Buffett Tells Commission It Can't Stop "Too Big To Fail"

[Parsad]

Bloomberg article on Buffett's comments regarding "too big to fail" institutions.  Cheers!

 

http://journalstar.com/business/local/article_7030eaa4-3bb6-5986-94b4-fd8a4b21acff.html

[tyska]

In my opinion, for what it's worth  ;D, I feel he made the argument that they should be allowed to fail. If billionaires are buying into things with the expectation that the government (taxpayer) is obliged to step in to protect shareholders, something is seriously wrong. Again, I may be reading it wrong, but he seemed to come across as arrogant, which I've never really got off him before.

 

Dan

[ericd1]

I don't think he was arrogant...He was honest and spoke factually about how the crisis was perceived by some investors...I don't think he was supportive of letting them big businesses fail. "You will always have institutions that are too big to fail, and sometimes they will fail,'' (meaning government will have to support them when they fail) -- Buffett.

 

Like it or not (actually I support the idea) the government, or central bank is the the creditor of last resort. Only my opinion, but I thought the Federal Reserve and government acted responsively during the crisis. Sure there are elements that perhaps should have been handled differently, but I'm not going to "Monday morning quarterback" the decisions that were made.

 

 

[SharperDingaan]

 

WEB just recognizes what many others have missed .....

 

http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?currentPage=all

 

"The Irish financial markets are governed by rules rooted in English law, and under English law bondholders enjoy the same status as ordinary depositors. That is, it was against the law to protect the little people with deposits in the bank without also saving the big investors who owned Irish bank bonds.

 

This rings a bell. When U.S. Treasury secretary Hank Paulson realized that allowing Lehman Brothers to fail was viewed not as brave and principled but catastrophic, he, too, claimed he’d done what he’d done because the law gave him no other option. But in the heat of the crisis, Paulson had neglected to mention the law just as Lenihan didn’t bring up the law requiring him to pay off the banks’ private lenders until long after he’d done it. In both cases the explanation was legalistic: narrowly true, but generally false"

 

SD

[Myth465]

 

WEB just recognizes what many others have missed .....

 

http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103?currentPage=all

 

"The Irish financial markets are governed by rules rooted in English law, and under English law bondholders enjoy the same status as ordinary depositors. That is, it was against the law to protect the little people with deposits in the bank without also saving the big investors who owned Irish bank bonds.

 

This rings a bell. When U.S. Treasury secretary Hank Paulson realized that allowing Lehman Brothers to fail was viewed not as brave and principled but catastrophic, he, too, claimed he’d done what he’d done because the law gave him no other option. But in the heat of the crisis, Paulson had neglected to mention the law just as Lenihan didn’t bring up the law requiring him to pay off the banks’ private lenders until long after he’d done it. In both cases the explanation was legalistic: narrowly true, but generally false"

 

SD

 

Pardon my French but thats BS. He himself even mentions laws can be changed later in the article. The government could and also has been able to do whatever they want.

[SharperDingaan]

 

No disputing that laws can be retro-actively changed, but in 2 cases they weren't - so does it really happen? Banks are 'special' ....

 

If you're a systemic bank your bonds are less risky than expected, & they should trade at a lower yield because of the implied backstop - & they generally do in normal markets. The bonds can/will default, but for the most part you will get your principal back - just not when/how you expected it.

 

All a backstopping sovereign has to do is with-hold interest payment ahead of a forced 50% debt/equity conversion, & a forced re-terming of LTD starting at 10 yrs +. Instant recapitalization, & debt service reduction - or nothing. Bankrupt or deal, you're choice - & they don't need 3 banks.

 

SD