The proposed remedy -- making the megabanks smaller and subject to market discipline -- is sound but is presently subject to evasion through their political influence. The megabanks love to do favors for politicians and regulators so as to gain express or covert immunity from discomfiting legal requirements. Stronger ethics laws are needed, applicable to the megabanks and to politicians and regulators.
I notice several commenters calling for executions. Perhaps the government that follows the crash will agree with you. Just remember that the next group to follow the aristocracy into the pit are the people who were radicals under the old regime. 'A Revolution Devours Its Own Children' one of them said before his murder.
The crash looms. If interest rates went up one or two percent the interest payments on our $16 trillion national debt would start to consume the entire budget. That is exactly what is happening in Europe. The central bankers were able to put some band-aids on the problem in 2008 and now have spent 3 and 1/2 years trying to 'stimulate'the world economy by pumping liquidity into the system but the burnout point has now been reached. The forces of the market are not a theory, they are a law as inexorable as any in physics. The left-wing social paradigm is against reality and reality will now assert itself.
It isn't enough to shame them. They have to be financially stripped. They have stolen from all of us and letting them retire with their personal accumulated wealth is not enough punishment.
Couple thousand years ago it was noticed that Democracy tends to destroy itself by trying to make the impossible mandatory and the inevitable illegal. Perpetually borrowing more is impossible, at least without growth; making firm failure illegal does not get rid of incompetent wealth-destroying firms noir their leaders.
Interesting article, and especially interesting in that it recommends the same thing that many leaders of the left are screaming about - that to date no one involved in the financial meltdown has gone to prison.
The problem with the whole thing is its complexity - it's difficult for people to respond to what they don't understand. The financial industry over the last few decades has become exotic - the different way of making money means that this world now speaks a different language. And, it's complexity allows it to be manipulated - seems so anyway.
In any event, it's hard to argue against tossing people in jail for what has happened over the last few years. it may not do any good, but it would certainly make everyone feel better.
Young people mistake this financial debacle for capitalism, point their finger at it and say "look, capitalism isn't working".
P.s. Great article, clearly presented and right at the core.
Article completely omits JP Morgan from the list, for incompetent losses to hedge funds. The browbeating they got from Congress is the only alternative to the so-called marketplace where the author expects banks to completely go out of business. And how realistic is that, Nicole? Should millions of investors get creamed to make sure the executives 'learn their lesson?' They will never go away, but only come back in an effort to factor the assets of one failed institution into another, and reposition their skills a la John Corzine, who never 'learned his lesson' after being fired from Goldman, and then from the governor's mansion.. And none will on that account be convicted for breach of fiduciary responsibility.
Better yet, let's do a third alternative and apply RICO and the antitrust laws to teach a lesson, instead of ideating what the free market is supposed to do to send us into rapture, after waiting so many years.
We are owned and run by Central Banks and their, well, stooges, known as politicians who live richly by the laws they pass. Market Place??? Doesn't exist as anything more than a phrase to all of them.
"What should outrage people aren’t Diamond’s actions, but the government’s."
Well, if it's OK, I'd like to be outraged at both.
Why aren't these criminals put in jail?
Banks are arms of the state and systemically important. They cannot be allowed to default on their deposits, derivatives contracts, and senior debt. The current incentive structure allows bank managers to take huge risks, fail, and retire rich.
When banks fail and are bailed out by the state, shareholders should be wiped out. Management and the board should be promptly executed, China-style. The crime is the bank failure; any fraud or other chicanery is incidental.
Western financial is corrupt and is a house of cards ready for the right event to trigger a collapse.