As advocates for shareholder rights, we strive to make sure our members are heard on important matters that affect all of our portfolios. That's why the White House asked for feedback from the Motley Fool community and agreed to answer your questions. Here is the fourth installment of our interview with Austan Goolsbee, chief economist for the President's Economic Recovery Advisory Board.
Search on the phrase "Too Big to Fail," and you'll get 28,000 references to the now-ubiquitous term for behemoth businesses that the government cannot allow to fail because the broader economy is tethered to the same cement galoshes. (See also: "Bailout," "moral hazard," "Freddie Mac
"Too Big to Fail" was a hot topic in the call for questions for David Gardner's and my meeting with the White House to discuss the administration's push for financial-industry regulation reform. Here are some examples.
- Coconnor55 wrote: "'Too big to fail' and unregulated markets need to be addressed. All markets need to be transparent and public -- no shadow markets."
- blaueskobalt invoked the name of the former IMF chief economist: "Simon Johnson recommended progressive capital requirements for banks as a way to incentivize them to become smaller so that 'too big to fail' was no longer a reality with the biggest banks. Are you considering this policy? If not, why not?"
- TyrantBone said: "I would support having the agencies consolidated as long as the innovation was still allowed. Can't we force banks to take less leverage when 'bigger than life' financial products are gaining steam? Maybe not harm innovation, but limit abuse."
- Edfinn1 suggested: "No one is too big to fail, or smarter than the market. If institutions have cross-collateralized fancy new instruments, or designed new instruments too complicated to be explained and underwritten in a reasonable way, it's a fraud, a Ponzi or fattening. … To think anyone is too big to fail removes all discipline from the market, and rewards the insiders, management and entrenched few concentrated shareholders who cause huge losses to the market and the country. … Stop the regulatory shopping that allows an AIG or Enron to opt for regulation by the most captive, least able agency. Break up any entity that is 'too big to fail,' and restore discipline to the market."
Here's what Austan Goolsbee, chief economist for the President's Economic Recovery Advisory Board, had to say about big business failures and how the administration plans to handle future bailout situations.