Rational Discussion of Controversial Topics


aliad 13 February 2016 11:06 PM

It's already too late to avoid the to-big-to-fail trap. The world banking system is already in a very fragile state. My gosh, the Bunds, the safest of the safe, is in major trouble. Because splitting up a bank requires a serious accounting and re-negotiation of counter-party risk, we'd have to bail them out before we could split them up.

A move by the US government to do a bail-in rather than a bail-out would probably bring down the world finances markets, locking up international trade until business could re-adjust. This would probably be good for the world economy in the long term, but it would be very uncomfortable in the short term and thousands of people would die as a result o starvation and other effects of economic dislocation.


ChristianKl 14 February 2016 09:01 AM

Are you saying that there's effectively no way for a bank like Goldman Sachs to spin of some of it's devisions as separate companies even if it's management wanted it?


aliad 14 February 2016 06:59 PM

It can't do a spinoff that substantially reduces it's assets unless it can satisfy it's creditors that the risk of d3efault on its obligations is not going up.

A simplified example: you are likely to go bankrupt in the near future and you also owe me a large amount of money. You also own profitable business that you run with your son. You can't decide to slit the company in half and give one half to your son. If you try I can sue you for trying to remove assets that I have a claim on from the bankruptcy court.

A scaled up version of this is what most of the big banks are facing right now. Goldman Sachs is looking a little batter than some of the other banks but only as long and the debts of other financial institutions that are a large part of its "assets" hold their value.