Vicious Attacks on Tyler Cowen

Tyler Cowen is out with a new column at NYT that is being heaped with abuse. From twitter:

James Mackintosh @jmackin2:

Baffled by Tyler Cowen's objection to breaking up banks in NYT. Says using FDIC "hardly gets rid of bailouts". But FDIC doesn't do bailouts!

Mark Riley @smiler29:

Not sure I understand this but Tyler Cowen thinks shareholder liability could make banks behave

Constantin Gurdgiev @GTCost:

A bizarre piece by Tyler Cowen. I can't get through to his logic on profitability, size & capitalization. At all!

Mitchell Hall @mitchellhall

Very confused RT @EconOfContempt Making Shareholders Liable for Big Banks nyti.ms/ypUUG4 A pretty confused column from Tyler Cowen

@joelmmathis

dude, you made me click on a *Tyler Cowen* article. I will not forgive. I will not forget

All the brouhaha is over Cowen's column where he correctly writes:

BAILING out financial institutions deemed “too big to fail” has become wildly unpopular, as people across the political spectrum are now talking about splitting up America’s large banks. But such breakups are probably not the best way forward, because they would penalize size instead of failure.

But is Cowen's solution then that the rug should be pulled from under FDIC and other forms of moral hazard protection, which results in incentives for banks to take on extreme risks? Does he suggest allowing the free market to resolve the problem? Hah! He has become a complete government technocrat, with a new technocratic scheme that leaves duller technocrats up in arms. Cowen proposes:

There is a better alternative: expanding the liability for major financial institutions. If a shareholder invests a dollar in a big bank, why not make that shareholder liable for the first $1.50 — or more — of losses as insolvency approaches? In essence, we would be making the shareholders liable for the costs that bank failures impose on society, and making the banks sort out the right mixes of activities and risks. 

This is a possible outcome in a free market. But, who the hell is Tyler Cowen to propose this structure be imposed on the banking system by government decree?

Why can't we allow competing structures to emerge in a free market system and may the best structures win?

There is heaps of scorn to be thrown on Cowen, but not for the specific technocratic proposal he has made, but for his becoming a technocrat in the first place. He knows better, or should.