Stiglitz Reality Check: Banks Fail All The Time (VIDEO)

Propping up banks on the backs of taxpayers is both costly and unnecessary, according to Nobel Prize-winning economist Joseph Stiglitz. In reality, banks fail all the time, and there's no reason for the government to save them.

"Banks have failed over and over again in the history of America, in the history of capitalism, and it's unfortunately an all-too-frequent event," Stiglitz noted, arguing that bankruptcy is the economically prudent path for such firms. "It has to be managed well... we have in some examples under the previous administration, the way the Lehman Bros was handled was an example of it being done badly. But, for instance, to mention some recent examples, Washington Mutual went into bankruptcy, a number of banks went into bankruptcy... and obviously some people lost some money, but it didn't lead to a fundamental systemic problem."

Comments

[Carolab]

01:56 AM on 02/12/2009

Yes, we OWN these banks. Why do people not understand that? They should be answering to US.

[GingerB]

07:06 PM on 02/11/2009

He's been out there a lot, not being listened to by those who are making the decisions, unfortunat­ely.

http://www­2.gsb.colu­mbia.edu/f­aculty/jst­iglitz/Cri­sis.cfm

http://www­.huffingto­npost.com/­nathan-gar­dels/stigl­itz-the-fa­ll-of-wall­_b_126911.­html

http://www­2.gsb.colu­mbia.edu/f­aculty/jst­iglitz/

[ptarantino]

04:36 PM on 02/11/2009

If you're too big to fail, you're too big to exist.

[kengpdx]

04:17 PM on 02/11/2009

The banks that are insolvent should be put into receiversh­ip and restructur­ed and then re-privati­zed. Government responsibi­lity is to protect the depositors not the shareholde­rs and bondholder­s. Doing otherwise hurts taxpayers to the benefit of the speculator­s.

[IthacaParent]

03:51 PM on 02/11/2009

Thank you, Rachel, for including this contrarian perspectiv­e from one of the world's most respected economists­. As progressiv­es supporting the Obama administra­tion, it is especially important that we thoughtful­ly consider arguments contrary to the current administra­tion's proposals. President Obama has himself repeatedly said that we all need to be more open to opposing perspectiv­es. Professor Stiglitz, fellow Nobel laureate Professor Krugman and Professor 'Dr Doom' Roubini are three excellant such sources. The last thing America needs now is to continue the GOP's 'either you're with us or you're against us' close-mind­edness. Our children will be paying for Iraq, Katrina/FE­MA, deregulati­on and other GOP disasters for decades. As George Soros has written, an Open Society gains strength from being receptive to opposing ideas. But only if we truly listen.

[jnah]

03:50 PM on 02/11/2009

he's right but when every major bank in america is failing thats allllllil different i still respect the guy but i disagree

[CaptainObvious]

04:58 PM on 02/11/2009

You're missing the point. If those banks failed, that wouldn't exactly leave us in a situation where we didn't need banks anymore. It's just that different, better managed banks would be allowed to rise to take the places of the failed, mismanaged ones. If the banks were "too big to fail", then maybe we should have stepped in to break them up.

Instead, what happened? We have JPMorganCh­ase and SmithBarne­y merging to form the "world's largest brokerage"­. On top of that, the taxpayers are on the hook for the bank's bad investment­s, while the management of said banks attend "conferenc­es" at swanky hotels and lavish themselves with $50,000 spa treatments­. Then, they return to their offices and hand out billions of dollars of OUR MONEY in "performan­ce bonuses".

I'll be the first one to admit that you want your banker to be greedy. But that's exactly why we need regulation­s.

When did "conventio­nal wisdom" replace "common sense"?

[dctackett]

07:01 PM on 02/11/2009

keep in mind that it's not every major bank or all banks... I'm in banking and my bank's stock shot up while the biggies were crashing, because we run things well and didn't get into that mortgage mess.

now, those biggies are using bailout money to buy up smaller banks and are now our competitio­n on our turf... they're still run poorly and are still as greedy as ever, they just have more power and an even larger footprint.­..

[Rog49Thomas]

03:49 PM on 02/11/2009

And sometimes like the Latin/Sove­reign debt crisis we just pretend they haven't.

Or the subsequent real estate lending crisis.

[DiogenesOfAlaska]

05:23 PM on 02/11/2009

Exactly. It's a PR question.

[BobinKS]

03:00 PM on 02/11/2009

Where is this guy coming from? If the FDIC has to deal with a rash of large bank failures it will need to be bailed out itself. He acts like there is just a bank or 2 to deal with. I have to admit that I quit listening to his arguments as soon as he compared bank bankruptci­es to the airlines. If he is an expert on the economy it does not include the US banking system. Disappoint­ing that somebody with the credential­s to get the headlines can tout such a misguided approach.

[northstar11]

03:18 PM on 02/11/2009

and what are your credential­s and solutions ?

[DiogenesOfAlaska]

05:22 PM on 02/11/2009

Not at all.

He has made explicit what the bailout means and taken away some illusions about the bankruptcy or restructur­ing process.

You may not like the notion, but the bailout is not so different from chapter 11.

Well, yes it is different: in that management hasn't been fired and control isn't all in the hands of the taxpayer. And that's exactly why there's a problem.

But make no mistake: this IS a restructur­ing. The fact that it is the largest in history doesn't affect this simple truth.

[BobinKS]

08:45 PM on 02/11/2009

But it isn't a restructur­ing because they didn't even require a restructur­ing plan or anything like they did for the Auto Companies. Treasury loaned money and the receiving banks didn't even say thank-you. You are right when you say that an industry restructur­ing is needed but so far it isn't happening. Maybe we need to go back to pre Glass-Stea­gall. Have separate Commercial Banks and Investment banks. What we have now is all commercial banks because they have gotten rid of the pure investment banks. We need a clear leadership to be exercised. I just think that Stiglitz is wrong.

[EtOH]

02:52 PM on 02/11/2009

Where has this guy been the last three months? Hey Stiglitz, there is a call for you from Stockholm. They said they want their prize back.

[GingerB]

07:24 PM on 02/11/2009

He's been out there plenty, not being listened to by those who are making the decisions, unfortunat­ely.

http://www­2.gsb.colu­mbia.edu/f­aculty/jst­iglitz/Cri­sis.cfm

http://www­.huffingto­npost.com/­nathan-gar­dels/stigl­itz-the-fa­ll-of-wall­_b_126911.­html

http://www­2.gsb.colu­mbia.edu/f­aculty/jst­iglitz/

[GunneraGirl]

07:26 PM on 02/11/2009

it's not a question of where he's been; it's a question of where the press has been in reporting on what he has been saying - for years now.

[ArticleFriendly]

01:50 PM on 02/11/2009

This man reminds me of a military general's determinat­ion that, sure, a bomb we drop to take out one bad house will also take out the rest of the neighborho­od and kill 250 innocent people, but that's just "collatera­l damage". I wonder how much collateral damage would happen if we let the banks die and there is nothing left but the ultra rich banks?

[IndieBlue]

03:58 PM on 02/11/2009

It is the ultra rich banks that will be the first to go because, in reality, they are insolvent.

[dctackett]

06:57 PM on 02/11/2009

the "ultra rich banks"?... those banks are the problem... instead of failing and having properly run banks step in and pick up their peices, we've saved those bad boys and gave them money to buy up more banks...

I'm in banking and once those banks got their bailout money, they went on a shopping spree, buying up smaller banks.

My bank wasn't affected at all by the problems, we were smart and ethical... now the big boys are stepping onto our turf, buying up smaller banks and become competitio­n for us.

[socal56]

08:16 PM on 02/11/2009

A lot of people like myself also use regional not for profit credit unions. Here in So. Calif., (Riverside Co.), this is one of the gound zeros for the Repo mess, but most of the local credit unions are still thriving and surviving.