Friday, June 4, 2010

Eugene Fama, Simon Johnson, and Too Big To Fail Banks

Gene Fama, a staunch defender of markets and of the competitive market economy, and widely known as “the father of modern finance”, is interviewed by CNBC in a clip here .

He answers questions by Ed Lazear from Stanford university and the Hoover Institution.Excerpt :

“(Too Big To Fail) is not capitalism. Capitalism says – you perform poorly, you fail.”

And that one:

TBTF gives big financial firms “ a license to increase risk; where the taxpayers will bear the downside and firms will bear the upside.”

A must see.

Simon Johnson comments favorably here .

My comment: An interesting case of converging diagnoses at a time when regulators consider imposing much higher capital requirements on banks, as an alternative to shrinking them. And a welcome clarification on the nature of our current economic system, wrongly accused of being excessively "capitalist", but which is more a system rigged in favor of large institutions: firms, not markets.

No comments: