Thanks for the ad hominems everyone. Reminds me of the good old 2p2 days. Y'all are making forums great again.

Now you can read holder's and my mind? The DOJ had NOTHING to do with a bailout. My point was that COLLATERAL DAMAGE is something very real that actually affects the economy for EVERYONE, especially if you go after a single bank as a fishing expedition. Worse, there would be an overwhelming chance for abuse of such power.

If holder did try to prosecute, there's <5% chance (my estimation based on past financial crises) that he'd put someone in a nice white collar jail, and you'd have the warm fuzzies for a little while. But today, you'd be livid how millions of people lost all their money at BofA/HSBC/etc., went through foreclosure, and the government did "nothing".

Pretty sure investigations occurred, and I certainly didn't say there shouldn't have been. Sounds like you want some political theater out in public, and some ONETIMEDEALER convictions above the law. You are probably an adult in your regular life, but you certainly fantasize about acting impulsively online.

Regular small and big shocks already occur, even at big banks. Do you think they should occur more regularly or more often?

But regardless, how would you mitigate the effects of such shocks to protect the consumers if you allow shocks to occur? Are you proposing the government guarantees all deposits and lines of credit?

And what's wrong with adjusting regulations to minimize risks of systemic failure, like limits on leverage, credit rating audits, or separating investment and lending markets? What's wrong with breaking up large entities into smaller pieces before they are too big to fail?

Are you against all bailouts or just for the bankers? The macro picture is that one industry isn't significantly different from another once they reach some size. Finance has always been big but many other industries can impose systemic risks. For business sustainability argument, auto-executives for example are just as complicit in making their companies non competitive. Or fossil fuel executives complicit not only in pollution, but also in damage to renewable technology and businesses.

Its pretty clear from my opposition against bailouts for homeowners that I also oppose bailouts in other industries.

I am not sure why you bolded that section since you seem to agree that having smaller banks and separating investment and lending is a good thing?

It's surprising because those policies are to prevent regular shocks to the system, in conflict of what you implied might be healthy.

Fwiw, that's an adult conversation we can have, but probably not in this thread.

ETA: I don't really remember everyone's positions on this forum, so thanks for reminding me of your position on bailouts.

For the record I think student loan forgiveness is pure idiocy too.

You should explain why having smaller banks is for the prevention of regular shocks but uneffective against catastrophic failure though.

This article is the the apex of the Aaron Sorkin-esk Democrats. Republicans aren't even playing the same game, they are literally streets ahead.
The article the goes on to mention Republicans (Republicans!) pitched the idea of Garland as some kind of peace offering to Democrats, someone we all can get behind, as Director of the FBI, and some Democrats actually fell for it because they wanted to believe Republicans are decent people. Of course if Garland went to the FBI he would be just as easily fireable as Comey and Trump would get to assign someone to fill Garland's judgeship.

https://www.washingtonpost.com/news/...=.1c631fb6145f

Republican politicians, almost all of them, to a T, are sh*tbags. There are no #neverTrumpers, no decent Republicans we can work with, none of that. They're all various forms of the same people who want to crush you.

smaller investment banks make smaller bets, so their individual impact is limited. but they are just as susceptible to systemic risk, sometimes even more so. examples are the greek bank run, S&L crisis, banks that operated in geographies that experienced an economic downturn.

disclaimer: i did a bit of algorithmic research on diffusion models in large financial/social networks. ultimately, for prevention it doesn't matter if you have one big bank worth $1T, or a thousand banks worth $1B each, if they do the same amount of risky transactions. arguably a thousand banks are operating with less information.

1000 small banks are presumably not all making the same bets and if some of those bets go bad and the banks go bust, so be it.

Not sure how you can assume 1000 small banks and 1 large bank make the same amount of risky bets.

I don't think models are a good example. They treat everything as ceteris paribus, and you seem to know in that in the real world banks of different sizes operate differently.

I would also note, sometimes smaller banks in specific cases probably have more information on certain things like real estate investment. There was a subdivision in my old city that was presented as the new best place to live and the hype just didn't pan out. Now a guy in NY might look at it on paper and see one thing while banks in the city saw another.

I would also add 1000 smaller banks would diverge in their assets and liabilities a lot more than 5 big banks.

Systemic risk isnt about risky béts. If people stop paying their mortgages the banking industry as a whole is in danger of collapse. Whether its 5 large banks or hundreds of small ones is irrelevant. Breaking up kodak into smaller companies wouldnt have magically saved the film printing industry.

Sure. I can agree with that.

But what percentage of mortgage holders stopped paying in 2007/2008?

From sources I see, the % of delinquint payments was around 7% where as historic delinquincies were around 5%.

You're going to tell me this is a systemic risk and comparable to the death of the film printing industry?

Sylar,

I don't get warm fuzzies putting anyone (outside of psycho child killing cannibals or something) in prison. I'm just offended by the notion that CEOs of big banks are either above the law or not easily replaceable.

Serious delinquencies went up to 8% when background rates are less than 2%. Kodak was brought up to show how breaking up banks wouldnt have helped.

Ok fair enough my numbers are off. Still my point stands.

If delinquency increase from 2% to 8% causes such general havoc in the markets then it is evidence of a unrobust system.

A delinquincy increase from 2% to 8% in housing should not affect liquidity as it did and count as a systemic risk. Smaller, less interconnected banks would have mitigated the effects on general liquidity. It is nothing like the Kodak example.

lol...it doesnt change your conclusion because your conclusion isnt based on anything. You have no idea how much GDP growth would be slowed down if the finance industry had to be capitalized enough to withstand the great recession. Your claims are just based on ignorance.

Obviously there is a cost for robustness. Your stance so far of "well, systemic risks are the cost of GDP growth, so unless if you want GDP growth to stop, you better agree to bank mergers and leveraging" isnt very enlightening either.

Are you telling me I should just accept that a 2% to 8% increase in mortgage delinquincy should drop greater markets by 40% ?

Is efficiency at the cost of robustness such that years from now that crashing the broader markets is an acceptable result of me not paying my credit card bill?

Of course i never said that

Its just as arbitrary as stating, with no analysis at all, that a 4x raise in delinquency rates shouldnt cause systemic risk. Im only stating you have no clue what the answer is, not that i know.

Your original position is that breaking up large banks in to smaller ones do nothing in the face of systemic risk. I agree with this.

My position is that regardless of what you call it, having smaller banks and having some separation between personal loans and investment vehicles would have mitigated some of the effects of unexpected loan delinquincies.

If you agree with my position, then by definition, mortgage delinquincy increases from 2 to 8 are not a systemic risk.

I dont agree with your position.

Ok then why does having a system of smaller banks not mitigate the effects of a mortgage loan delinquincy rate increase from 2 to 8?

I could very well be wrong on this which is why I asked sylar to explain in the first place.

I should clarify to say that I am not as concerned with the size of banks as I am to the need for the banking system to be more heterogeneous. Diversity within the system reduces systemic risks, whereas homogeneity increases them.

There is no evidence size is crucially important. Countries without large banks have financial crises all the time etc

https://krugman.blogs.nytimes.com/20...o-fail-fail-2/

Not what happens in most crises. Everyone gets caught doing the same thing.

Sure, you don't have to trust any particular model.

Ok, I can come around to the idea that breaking up banks might not do much.