John Bougearel
Last year the govt, and policymakers found that large institutions were too big to fail after Lehman Brothers went under. Therefore, the govt invoked a new policy, namely that all other banks and large institutions (excepting automakers and such) were too big to fail under the so-called “No More Lehmans” doctrine.
In today’s speech, Bernanke introduced the idea of making the too big to fail doctrine ” a relic of the past” a new doctrine, namely “Freedom to Fail.” In short, it will entail policymakers to have the political courage to let banks fail. Under the old No More Lehman’s doctrine, Bernanke would have us believe that banks were actually held hostage from policymakers from failing.
Well, let us just say that giving banks the freedom and right to fail is a move in the right direction. Albeit, this is more than 18 months past the failure of Bear Stearns in March 2008. If they had a pre-emptive bone in their bodies, they would have taken the failure of Bears Stearns as a warning shot across the bow. If they didn’t get the message with Bear Stearns, the market sent a second message tothem with the failure of the GSE’s in July 2008.
