“A dynamic economy will always have booms and busts. But the story of the past twenty-five years is that Washington has created a financial system that cannot withstand the destructive part of creative destruction – necessary for free markets- without destroying the economy. We’ve grown so accustomed to government-subsidized failure in finance that we feel we have no choice. In accepting subsidized failure, we harm America’s trust in free markets, we harm the world’s trust in American markets, and we harm the financial innovation that advances the economy rather than smothers it.”
From After the Fall: Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas
“Washington may also be tempted to go on as before for the same reason it did in the wake of its Continental Illinois and Long-Term Capital management bailouts. Back then government regulators and financial executives came to believe: if we can fix this, we can fix anything. If the Economy allows Lehman’s collapse and the visceral fear that it created to recede into history, elected officials and regulators may feel a similar sense of accomplishment that they rescued the economy from a new depression- not that they won a temporary reprieve that, without real reform, only increases future danger.”
From After the Fall: Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas
“Creating a systemic risk regulator would be a continuation of that regulatory confusion. Just as bad, a systemic risk regulator would work against Washington’s credibility in ending too-big-to-fail. Investors would be lulled into false confidence that the government is looking out for them just as it looks out for insured bank depositors. But a systemic regulator would be no more effective than the former USSR’s central planners were in seeing and knowing all. Just as markets seeking profits are better planners than central bureaucrats, markets protecting themselves from a credible threat of failure would be more effective regulators than a central office that stifles that threat.”
From After the Fall: Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas
“The first step to restoring the robust financial markets that can support global capitalism is to reassert the market’s ability to discipline itself without endangering the economy. Through its too-big-to-fail policy, expanded over the quarter of a century after Continental Illinois, Washington’s leaders, from Presidents Reagan to Clinton, unwittingly supported financial recklessness even as markets warned against it. The predictable results was more recklessness.”
“Bad companies, including big, bad financial companies, must be allowed to fail, so that their bad ideas can have a chance of dying with them. This principle is the cornerstone of assuring healthy financial markets. Unless Washington credibly repudiates its too-big-to-fail policy, any other worthy regulations it enacts won’t matter. The lack of market discipline that the doctrine promotes will guarantee that big financial firms continue to have cheap money and the motive to find their way around such rules.”
From After the Fall: Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas
“In truth, markets had been trying to work since 1984, with Continental Illinois, desperately sending signals that the modern financial system was shot through with untenable risks that required a renewal of long-held regulatory principles. But government bailouts thwarted real market information at every turn. Washington allowed failure only when it didn’t threaten systemic risk, as in the case of Enron, and did not learn the subtler lessons that such failure provided.”
From After the Fall: Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas
