Too Big to Fail is Too Big

toobig too-big-to-fail

After watching the film, I definitely agree that the notion of firms being  “too big to fail” still exists today, and in more industries than just investment banking. The 2008 financial crisis showed that investment banks are interconnected and rely on each other’s financial wellbeing. In the film, this interconnectedness could be seen after the Lehman Brothers’ bankruptcy filing. Investment banks saw immediate hits to their businesses as a result of the dwindling confidence in the industry. Other firms, such as GE, saw that their operations were affected by the lessening access to capital from investment banks. To the dismay of many, the notion of “too big to fail” means that the government may be required to aid the financial system at large when the market is unstable. Continue reading

Moral Hazard

I think that the concept of “too big to fail” still exists today, as the financial services industry is still an oligopoly with few banks controlling the fate of the economy.  If, for example, a company like Citigroup, J.P. Morgan, or Bank of America were to go under at some point, the economy would fall apart.  Though it has tried to address the concern that banks could dismantle the financial system by regulating proprietary trading, capital requirements and others, the government has not addressed the problem of “moral hazard,” where investment banks take bigger risks because they are dealing with other people’s money and not their own.  The way to reform the banking system is to shift the risk to those that make the decisions to take the risk in the first place.  Continue reading

Too Big-headed to Fail

After watching “Too Big to Fail”, it is clear to me that this notion still exists today. The last piece of information you are left with is that 10 banks hold 77% of all American assets. Wow. These banks own more of our tangible country than the government does. These banks cannot fail. With our nation’s money invested in keeping them alive, another downward spiral will cause the government to loose all the money they had to save the banks this time around. The banks failing in the film were too big because they were responsible for pensions, salaries, life’s investment, college funds, etc. If these banks went under, too many lives would be affected. But now, it’s not very different. All of those same concepts apply but now the government’s money is invested. The banks cannot fail, because then our economy fails. The government would be too low on cash.

An issue I also saw at the end of the film was that the banks are not the only entities that are too big to fail. Our government seems the same way. Only the government seems too bigheaded to fail. In the movie, Paulson “stuck to his guns” about not giving bailouts and instead placed government investments into the banks, just so that he could keep his word. We even see it today with other issues as our government is “taking a break”. People cannot compromise and find solutions because they are stubborn. Yes, it is important to stand up for what you believe, but when your position effects the lives of an entire country, sometimes you need to think of the best interests of the general good, not what you personally believe to be good.

A Problem Too Big To Solve

Although the concept of “too big to fail” was clearly seen in the financial crisis of 2008, I believe it still exists today.  In fact, “too big to fail” is probably an even bigger concern now because of the rapid growing of the few largest banks in the United States. This is an issue because banks are able to get away with risky behaviors since they know that they won’t be allowed to fail. We haven’t learned from our past failures. Instead of the government finding ways to fix this problem, it seems to be getting worse. We can’t deny that these major banks are at the center of our economy and that we need them to be in business in order for our economy to function properly.

The major banks in the United States take up a large percentage of the economy as a whole. For this reason, it is impossible to let one of these large banks collapse, because the economy would then collapse as well. Since these banks are only getting larger, the problem persists. Just as it is common for the rich to get richer and the poor to get poorer, the major banks are gaining more and more control of the United States economy, while smaller banks are being pushed out. The distribution of the economy as a whole is getting less and less. The government has no chance but to step in in the event of a crisis, because without their help, the economy would turn to disaster. Where does this end? A solution is needed in order to take the risk out of our economy. So much of our society is dependent on our large banks and it is likely that they will keep getting larger. The question becomes, should we implement policies to force these banks to downsize, or should we let them go and risk the possibility of the government having to provide bailouts?

Getting Bigger and Bigger

First I wanted to say that I have wanted to watch the movie “Too Big to Fail” for a while now, so I was happy to see that it was the topic of our blog post. Back in 2008, major banks and insurance companies AIG were considered “too big to fail.”  Since 2008, these firms have only become bigger with the Bank of America-Merrill Lynch, JP Morgan Chase-Bear Sterns, and Wells Fargo-Wachovia acquisitions. To me, obviously if they were considered too big to fail then, there are certainly still too big to fail now. In the film, Timothy Geithner explained to Hank Paulson that an option to save some of these banks is to work out an acquisition deal between two of them. Hank looked at him puzzled and said something along the lines of “you want to make the banks that we have considered too big to fail even bigger?” It is counterintuitive, but given the situation it was the best move. Although they are bigger, added regulation will help to oversee that the banks are working ethically. So even though the banks are getting bigger and bigger, they can be more easily monitored. With the added regulation, it would be almost impossible for a company to put itself into a position to fail.

Although the notion of too big to fail still exists today, it is definitely not as concerning to me presently because of the added regulation. The companies that are too big to fail are closely monitored and would be unable to fall into the same situation as 2008. The only thing that I worry about, that hopefully won’t happen in my lifetime, is that the same cycle of deregulation and corporate greed will occur.

Looking Behind the Curtains

6463967After watching “Too Big to Fail,” it is clear that the financial crisis in 2008 further exacerbated the problem of “too big to fail.” The fact that “10 banks now hold 77% of all US bank assets” is proof of this (TBF). Clearly we didn’t learn from our mistakes…the size and span of these banks is what caused such destruction. Rather than learn from this, we made these banks even bigger. It is clear, however, that the government had little time to come up with a solution. A solution that, if not effective or executed fast enough, could have ruined the economy. Bernanke emphasizes this when they are trying to get the stimulus package passed: “If we don’t do this now…we won’t have an economy on Monday.” Continue reading

Too Much to Handle

The idea of a firm being “too big to fail” is one that resonates clearly throughout the film and certainly applies to the present as well.  The film delves into a perspective of the financial world where decisions had to be made in a timely matter, and as the institutions involved watched the financial system come apart at the hinges, there was a distinct compounding effect as a resolution was reached.  With the government intervention and following behavior from the banks, it is evident how much influence these institutions hold in our economy.  Relying on trust was shown to be a tricky and unpredictable aspect, while still necessary to provide a foundation for which the financial system is based.

While trust was not always present, a solution for the banks still came after stubborn refusals to cooperate.  Knowingly watching Lehman fail as they did, with no lasting repercussion, followed by the capital infusions undermined the intended message of keeping private sector problems private.  When government intervention is necessary on such a scale to stop a downward spiral, its hard not to justify the notion of “Too big to fail.”

The situation today hasn’t changed considerably, and the power held by such a small group of banks represents a plethora of factors involving most members of society.  The last thing we want to experience is a market condition like the one in the film again, and the need to support private firms with public money may be an unavoidable reality of the world today, and the film ominously describes the impending problems that would result otherwise.  The notion of “Too big to fail” is true whether or not we like it, as the film showed, since other solutions couldn’t provide resolution.  We may have simply stuck with a mindset of “if it’s not broken, don’t try to fix it” but a similar situation today would certainly require measures similar to the film, and reinforce the notion of “too big to fail” in the present day.

Does Bigger Mean Better?


The Original TBTF one way ticket to icy fun

It should be noted that we have seen the notion of  “too big to fail” long before Congressman Stewart Mckinney’s use in the 1984 Congressional hearing. There was once a ship, a rather large one called the Titanic , whose creators believed that its size and technological advances made it indestructible. The biggest ship of its time, it set off on its maiden voyage to much glory and praise. It was in every sense,  “too Big to fail”. We all know how this story ends. (Side note: Titanic was financed by J.PMorgan). I think it is hard, especially after watching the film, to think the notion of  “too big to fail” does not still exist. The 6 largest banks in the U.S control more than 66% of the $13.1 trillion worth of assets in the economy. These figures stand as evidence as to how much  larger these banks have been allowed to grow. With the events that unfolded in the film, one would think government would put measures in place to make sure the exact opposite of this happened. The financial industry has slowly come under more and more of a monopoly for these larger banks as they absorb smaller banks in their path. It was interesting to see that one of the solutions presented was merging banks to make them even larger despite their already large size was the reason for the problems being faced. There is a dire  need for government intervention to help regulate the market and reduce the power these corporations have over the global market. These banks were given federal funds to increase lending as a way to increase capital in the market. Instead they showed their true greed and reduced lending to one of its lowest levels in years. As former politician David Stockman said, ” If they’re too big to fail, they’re too big to exist. They should be broken up, reduced in size if we’re to have a safe and stable financial market.”(  However, with the ongoing shutdown it seems the government has a hard enough time regulating their own day to day business to take control of the market.  These institutions should have never been given the power to cripple the entire global economy. But as the saying goes, the bigger they are, the harder they fall.

Reckless Behavior

I believe the notion of “Too big to fail” still exists today. As we have learned from the recession and the fall of Lehman Brothers, the few major banks have a colossal affect on the economy.  Due to the massive amount of power these banks possess, it is imperative to keep the financial system sound and resilient, even if this means government intervention. The influence these banks have is very far stretching, reaching areas beyond Wall St. For example in the video it reveals due to the Lehman Brother’s struggle, there were catastrophic consequences in European banks and even GE was having trouble funding their day-to-day operations.

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The Government is NOT too Big to Fail

Shut down

October 1, 2013

To start I have to admit I didn’t think there was such a thing as the government shutting down, so much for the “too big to fail”.  Yes, this isn’t a failure it is just due to the government parties’ inability to meet each other half way and make up their minds.  This isn’t like the common situation in many households of what to eat tonight for dinner.  The typical back and forth, can’t come to agreement and each family member just decided to do their own thing.  No this is real life, real people losing money as they wait for the congress to make a decision on funding.  Not to mention these people who also work for government and are the reason why some people in America for the past 3 days haven’t been getting paid, ARE getting paid.  Well that seems weird doesn’t it?  The government is not grasping that there are people waiting to go back to work, to bring home money to feed their families.  Similar to Lehman Brothers and Enron, not thinking of the ‘smaller’ people who will be affected. Continue reading

The Ultimate Fiscal Consolidation

The notion of “Too Big to Fail” not only still exists today, but it is even more relevant to our current financial system in the United States than ever before. As shown in the film, the ‘great recession’ of 2008-2009 ultimately marked the first time that people really started to question the size and power of some of our largest financial institutions. Up until this point, US Banks, for the most part, were perceived as highly respected and admired institutions that were a symbol of America’s economic strength. Rather than limiting the size of these banks, popular opinion of the 1980s and 1990s was that it would be in our best interest to let them grow as much as possible so that they could effectively compete with giants of the industry abroad in Europe and Japan. Ultimately, it was this popular belief, coupled with pressure from Wall Street’s most powerful figures, which prompted arguably the most notable piece of financial legislation of my life time: the Gramm-Leach-Bliley Act of 1999. Under this law, the concept of ‘Universal Banks’ reemerged in the US for the first time since the 1930s as investment banks could once again participate in commercial banking activities and vice versa. Ultimately, it was this change, commonly referred to as the fall of Glass-Steagall , that set the stage for the emergence of institutions that are in fact ‘Too Big to Fail’.

As shown in the movie, major financial institutions played a pivotal role in the financial crisis, some for good reasons and others for very bad reasons. Clearly, it was the irresponsible and overzealous actions of numerous institutions that directly contributed to the crisis. Yet at the same time, it was the cooperation of the whole industry that ultimately helped to save it from a complete collapse. That being said, one of the most significant outcomes of the 2008 financial crisis was a wide scale consolidation of Wall Street. Prior to 2008, there were dozens of banks that were seen as significant financial institutions in terms of size and market share. However the crisis completely changed the layout of the industry as the strongest banks seized control of the market. As noted in the film, 10 banks now control 77% of all US bank assets and, even more staggering, the six largest banks control 67% percent of total assets ( Although there has been a slight resurgence over the past couple of years, the number of mid-size and boutique banks dropped substantially as they did not have the financial might to withstand the crisis and so were forced to declare bankruptcy or be acquired by megabanks such as J.P. Morgan or Bank of America.

Seeing these staggering market share figures, it is hard to argue that the notion of “Too Big to Fail” no longer exists. All of these banks that were deemed critical to the US economy in 2008 are now bigger and therefore even more critical than ever. Ultimately, without these banks, the US economy would likely cease to be relevant and if that doesn’t mean that they are ‘Too Big to Fail’ then I don’t know what does.

To conclude this post, I would like to point out that most believe that the solution to this problem would be to simply reduce the size of the banks. While this is probably a smart idea, I strongly believe that the size of the banks was not the cause of the crisis and that all of the support to reinstate Glass-Steagall is not warranted. The main reason that our banks are still considered some of the strongest in the world is because they are not limited to choosing between being an Investment Bank or a Commercial Bank. Where was J.P. Morgan 20 years ago? While it was certainly a strong bank, it was not considered one of the 10 most powerful in the world. And now, along with the likes of Goldman Sachs and other US banks, it is arguably the most respected institutions in the world. Once again, the problem with our financial system was not that banks were getting big, but it was their ability to take on too much leverage due to the lack of strong regulatory agents in the US. I have attached an insightful article below by one of our own professors, William Gruver, which speaks more about this issue.

Room Full of Trillions

dick-fuldThe scene that intrigued me the most, was when Henry Paulsen invited all the CEO’s of the big banks to come together and meet at a round table to try and save Lehman Brothers. That room was full of people who together controlled a ridiculous sum of money. Yet, all I kept thinking about was how they are just human beings weighing their options and trying to make decisions that are either best for their companies, themselves or both. The CEO’s in the room included: John Mack (Morgan Stanley), John Thain (Merrill Lynch), Jamie Dimon (JP Morgan), Lloyd Blankfein (Goldman Sachs), and Vikram Pandit (Citigroup).

I will now try to write a dialogue as if I was at this round table discussion, and had the undivided attention of these CEO’s.

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Crisis Management

“Too Big to Fail” is a fantastic portrayal of a dismal time in our country’s financial history. Careers were lost, retirement funds seemed to disappear overnight, and families were forced into frugality on the smallest of purchases. Personally, the crisis affected my family fairly drastically due to timing and unforeseen natural disasters. A year following the fallout, my house took on 5 feet of water and mud from a major storm that devastated my entire town and area. Forced to move into my grandmother’s house for the time being, we took to repairs and renovations that we hoped would get us back into our home in no time. However, still feeling the effects that the stock market crash took on members of my family, we took to working on the house without outside help in order to save money. A six-month job turned into 3 years fairly quickly with us just moving out of my grandmother’s home 2 short months ago. Assets that would normally be in place for such a venture were allocated in more important areas because of the massive hit the crisis took on my family. We are not alone in the climb back from 2008, for everyone was affected in different ways due to careless decision making by people who did not believe any type of crash was possible.

Keynesian Economics Leads to Big Failures

I would like to approach the question of if too big to fail still exists.

With financial institutions ever so tied in with the national economy, one must first ask how this happened. To accurately answer to big to fail, one must first understand the origin of these HUGE institutions. Their birth started with an idea long ago when Brit John Maynard Keynes stated that the private sector can commit mistakes that can throw off the nations economy, and that it is the duty of the public sector, specifically the government to re-infuse money and with that spending confidence to mitigate the ebs and flos of the economy.

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Get Educated on The Origins of the Great Recession (TBTF Film, Blog 5)

The last BC, (Chelsea L, Kamal, Jordi, and Frank) invite you to Blgo prompt 5.

Watch “Too Big To Fail” and answer one of the following.

A) Choose a scene that resonates with you most and create a dialogue in which you have the opportunity to speak with that/those characters. What would you say to them?   Write this as dialogue would appear.  Be creative.
B)  If you or someone you know were personally affected by the failures of the companies featured in the film explain the impact these events had and still have on you today.
C) Do you think this notion of “too big to fail” still exists today based on the findings of the film?
Blogs due Friday at midnight, comments by Sunday.