"A Huge Mistake"

From an academic

Former Federal Reserve Governor Frederic Mishkin, a professor at Columbia Business School, said it was "a huge mistake for the government to think it knows the best size of financial institutions." At the same time, he acknowledged that financial institutions are encouraged to get too big "because they are likely to be bailed out."

And I suppose allowing banks to get as big as they wanted such that they threatened the economic viability of the world is a "minor mistake?"

Comments

[RunningAmokInFantasyland]

"minor mistake":

"A mere bagatelle."--W.C. Fields.

"A mere bag of shells."--R. Kramden.

"The economic fundamentals of Iceland are strong."--F. Miskin, 2006 report, "Financial Stability in Iceland."

[Toro]

"Iceland is strong!"

LOL

[jag]

Does it matter how big ANYTHING gets so long as it isn't LEVERAGED to the hilt?

If Citi, Bear or Lehman had rational leverage ratios would their demise even been possible much less as rapid had they been less idiotically leveraged?

This is the point that I am amazed is so rarely made, so rarely reimphasized; the leverage these banks used was absurd.

Its "the leverage, idiot", isn't it?

[bullethead]

Doesn't matter how big anything is, or how leveraged, as long as I don't have to pick up the tab when it implodes. True downside risk tends to temper this kind of stupidity. Unfortunately said risk has been transferred and that which hasn't is now further concentrated. Futures so bright, I gotta wear shades ...

[psychodave]

@jag | November 10, 2009 at 04:20 PM
"Does it matter how big ANYTHING gets so long as it isn't LEVERAGED to the hilt?"

Oh hush you killjoy! How else can mankind build a better Liquidity Trap?

"Its 'the leverage, idiot', isn't it?"

Yes, by all means, but we're calling it by the euphemism "Risk Management" this season, and mitigating it with better capital ratios.

I don't yet know what the Tier 1 capital equivalents of pfd shares in FNM/FRE and CDSs from multi-national corp.s of stirling credit rating will turn out to be.