Too Big to Fail (TBTF)

I testified on housing finance reform today before Senate Banking. It was a strange experience being in the Hart and Dirksen Senate Office Buildings with the shutdown. The halls were eerily empty. Fortunately, the Senate Banking Committee is continuing to do the people's business.

Gretchen Morgenson is asking some interesting questions about where the money comes to fund predatory loans. The issue boils down to this:  the most questionable consumer is not done by depositories.  It's done by finance companies or (prior to 2008) by mortgage banks.  That means that these lenders need another source of funding for their loans.

For a while, the battle over whether to split the JPMorgan Chase CEO and Chairman positions looked like the corporate governance battle of the year, but seems to have ended with a whimper, rather than a bang.  The media coverage of the issue, however, largely overlooked the unique, bank-specific aspects of corporate governance.  Specifically, what's at stake in the corporate governance of a too-big-to-fail bank like JPMorgan Chase is not just the share price, but also the public fisc.

Stepping back from the Cyprus bail-in, I'm wondering if it is penny-wise, pound-foolish. The depositor tax is only supposed to raise about $7.25 billion (5.8 billion Euros).  Given the risks created by a bailout being rejected and the risk of runs created in other countries, does it really make sense to demand the depositor tax?  $7.25 billion seems like a really cheap price for avoiding the problems that the Cyprus depositor tax is making. Indeed, in the big picture, the whole Cyprus bailout package is only around $23 billion.