Not a blog but a "q-and-a" (pronounced "quanda"), this page is about the basics of economics. Its premise: there are no stupid q's. And if some a's seem dim, take heart: I can brighten them up in response to objections, corrections, refinements. Comments on posts feature yours, and my responses. Enough of you now frequent and query the quanda that I post most every day. Haven't seen your q yet? Send it again. All a's should be taken with a shaker of sodium chloride, if not a Lot's-wife's-worth. And speaking of salt, the mustache and "hair" in the photo has a lot less of that condiment, and rather more pepper, than can be seen on TV. Think of it as time travel.
Name:
Gilbert Sanders
City & State:
New York, N.Y.
Question: Thank you for your illuminating illustration of the fiasco involving our banks on PBS. How many banks in this country did not take TARP money and why is so little attention given to them? Shouldn't they be some sort of role model for future banking or were they just lacking opportunity to be as sinful as the now needy? They certainly have not been made known to the public. Thanks for your response.
Paul Solman: America had 7000+ banks, last I looked: Almost all but the biggest of them didn't take government money. Does that make smaller banks role models?
Clearly, banks that didn't make what turned out to be ridiculously risky loans are better role models than those that did. But I find something suspiciously circular about this reasoning. And for all I know, the Temecula Valley Bank, say (see above), wasn't being especially imprudent - AT THE TIME - in making the real estate loans that appear to have taken it down.
Your question suggests that the problem with banking in recent years is "too big to fail." That is, banks were allowed to grow so large, their failure threatened the financial system. But in the Great Depression, thousands of banks failed. The systemic risk seems to have been an overexuberance across the board, especially with respect to real estate prices. Plus a whole bunch of fraud, made possible in part by a regulatory environment that looked the other way, or encouraged lending to those who couldn't otherwise afford it.
Most sober analysts these days think "too big to fail" is a problem. But I don't think it's the only one in this episode.
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What About Banks That Didn't Take TARP Money?
**Question:** Thank you for your illuminating illustration of the fiasco involving our banks on PBS. How many banks in this country did not take TARP money and why is so little attention given to them? Shouldn't they be some sort of role model for future banking or were they just lacking opportunity to be as sinful as the now needy? They certainly have not been made known to the public. Thanks for your response.
**Paul Solman:** America had 7000+ banks, last I looked: Almost all but the biggest of them didn't take government money. Does that make smaller banks role models?
Not necessarily. Here's a "list of banks that failed in this past month":http://www.fdic.gov/bank/individual/failed/banklist.html alone:
Clearly, banks that didn't make what turned out to be ridiculously risky loans are better role models than those that did. But I find something suspiciously circular about this reasoning. And for all I know, the Temecula Valley Bank, say (see above), wasn't being especially imprudent - AT THE TIME - in making the real estate loans that appear to have taken it down.
Your question suggests that the problem with banking in recent years is "too big to fail." That is, banks were allowed to grow so large, their failure threatened the financial system. But in the Great Depression, thousands of banks failed. The systemic risk seems to have been an overexuberance across the board, especially with respect to real estate prices. Plus a whole bunch of fraud, made possible in part by a regulatory environment that looked the other way, or encouraged lending to those who couldn't otherwise afford it.
Most sober analysts these days think "too big to fail" is a problem. But I don't think it's the only one in this episode.
