Thursday, May 23, 2013

Simon Johnson — Boards on Their Backs

The big banks are too big to govern, to big to manage, too big to regulare and too big to fail, creating "systemically dangerous institutions" (Bill Black) and huge moral hazard.

Project Syndicate
Boards on Their Backs
Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics


Anonymous said...

Lots on questions but Johnson proposes no answers.

Tom Hickey said...

I believe he is on record for breaking up the TBTF as the only viable solution. Otherwise, they will work around it.

Ralph Musgrave said...

“Johnson proposes no answers”. No one has proposed any realistic answers apart from advocates of full reserve banking.

Under full reserve, depositors who want their bank to lend on or invest their money have to bear any losses from those loans/investments. I.e. depositors in effect become shareholders. That means it’s impossible for a bank to suddenly go bust because the bank does not owe any specific sum of money to anyone. As George Selgin put it “For a balance sheet without debt liabilities, insolvency is ruled out..”

While the latter idea is part and parcel of full reserve, one COULD tack the latter idea onto fractional reserve banking. I.e. accepting the latter idea does not mean one has to accept full reserve lock stock and barrel.