Yesterday I agreed with Arnold Kling that breaking up the big banks would be the optimal, albeit unrealistic, way to prevent the "too big to fail" problem. Today Paul Krugman explains why that's probably wrong: Breaking up big banks wouldn’t really solve our problems, because it’s perfectly possible to have a financial crisis that mainly takes the form of a run on smaller institutions. In fact, that’s precisely what happened in the 1930s, when most of the banks that collapsed were relatively small — small enough that the Federal Reserve believed that it was O.K. to let them fail.
Libertarians vs. Big Banks
April 01, 2010
Cato's Arnold Kling has a thought-provoking article in National Review arguing for breaking up the large banks: It is the political economy that most concerns me. Freddie Mac and Fannie Mae represent everything that is wrong with the politics of big banks. They acquired lobbying prowess, their decisions were distorted by political concerns, and they were bailed out at taxpayer expense. All of these developments seem to be inevitable with large financial institutions, and all are deeply troubling to those who value economic freedom.
The U.s. As One-party State?
May 21, 2009
Cato's Arnold Kling, quoted favorably by AEI's Nick Schulz, writes: The importance of the rule of law is declining, and the importance of political connections to the elite is increasing. I think we will see this trend emerge much more strongly over the next decade, as it becomes clear that the Republican Party is not going to win another national election.