Sheila Bair's Exit Interview On Too Big To Fail

[Bryan Hancock]

The following NY Times piece:

Sheila Bair’s Bank Shot

is an excellent read for anyone with even a casual interest in the too big to fail problem. I am glad to know that there are still some people fighting for rationality in the financial sector. It is well worth the time to read it if you haven't already.

I would be interested to hear people's thoughts on the story.

[Kevin Yeats]

I think the article did a decent job in giving an overview of the 2007-2008 (and in my view ongoing) financial crisis.

The FDIC is put in the unenviable task of finding the least cost way of resolving failed banks while still trying to instill some sense of market discipline. Those two goals are often in direct conflict. Couple those goals with the inappropriate structure of insuring deposits (mispriced). the opaque accounting used for financial institutions, the ability of financial institutions to "innovate", or as one of my college professors puts it "loophole mine" the regulatory structure and regulations themselves and the FDIC's role becomes a Hurculean task.

Pulling back to 30,000 feet and most observers would realize that there are a lot of players and a lot of poor incentives and other factors that share the blame for this recent crisis. The same for every crisis for the last 50 years.

For those of you who like to read, The author of the article that Bryan references also coauthored a book All the Devils are Here which goes into a lot more details.

Another very easy read that covers the subprime debt/credit defaults swaps story is The Big Short by Mark Lewis.

More challenging but a wider view is Nouriel Roubini's Crisis Economics.

and if you don't like reading but can handle a documentary movie, Inside Job again does a decent job of touching on the subject.