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Friday, February 06, 2009

Economics I don't understand, #2

Is there not some proposal which deals with the bank size problem?

Part of the problem with the current situation is that banks get "too big to fail". But having relatively healthy banks (BofA ... healthhy ... really???) buy financial institutions perceived to be weaker means those banks get even bigger, which makes the problem worse.

It's not that small banks are better or smarter. It's that small banks can be allowed to fail, which provides discipline.