In a report yesterday evening on NPR, it was not at all clear that "too big to fail" is more than wishful thinking. During a hearing of the Financial Crisis Commission, the commissioners seemed unconvinced.
Mr. PHIL ANGELIDES (Commission Chairman, Financial Crisis Inquiry): One of the biggest questions that Americans have is, how do we break this cycle? What is the single most important thing that should've been done and can be done in the future to break the cycle, the single most important policy action that we can take? There has to be a credible way to let firms fail, in fact, require that they fail.
KEITH: And Fed Chairman Bernanke said the regulatory overhaul recently signed by the president aims to do just that. He said the new rules don't even allow the government to give direct aid to firms like the Fed and Treasury did during the crisis. Instead, regulators would have to step in and wind the firms down in an orderly fashion.
Mr. BEN BERNANKE (Chairman, Federal Reserve): Now, let me just be clear, this is not going to be easy to implement because these are large complex firms with multinational presence.
Unidentified Man: And significant power.
Mr. BERNANKE: And significant power. But it's a very important step to take away the discretion.
The Fed chair is hopeful.
Mr. BERNANKE: My projection is that even without direct intervention by the government, that over time we're going to see some breakups and some reduction in size and complexity of some of these firms as they respond to the incentives created by market pressures and by regulatory pressures as well.
That's a "projection," not an assurance. I get the feeling that, for too many, "big" is better, "big" is American capitalism, and "big" isn't going away anytime soon.
