Sunday, April 10, 2011

TBTF Banks Are Getting Bigger

That's the message MIT economics professor, and former chief economist at the IMF, Simon Johnson delivered when he spoke at the George Soros conference in Bretton Woods, this weekend

Johnson, in his speech, ripped the government bailouts that Citigroup, Goldman Sachs, and the like, get, and are expected to get in any future crisis. He correctly points out that these banks have an advantage in being able to borrow funds at lower rates than smaller banks that the government won't protect.

He doesn't cover it in his speech, but I suspect that Johnson would call for more regulation of these banks as the solution, when the correct solution is allowing free markets to operate so that proper risks are recognized before investmnets are made. Nevertheless, Johnson's message about how big banks take on huge risks because of the implied governmnent protection is spot on. Here's Johnson's full speech:

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