FDIC chair Sheila Bair thinks she should be able to close "systemically important" financial firms that are failing, so that the shareholders and creditors bear the cost of the failure, rather than the American taxpayers. Bair says that "too big to fail" should be "tossed into the dustbin. ...Taxpayers should not be called on to foot the bill to support non-viable institutions because there is no orderly process for resolving them.” This can be done with a "good bank, bad bank" mechanism, if owners and creditors are made to bear the cost of the bad assets. See Vekshin, Bair Seeks Power to Shut 'Systemtically' key Companies, Bloomberg.com, Apr. 27, 2009.
That's undoubtedly a necessary action to take, especially with firms that have simply gotten too big with too much risky leverage. It will likely still not be enough, since we need to revamp the rules so that no financial institution can grow "too big to fail" in the future. We need to re-invigorate antitrust regulation of financial institutions, re-build the walls between commercial, investment and insurance industries that were breached with the breakdown of regulation, and consider ways to encourage more localized banking that can respond to regional needs.
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