offering community infrastructure construction, maintenance and development projects to the hungry-to-work unemployed leave us worse off?

No one is asking for a direct transfer. No one just wants a hand-out, they want to work for it so they can call it theirs... Correction, no one wants a hand out except the rich.

Neither works efficently, we need a flat tax system, or a fair tax on consumption and not income. That's the only way to fund a government fairly. Government is meant to take care of things individuals can't, common defense, police, etc., not to play favorites on who gets what depending on who is in office at the time. Everyone wants a hand out, everyone.

I do not think you quite get the principal of the whole thing John... it is not really about the taxation, it is about disallowing monopoly.

With out monopolies you do not have unfair wealth distribution because no one holds enough market share of anything to horde all of the money. If that were how things went, then a flat tax... a very marginal flat tax at that, would work. For now though, we can not tax the man that makes 16k a year 15k of it, it would not work, and it is somewhere around that number that everyone would have to pay to make up for the bracketing system we have now.

What you mention on consumption tax would not work either... the problem with the wealthy is that they do not necessarily consume more, they consume differently. You could tax the all holy living hell out of yachts, limos, and exotic sports cars... but would that not be unfair as well?

MM is right. A flat tax would be ideal in a truly free market.

Unfortunately, we don't live in that world, so having a flat tax would be absolutely moronic. Are you familiar with the MPC?Have you ever taken an economics course?

A flat tax has the net result of the OPPOSITE of the graduated system we have, now. A flat tax is anything but fair.

I don't know when or how the flat tax idea got popular, but it's economic insanity.

Tell you what, you tell me how a flat tax system affects the economy for good other than because it's "fair." Can you come up with something better than that? Can you crunch the numbers? Can you discuss the relative impact on the lives of the poor vs. the rich, how it makes everyone's life better? (or your life, for that matter?)

How is it fair for my boss who "earns" $500 to my $1 pays the same tax rate only on what he buys? (hint: his effective tax rate is 1/100th of mine, even though he buys 5x as much stuff... do you know what an effective tax rate is?)

Do you realize that the "kill the fed" bunch and the "flat tax" bunch are 2 groups of the same people with 2 diametrically opposed causes floating around in the same head? (hint: inflation is a flat tax)

I hate to sound so condescending, but people get so excited about this idea with absolutely no understanding of the impacts. Then, they vote in Bush 2 and we all go to the gallows for their intellectually devoid ideas.

Think about what you believe in, for one fucking second, before you take up a cause. That way you don't live the rest of your life with cognitive dissonance because you are too proud to change your mind even though you see your ideas fail over and over at the cost of your community's well-being.

I really wish I could get into the mind of a statist, but it seems impossible.

No, MilchMan isn't right. He is actually as wrong as you can get. Yes, the banks failing would have been awful. It would have been a pretty bad economic crisis. However, we would not have saddled future generations with debt that will never be paid. We would not have rescued companies that are going to end up failing in the end anyways. They would have failed and restarted with a clean slate without Americans spending billions to bail them out.

My my libertyforall, I really wish you would take the time to think for a moment, I ignored it last time because I figured it was a typo... this time. What is a statist... hmm. Well, it is someone who believes in statism

stat⋅ism
1. the principle or policy of concentrating extensive economic, political, and related controls in the state at the cost of individual liberty.
2. support of or belief in the sovereignty of a state, usually a republic.

Antonym: Anarchy

Do you really think anarchy is the answer? Because if you are not a statist you are an anarchist, so which is it?

I do not really need to continue, but I will. Every single nanosecond that goes by there is a compounded debt that is tallying up that future generations will never be able to pay off, it is the reality of an inflationary economy. If you really need proof of what happens when you do not follow protocol and save your economy from falling on its face as quickly as possible, take a look at the value of the Dollar to the Euro.

Now grab your ears and yank real hard kid.

At the same time, the web of derivative instruments and insurance contracts resulted in a larger "entity" that was interconnected throughout the whole economy, it's fall affected us all.

Indeed, I agree with Greenspan. It violates a fundamental liberty if one corporation can screw up, resulting in unrelated parties losing their well-being.

The answer was in the regulation, IMO.

Had the 19 banks that received bailouts not received bailouts, and these are the largest in the country, the United States economy wouldn't be worth a pile of shit.

How quickly people like you forget that Bush let Lehman Bros. fail, and when they saw the result, they realized they could not ever do it again. The economy would have imploded.

To think that a simple concept such as supply and demand is an all knowing, perfect principle by which solely to guide our economy is just fucking ignorant.

Yes, NC, and I see all of these conservatives now demonizing him for having an opinion that makes sense.

For conservatives, it's not about making sense, it's about agreeing with everyone else who is in your "club" so that you can blather on, comfortably, with each other.

There is a separation between conservatives and Republicans.

Supply-side-economics is just one aspect of the Keynesian economic theorem . . . the same economic application that still is practiced by our current government economists. No freaking wonder the economy is still f**ked up.

Keynesian economics has accurately predicted many of the outcomes that have come to pass as a result of the government's action supporting supply side economics.

And I apologize to magnusdeus, I should have said "intellectually insolvent Americans, which includes most conservatives, all republicans, and some democrats."

I am referring to the right's tendency to want to be right rather than find right.

Bingo sir... I could not agree with you more. The part that impresses me most though... The fact that he is not touting Reaganomics the way I would have expected. We were forced into a Reaganomics cycle, but Obama thwarted the restructuring at the 11th hour... just like the rest of the world had previously done 6 months before... and are well past the points of full recovery in most cases... and now the people that you would most expect to be infuriated... well, they are not, and they are making suggestions about how to prevent another cycle????

That is incredibly interesting!!! It also scares the piss out of me, it makes me think they are plotting something, I do not believe they would take such a drastic policy change under wing without some incredibly well thought out devious plan.

losing his marbles? He lost his whole damn bag of marbles. I'm starting to think that all them old dust farting gezzers have altimers an none of them are playing with a full deck

At the time that he said that he was right. The advent of the rules that allowed for subprime mortgages are what brought down the house so quickly. In reality though, every inflationary economy is doomed to fail. The day I heard that Wal-Mart was within a 50% inflation threshold I knew we were screwed... but that is just me.

In case you are unable to put all of that together... they have forced all manufacturing to China... China keeps its inflation rate down at an incredibly low level for an inflationary economy... I think if it were not for the US they would not print any new monies, but that is a different story. Our inflation is mounting at a much faster rate than theirs, and we will not be able to afford the exchange rate with them with in 8 years now... and that is going off of a traditional 3% inflation rate... if we see anything under 10% this year I will be shocked.

You guys do not really get how deep the rabbit hole goes do you?

We need to go way further back. Before the Fed.

Brilliant idea southcoast - anarchy is a great system that has worked wonders for many 1st world countries (laying the sarcasm on pretty thick). Don't forget that the reason the government had to involve it self in the first place, because these privatized banks couldn't hold it together on their own. If you really think about it, it's always the private American corporations that get themselves into these types of binds, by selling stupid imaginary products. If the American people hadn't been so dumbed down by the mass media, and we actually looked beyond our minimal existence on a worldly level, we'd all be voting for a bigger government, similar to the countries around the world that have a larger government and higher lifestyle. All of Scandinavia, Western Europe, even most of south America has government run health care, and less morbidly obese people. Less government = More white collar crime.