Month: March 2009

What would a healthy banker say about the the economic crisis?

After my last few vague ramblings on the economy I wanted to hear what somebody who actually knew what they were talking about thought.

I found the ideal candidate: John Allison, former CEO of BT&T Bank (which hasn’t gone broke), speaking for the Ayn Rand Institute.  Now don’t get me wrong, the folks at the Ayn Rand Institute can be a bunch of crazy mofos!  But this guy was facinating and makes a lot of sense.

It’s a dense presentation (as in, there is a lot of content squeased into it) so follow the related slides and pause it often – as I did.


The talk and accomanying slides can be found here.

The financial system vs. financial institutions


… what struck me most was Geithner’s repeated conflation of our “financial system” and our “institutions”. Mr. Geither’s unspoken assumption is the fixing our financial system implies ensuring that incumbent troubled financial institutions are “strong”. But that’s not right. Our financial system is composed, in part, of financial institutions, but it is supposed to be larger and more robust than any specific firm. Three years ago, Mr. Geithner would have readily conceded that financial institutions are supposed to come and go, rise and fall, succeed and fail as a matter of market discipline, and that our system is made stronger by that flow of creation and destruction than it would be if some state-manged cadre of crucial banks were at its core. Of course, we all knew three years ago that some institutions had become “too big/complex/interlinked to fail”, but we viewed that as unfortunate, and would have foreseen that if any of those banks got badly into trouble, the goverment would be forced to intervene and resolve the bank at some taxpayer cost, as it had in the case of earlier TBTF banks. Three years ago, no one would have suggested that the strength of our financial system and the strength of Citibank are inseparable.

– from Interfluidity

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