First, you're going to be transferring that money to the banks/institutions that lend to them. So the money isn't going away, it's just ending up as profit for somebody else (as compensation for them considering themselves to be taking on more risk.)
Second, the taxpayers going to get rid of that amount of cost in the form of risk; the averaged risk is paid by the taxpayers, it is just paid in bulk when the banks are about to fail.
This assumes the calculations are all correct, and it doesn't count in what indirect cost the economy would have from loans getting a bit more expensive overall.
Left unchecked, the superbanks could ultimately require bailouts that exceed the government’s resources. Picture a meltdown in which the Treasury is helpless to step in as it did in 2008 and 2009.
Makes one side seem a little less important to me.
It can go from "too big to fail" to "too big to rescue".
When that happens these banks, it would be disaster for many countries, not just companies.
I would want to scrutinize the calculations.
One option is to make banks fund their activities with more equity from shareholders, a measure that would make them less likely to need bailouts (we recommend $1 of equity for each $5 of assets, far more than the 1-to-33 ratio that new global rules require). Another idea is to shock creditors out of complacency by making some of them take losses when banks run into trouble. A third is to prevent banks from using the subsidy to finance speculative trading, the aim of the Volcker rule in the U.S. and financial ring-fencing in the U.K.
Big private corporations are as bad as big public corporations.
Break them into pieces. Separate investment banking from banking. Not that difficult to do. It was done in the past, and worked.
>> Big private corporations are as bad as big public corporations.
I think you miss the bigger picture the article paints, which is that the big banks actually function as part of the government in many ways. One aspect of this is described by the article, the big banks can't exist without massive financial support from the tax payers in the form of low interest rates and implied bailouts.
I also think you don't understand that only the power of the federal government can break up the banks. Show me one example in of all history where a big bank was broken up by a small decentralized governement? go ahead, ill wait...
Funny you say that. The banks that where baild out, where investment banks, the hole reason for such a rule was that normal banks would get bailed out and investment banks would.
But since its not actually about helping the people to bail out banks it did not matter.
> It was done in the past, and worked.
Where? Almost every big bank that failed was saved in some matter investment or not, look at the To big to fail book (or listen to this podcast by the author http://www.econtalk.org/archives/2009/10/gary_stern_on_t.htm...).
As an implicit subsidy it is not as if there the 83 billion dollars that can be "taken away" from the banks and used for other purposes. The implicit government guarantee has value but if you can not find a way to recover that value in some other way when taking it away from the banks you would just be robbing the economy of that growth.
That being said it seems like the way to remedy this would be to use a tax mechanism that can measure this subsidy and extract it from the banks in a manner that is fair to bank investors and citizens.