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US Mega Banks Can Not Go Bankrupt

Diciembre 23, 2010 | Por qijie | # Enlace permanente | Tweet

The present world economy is facing a major problem: the largest banks in the United States are still in a “too big to free from closing” state. To Admire the New Classic tiffany jewelry of Paris Hilton This means that when one or a few of the banks come into financial difficulties, the Government will come to the rescue, because once the large banks broke, the consequences will be unimaginable serious. You Know What? tiffany&co Keep to be In Vogue for This Season This is realized not only by government officials, but bankers themselves. In fact, all agree to put the reversal of such a condition on the top of political agenda. Unfortunately, the proposal, large not fail, submitted to the U.S. Congress which was put forward by the Obama Administration will not come into effect.tiffany and co , Top Festivals Items for Women

The present legislative discussion focus is the financial reform bill presented by Senators Christ Dodd. The proposal has been passed the voting of the Senate Banking Committee. Duad’s proposal will establish the bankruptcy resolution authorized, which means that government departments also can take over or close down financial institutions which are on the verge of bankruptcy with the force of law. The supporters of this bill believe that the approach is based on the successful experiences of the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation has successfully closed many U.S. small and medium-sized banks with minimized loss and avoids depositors suffering losses.

In this situation, the “broke down” refers to the managements of the banks were dismissed; the shareholders were liquidated, while unsecured creditors will bear the loss. The most important thing is, this is a reform for insolvency proceedings, but this is more an administrative decision (and it may be more inclined to protect the interests of depositors) rather than the normal bankruptcy proceedings under the supervision of the court. The idea applied to big banks and other financial institutes – they do not have petty deposits – sounds not bad, but there are insurmountable obstacles in practice. Let us think about the most difficult time to make a choice, when a giant bank like Morgan Chase (assets is about 200 billion U.S. dollars) stay at the verge of bankruptcy. You are a senior decision-maker, is now the moment to make a decision.

In your hands, you have the Senator Dodd said “Bankruptcy resolution authority”, then decided not to rescue troubled banks on decision-making meetings – or in the worst case bear some of the losses just to protect the unsecured creditors . Then someone will remind you of JP Morgan Chase which is a sophisticated global financial institution. Dodd’s bill only empower the US government to take over American companies, while JPMorgen has subsidiaries, branches or other businesses in dozens of countries. where normal bankrupcy procedures are still in place. As a result, they will pressure the US government and the firms there with specially prepared deal. These uncoordinated responses will cause panic, intensify confusion and will be widely spread. The existence of United States’ bankruptcy resolution authorized will not control the damage caused by the closedown of some large international banks and also can not control the public’s panic caused by this. This type of bankruptcy should carry on in a pre-designed, with multinational effects insolvency resolution authorized proceedings. But now we just lack such mechanism, and will not be created in short period.

Other policy-makers of the G-20 countries who should be responsible have clear attitude towards this. Nobody is willing to agree on an approach arranged ahead of time to deal with the bankruptcy of multinational banks. At the moment when JP Morgan Chase – or any of America`s six largest banks – fails, the choice will be just like that of September 2008: do you rescue the bank in question or do you let it fail, and face likely chaos in markets and a potential re-run of the Great Depression? What will the President choose? He may state in public that the creditors will be faced with losses. But being forced to the cliff edge, as the berated consultant, what would you advise the President to do? Would you really recommend the President to jump off the cliff, or jump into the financial problem abyss with millions of people`s work, family and property? Or pull him back and find some subtle ways to save banks and use public funds to protect the interests of creditors, or rely on the Fed or other emergency relieves?