If We Love the Banks, We Must Love Them Enough to Let Them Fail

Photographer: John Taggart/Bloomberg via Getty Images

Commenting on the health of big U.S. banks last week, former Fed Chairman Ben Bernanke wrote on his Brookings blog that “a lot of progress has been made (and more is in train) toward reducing the risks that large, complex financial institutions pose for the financial system and the economy.” Bernanke’s observation came after Minneapolis Fed president Neel Kashkari’s recent commentary about the need to reduce the alleged problem of “Too Big To Fail” within banking. Some readers could be excused for wondering why Bernanke would have any opinion on the matter at all.

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De-Rigging Capitalist Privilege

Internet Abstract

When Charles G. Koch, the chief executive officer of his family business, recently wrote an op-ed for the Washington Post saying he agreed with Democratic presidential candidate Bernie Sanders that our economic system is “often rigged to help the privileged few,” it raised eyebrows even among the company-town’s power structure.

The online version was absolutely swamped with comments. Almost all of the commenters agreed about the evils of crony capitalism but most of them unfairly attacked Koch as hypocritical for being a capitalist himself. The examples he presented of Koch Industries’ opposing government subsidies that could have advantaged its business counted for exactly nothing. Pretty tough to crack the capitalist stereotype even when the capitalist supports one of the Left’s core precepts.

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Dodd-Frank’s Frankenstein Creeps Forward


Congress at Work. Really!

Yesterday, the House of Representative passed a massive $1.1 trillion spending bill to keep government—most of it, anyhow—operating through the summer of 2015. (The measure is expected to pass the Senate unless someone filibusters.) Senator Warren, the Madame Defarge of the U.S. financial sector, is very upset about one piece of the bill: an amendment to the Dodd-Frank Act that would give certain FDIC-insured banks the ability to keep derivatives contracts on their books (as opposed to the statutorily required “push-out” to subsidiaries). Senator Warren thinks this fix will spell the difference between the Dodd-Frank’s ironclad anti-bailout protections and a future Armageddon at taxpayer expense.

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Who’s Afraid of Consumer Credit? A Discussion with Todd Zywicki


The market for consumer credit has been subjected to an ever increasing amount of federal regulation since the 2008 crisis. The Dodd-Frank Act created the Consumer Financial Protection Bureau to intervene in consumer credit markets and protect us from the rapacious lenders who devour household income and place consumers in unmanageable levels of debt through stealth and manipulative business practices. The predictable results have been a marginal increase in the cost of credit and its decreasing availability to lower income consumers as the CFPB’s rules price them out of this market. Todd Zywicki, co-author of Consumer Credit and the American…

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Friday Roundup, December 20th

The current Liberty Law Talk is with author Christopher Lazarski on his new book, Power Tends to Corrupt: Lord Acton's Study of Liberty. Our Books essay this week is by Todd Zywicki on Nassim Taleb's Antifragile: Things That Gain From Disorder. Zywicki applies Taleb's insight that an antifragile "system . . . gains from disorder and volatility—i.e., exposure to stresses improves the operation of the system and makes it stronger," to financial regulation, arguing this approach would lead to better results than the regulatory philosophy of Dodd-Frank. Alberto Mingardi @Econ Lib on Chris DeMuth, Hayek, and Obamacare. George Will: Can the passive Congress…

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Dodd-Frank: Adversarial Corporatism

Last week was the occasion of my first visit ever to Hillsdale College. Wow, was that impressive: it’s sheer bliss to encounter a horde of confident, smart, and serious kids. The reason for my visit was a big campus event on Dodd-Frank; I was one of the invited speakers. The tape is here. It’s based on a manuscript I’m still noodling over. Here’s the gist of it: Conservative-libertarians mope about Dodd-Frank’s subsidies to big financial institutions. They also mope about the feds’ civil and criminal prosecutions of financial institutions—like, J.P. Morgan. My view is that these things are of a piece. As…

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No Reason, No Benefits: Dodd-Frank in Action                                                                                           Or: The Insanity Plea in Administrative Law

Finally! After a mere two years, the SEC has managed to propose a long-awaited rule to implement Section 953(b) of the Dodd-Frank Act. If you have the patience to wade through it, you’ll get a small but powerful illustration of the stupendous idiocy of the entire enterprise, and of the inability of our legal system to handle it.

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Cull Your Clients

Hillsdale College has kindly invited me to deliver a talk on Dodd-Frank and its aftermath (November 4--I’ll post a transcript afterwards). An early draft of that speech imagines a dystopia in which government produces sheepish obedience not with storm troopers or a propaganda apparatus but through nominally private banks. I’m glad I discarded that draft—not because it’s paranoid, but because it’s, like, so yesterday. “J.P. Morgan to Cull Business Clients,” today’s Wall Street Journal informs us. “Bank Reviews Cutbacks in Loans to Pawn Shops, Payday Firms, Others Viewed as Risky to Reputation,” reads the subhead. As for pawn shops and payday firms,…

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Financing Failure: A Century of Bailouts

Financing Failure

So we were told with the passage of the Dodd-Frank Act that too big to fail was now behind us. Except it isn't. In fact, the conditions supporting bank bailouts have only gotten worse with the nation's largest banks actually increasing in size and scope since 2008. TBTF, however, goes back farther than you might think. This podcast with Vern McKinley on his book, Financing Failure, discusses the regulatory history of bank bailouts rather than winding down insolvent institutions. Contrary to the Hank Paulson and Ben Bernanke narrative of the 2008 crisis, although the scope of the problem was new,…

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