Knights Who Say…

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Stop the presses.  The Wall Street Journal editoral page — I repeat, the Wall Street Journal editorial page — catches up with me, Bernanke, Yglesias, Paulson, Spitzer, Klein, Volcker, Johnson, Bair, Kwak, Marshall, and A New Way Forward.  After taking Goldman Sachs to task for complaining about the wispy strings attached to its federal bailout money (I repeat, the Wall Street Journal editorial page), they end thus:

The larger issue going forward is whether Goldman is “too big to fail,” which means that everyone knows the feds will ride to the rescue if it gets into trouble again. Before Bear Stearns, investment banks were allowed to fail, a la Drexel Burnham. But after last autumn, no one will believe it. And Goldman will hardly mind if that’s what the marketplace believes, because such an implicit taxpayer guarantee will let it borrow more cheaply and thus make more money. Think Fannie Mae again. Even now on the taxpayer dime, Goldman is still trading on its own equity account — risky banking behavior.

The point is that Goldman and other banks can’t have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system. We’re glad Goldman wants to flee Barney Frank’s embrace, but it’s still only half way back to the promised land of capitalism — which includes the freedom to fail.

The whole editorial is worth reading, as it does as good a job as I’ve seen of concisely demonstrating the flaws in the argument now being flaunted by the banks and many on the right that the banks are lining up to give back their bailout money because the gummint is so darn oppressive.

I need to dash out and get some teabags, but I have to catch my breath, first, though.  I mean, the Wall Street Journal?  What’s up with that?

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One Response to “Knights Who Say…”

  1. Knights Who Say… « Hungry Hungry Hippos Says:

    […] Knights Who Say… By urbino Financial Times columnist Martin Wolf catches up with me,  Bernanke, Yglesias, Paulson, Spitzer, Klein, Volcker, Johnson, Bair, Kwak, Marshall, A New Way Forwa…. […]

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