shinra-bansho
Member
I mean it's not really a might not so far as I'm aware - the firms were largely purer focused, one wasn't actually a bank, so enforced separation wouldn't really have done much - although if you're referring to the prior weakening of regulation and/or as a symbolic standpoint I could agree to an extent.It might not have, but the bailouts neccessary to save the economy would have been much easier. Glass-Steagal was about limiting the threat of moral hazard rather than preventing banks from failing. After all, part of a market economy is allowing under- performing firms to fail. Its just difficult to that when allowing an under-performing firm to fail would also take out peoples' life savings.
The problem that remains is that breaking apart investment and commercial arms of these large institutions doesn't mean they won't still be systemically significant, so restraining moral hazard isn't really achieved. If the goal is to "break up the banks" further beyond that then it's also never well specified how small exactly, and on what metric of size, that one would like to see the banking industry capped at. Nor is there acknowledgement of the practical impact that would have.
Meanwhile moral hazard wasn't really limited to the large institutions. Many smaller community banks were bailed out under the TARP program, and I believe they were less likely to actually manage their repayments under the program. The issue is the way that banks operate, all banks, large and small is inherently risky. (Article's proposed is also impractical, but interesting as a solution.)