In the free-market enterprise–that which North America is founded on and so cherishes–you’re suppose to permit the market to shed uncompetitive and incompetent firms. When push comes to shove, if you under perform or make huge mistakes that not only make you uncompetitive, but threaten your survival, you’re permitted to die a slow (or sometimes fast) death.
Alas, this is true for our capitalist system, however, it doesn’t always happen this way. In fact, if you’re really big, and you control assets for many others, it turns out you don’t necessarily fail…..Big banks do not fail when the market collapses. At least that’s what we’ve been shown in the past six months (less Lehman Bros of course).
Is this right? What are economists saying? Here is a survey of articles on the topic:
- Thomas Hoeing (Kansas City Fed) on FT on why big banks should fail.
- CNN Money picked it and had this to say.
- Arnold Kling on regulatory dillemmas.
- EconLog on the next day response why banks should fail.
- Successful bank stress test conducted.
[tags]banks, fail banks, recession[/tags]