Monday, June 7, 2010

The Too Big to Fail... Fail

The Big Picture details the huge issue with bailouts of the largest financial institutions:

One of the most compelling factors was the horrific impact past bailouts have had on other competitors in the sector. Bailouts rewarded the worst managements, the least deserving shareholders, and the most reckless creditors. (That’s not how capitalism is supposed to work).

As it turns out, the banking sector is no different than these other industries that have been bailed out. After the government’s largesse, bad companies do well — and at the expense of the well managed, responsible, non-reckless firms.

Forbes with the figures:

Thanks to government subsidies ranging from a steep yield curve to bailout funds (bold mine):

Six giant banks made $51 billion (including the loss by Citi) in profits last year, while the rest of the banking industry — the other 980 banking institutions — all lost money (in aggregate).

Source: Forbes

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