Comments on: Shocked! Shocked! http://streetwiseprofessor.com/?p=3398 Research (on Financial Markets) Conducted by Other Means Mon, 06 Sep 2010 15:16:44 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: The Professor http://streetwiseprofessor.com/?p=3398&cpage=1#comment-72505 The Professor Tue, 16 Feb 2010 22:14:00 +0000 http://streetwiseprofessor.com/?p=3398#comment-72505 Mossy--complicated question. Short answer: yes, I believe that letting biggies fail is preferable in most circumstances. The question always is: who bears the loss? The loss is there, the question is whether it is socialized, or left with those whom the defaulter owes money. The problem with bailing out big firms is that gives them the incentive to get too big. Fannie and Freddie grew bloated because of the expectation that if they get in trouble, they'd be bailed out. The problem is that governments have little credibility is saying they won't bail out. The pressure to do so is immense. That's why I made a half-joking reference to Dr. Strangelove and a doomsday machine in the past. If the governments can precommit not to bail out, via some mechanism, the need for a bailout will likely never arise. Mossy–complicated question. Short answer: yes, I believe that letting biggies fail is preferable in most circumstances. The question always is: who bears the loss? The loss is there, the question is whether it is socialized, or left with those whom the defaulter owes money.

The problem with bailing out big firms is that gives them the incentive to get too big. Fannie and Freddie grew bloated because of the expectation that if they get in trouble, they’d be bailed out.

The problem is that governments have little credibility is saying they won’t bail out. The pressure to do so is immense. That’s why I made a half-joking reference to Dr. Strangelove and a doomsday machine in the past. If the governments can precommit not to bail out, via some mechanism, the need for a bailout will likely never arise.

]]> By: mossy http://streetwiseprofessor.com/?p=3398&cpage=1#comment-72499 mossy Tue, 16 Feb 2010 18:08:24 +0000 http://streetwiseprofessor.com/?p=3398#comment-72499 Professor, I know a lot about Russia and zip about economics. So sorry for the stupid question I'm about to ask. Is your position that "too big to fail" shouldn't exist? That we should have just let the biggies collapse? Could you link to a previous post (or posts) where you explain what you think should have been done? Professor, I know a lot about Russia and zip about economics. So sorry for the stupid question I’m about to ask. Is your position that “too big to fail” shouldn’t exist? That we should have just let the biggies collapse? Could you link to a previous post (or posts) where you explain what you think should have been done?

]]> By: Charles http://streetwiseprofessor.com/?p=3398&cpage=1#comment-72498 Charles Tue, 16 Feb 2010 15:14:38 +0000 http://streetwiseprofessor.com/?p=3398#comment-72498 My problems with bailouts is that they overwhelmingly are instances where political considerations dictate economic winners and losers and they do not let economic considerations determine the survival of viable institutions. My problems with bailouts is that they overwhelmingly are instances where political considerations dictate economic winners and losers and they do not let economic considerations determine the survival of viable institutions.

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