Call to stop bailouts of insolvent banks, no matter how big they are

Posted: April 28, 2009 in society
Tags:
Published: April 27, 2009

The chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair, said in a speech on Monday that her agency should have broader powers to take over and close a variety of financial institutions to prevent taxpayers from shouldering the losses on firms deemed too big to fail.

Instead of just seizing commercial banks, Ms. Bair said the F.D.I.C. should be able to take over troubled insurers, bank holding companies and other insolvent financial institutions and force stockholders and bondholders to bear the cost.

“Viable portions of the company would be put into the good bank, while the ailing portions would remain at the bad bank to be sold or closed over time,” Ms. Bair said at a speech at the Economic Club of New York.

So far, the federal government has committed to spend $12.8 trillion — which includes the bailouts of the insurance giant American International Group and the mortgage finance companies Fannie Mae and Freddie Mac — to resolve the credit crisis. As part of that, more than $90 billion has been spent to shore up Citigroup and Bank of America.

Ms. Bair said that the concept of “too big to fail” should be “tossed into the dustbin” in favor of a resolution program that would clean up the balance sheets of insolvent institutions so they can reorganize as better capitalized companies. The notion of too big to fail “has contributed to unprecedented government intervention into private companies,” she said.

“Taxpayers should not be called on to foot the bill to support nonviable institutions because there is no orderly process for resolving them,” she said.

Other major financial figures, like the hedge fund manager William A. Ackman, have also called for expanded government power to seize insolvent banks. In a discussion on “The Charlie Rose Show” on Friday, Mr. Ackman called for the unsecured creditors of troubled banks to swap their debt for equity.

Reblog this post [with Zemanta]
About these ads
Comments
  1. [...] Call to stop bailouts of insolvent banks, no matter how big they are (isiria.wordpress.com) [...]

  2. the audacity of the government is criminal.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s