Tuesday, September 30, 2008

A Hostage Crisis

The front page of yesterday's WSJ declared "Lehman's Demise Triggered Cash Crunch Around Globe". They are suggesting that Lehman's fall is what has caused such dire consequences.

I find all of this very disturbing. How did our economy become so fragile that any given financial institution's demise can precipitate world economic chaos? This is terrible policy from a national security point (among others).

September 11th was not a security breach, as the terrorists were allowed to have box cutters on planes. That event has changed the paradigm of how we view national security. We have spent billions of dollars and created new government organizations to shore up physical vulnerabilities and prevent this from happening again.

Yet one of our most cherished assets, our vibrant economy is left wide open and incredibly vulnerable. One of the main theories behind security and safety systems is to have several layers and redundancy, so that there is no single point of failure.

I now believe that our financial system is so weak, that an unfriendly government actor or wealthy group could easily plunge our economy into even deeper trouble and essentially hold our country hostage. I am deeply troubled by this fact, and hope that going forward we have learned our lesson, and do not allow an single company to be so vital to the U.S. economy that it has the power to hobble our great nation.

9 comments:

mbc said...

I agree that no single private enterprise should be "too big to fail." If that's the case, the company should be broken up in accordance with current anti-trust laws.

PeonInChief said...

An entity "too big to fail" should either be nationalized or regulated tightly enough that the officers don't dot an i if it's not permitted under Chapter 542, Section 3915, Subsection 42138.

Deflationary Jane said...

Is there a way I can nominate Peon for chair of a regulatory committee?

Too big to fail = too big to save = too big to exist in the first freaking place.

The gov goes after any entity it considers too big which would have a negative effect on national security and yet it let this crap go on? The hypocracy is papible.

sacramentia said...

"Too big to fail = too big to save = too big to exist in the first freaking place."

Exactly. I think the FDIC limits should be per institution and per account to discourage institutions from growing so large.

People would not put deposits in uninsured accounts, and the current leverage restrictions would limit the size of the balance sheet.

Buying Time said...

It's not just the leverage from what I understand. A large part of it, is that these financial products and insurance have been sliced up and sold off, that they are completely intertwined. This makes everyone dependent on the well being of everyone else. A single point of failure brings down the entire house of cards.

Ironically, this is how the internet got its start. The govnt didn't want a single point of failure if we were attacked. A node could get taken out, and the system would adapt and survive without it.

PeonInChief said...

DJ--

Peon would be delighted to head the regulatory committee. She'd want to see little beads of sweat on Hank Paulson's head as he approached the door of her office.

sacramentia said...

text from the bill that is up for vote tonight

"where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease. " p26

sacramentia said...

Link for last post:

http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf

PeonInChief said...

Thanks, sacramentia, that's good to know. And it's particularly important in states where tenants have even fewer rights after foreclosure than they do in California. I think that may be the only part of the bill I support.