Saturday, December 12, 2009
A Perfect Storm or It's Not My Fault?
This past week we held a conference on Ending Government Bailouts As We Know Them. One of the biggest surprises coming out of the conference was the growing recognition that the bankruptcy process--perhaps amended with a new Chapter 11F--is quite viable for financial institutions, and that a new FDIC-like resolution process that goes beyond banks may not be neeeded. In addition, all three keynote speakers, former Treasury Secretaries George Shultz and Nick Brady as well as former Fed Chairman Paul Volcker spoke in favor of constraining the activities of banks that have access to Fed loans and guaranteed deposits. The biggest concensus item, however, was that Congress and the Administration should wait for a report explaining the causes of the crisis before moving ahead on reform legislation. And Brady shot down a common explanation very effectively. "The least convincing explanation [of the crisis] is one floating around the industry that attributes the events to 'a perfect storm.'—i.e., it’s not my fault."