Banks get to be too big to fail not because they can get to be too big, but because DC will not let them fail. Replacing the wall between commercial and investment banking is a bad idea, just like it would be a bad idea to reenact branch banking laws. Allowing banks to diversify their risk – across geography or across products – is good.

Warren is stupid – the unintended consequences of what she proposes will be significant if enacted. What do you supposed banks, now limited in what they can buy and sell, will do to achieve the returns that their investors require? They will certainly not take it on the chin and do nothing; they will find some other risky (riskier) investment within their now limited product domain. Restricting what banks can buy and sell just makes them more risk prone.

-JD Cross

 

Advertisements