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The doom loop

Simon Johnson:

[Brit banking boffins] Haldane and Alessandri offer a tough, perhaps bleak assessment. Our boom-bust-bailout cycle is, in their view, a “doom loop”. Banks have an incentive to take excessive risk and every time they and their creditors are bailed out, we create the conditions for the next crisis.

Any banker who denies this is the case lacks self-awareness or any sense of history, or perhaps just wants to do it again. ...

The Haldane-Alessandri “doom loop” is fast becoming the new baseline view, i.e., if you want to explain what happened or – more interestingly – what can happen going forward, you need to position your arguments relative to the structure and data in their paper. ...

How can we believe that for the regulators, “next time is different“? Most likely, next time will be exactly the same, with different terminology: the financial sector “innovates”, regulators buy their story that risks are now properly managed, and the ensuing bailout (again) breaks all records.

It’s all politics. [Exactly.] Unless and until you break the political power of our largest banks, broadly construed, we are going nowhere (or, rather, we are looping around the same doom). ...

The biggest banks must be broken up. This is not sufficient to end the doom loop, but it is necessary.

Great to see breaking up the TBTF banks high on the administration's agenda! Oh, wait...

NOTE Ya know, I think it's great the "progressives" want to tax the rich more next year..

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