It seems like this would be the inevitable outcome if you just let insolvent banks go bust. - Sanjeev Singh

I think this might be a bad thing for two reasons: (1) These megacorps are less likely to fail, but when they do, they can cause a crisis (Fannie, Freddie, AIG) (2) Do you actually believe the customer is better served if competition is reduced? - Sanjeev Singh

Didn't some of the other European countries (Sweden? I forget...) end up buying their banks in a recent crisis and things turned out OK? - Patrick Lightbody

Regardless, seems like either path (pseudo-nationalizing like we just did vs. letting them fail) leads to the same thing: fewer top-level ownership of banks. The only difference is who the owner is: Joe Taxpayer or BofA - Patrick Lightbody

Please explain how having fewer, larger central banks is good. =) - Jim Norris

Yes, rescuing banks (UK, USA) allows more of them to avoid acquisition by other banks. In the case of the UK, the prime minister is chairman of the board of a few of them and can set executive compensation. However, he's beholden to the electorate, so you can argue he'll make more globally optimal decisions. In the US, the fed forfeited their voting rights (I think) so there was no increase in concentration of control. It's probably too early to say "things turned out ok", though. - Private Sanjeev

I like Buffett's plan the best. Spend the least amount of government money to kickstart private investment in undervalued banks, thereby keeping them afloat and independent. The Austrians would discourage any intervention at all. - Private Sanjeev

I think Austrianists would argue that this crisis was caused by bad monetary policy on the part of central bankers and government over-regulation that prevented smaller private banks from being able to compete with larger ones. - Jim Norris

I agree with the Austrian interpretation of the cause, but not their fix! - Private Sanjeev

If insolvent banks weren't allowed to go bust when they are "too big to fail", that introduces a moral hazard (large banks can get away with taking larger risks since losses are socialized) and a big competitive advantage (smaller institutions like Countrywide and WaMu don't get the government guarantees that big ones like GS and JPMorgan Chase do). - Jim Norris

It's an arguable point, but what if the cost of letting the big guys fail is anarchy? - Private Sanjeev

I think the problem is that we shouldn't allow too many entities to get "too big to fail" in the first place. It also seems, with derivatives, that even fairly small entities can now become too big to fail (LTCM). Would the Austrianists have intervened to prevent or regulate derivatives? - Private Sanjeev

Fed's assets, including loan to AIG and misc bear sterns investments more than doubled to $1.77 trillion last week from a year-earlier total of $873 billion that consisted mostly of treasuries. Fed balance sheet is above 10% of gdp and climbing..... - david A