Fixing Banks Ain’t Easy

In a NYT column, Tyler Cowen argues persuasively that none of the “simple” solutions floating around, ranging from nationalization to bankruptcy to the Swedish Plan are likely to work in fixing America’s “bank holding companies.”  But, while I’m as capitalistic as the next guy (if, say, I’m sitting between Dan Drezner and Megan McArdle) I had to chuckle at this:

On top of that, the government doesn’t have the expertise to run large bank holding companies like Citigroup. There is the danger that caretaker managers, with bureaucratic incentives, will never return the banks to profitability. And restrictions on executive pay, already enacted into law, will make it hard to hire the necessary talent.

Dude: The talented people attracted by massive salary and benefits packages didn’t seem to have the expertise, either.

FILED UNDER: Economics and Business, , , , , ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Pete Burgess says:

    Well, then let the cream rise to the top and let the garbage be carted away. We shouldn’t be subsidizing failure. There are plenty of banks whose managers HAVE the expertise and WERE responsible. What is happening is criminal.
    Portion of comment in violation of site policies deleted. If you wish to buy advertising for your pet agenda, contact me for rates.

  2. odograph says:

    Uh, aren’t “bad banks” just a Democratic fearmongering?

  3. Dave Schuler says:

    It’s a point that I’ve been making for years and it applies to fields other than banking. The folks who want to make the highest income, i.e. those most motivated by money, aren’t necessarily the best qualified or more capable. What you want are people most attracted to running successful banks which is not necessarily synonymous with the people who want to make the most money quick.

  4. Pete Burgess says:

    Dave, I think the biggest problem with the evolution of business is the preoccupation with bottom line results each quarter, etc. Maximizing profits has taken precedence over optimizing long term growth. Too much short term thinking.

    Portion of comment in violation of site policies deleted. If you wish to buy advertising for your pet agenda, contact me for rates.

  5. sam says:

    Dude: The talented people attracted by massive salary and benefits packages didn’t seem to have the expertise, either

    Wooooord.

  6. Drew says:

    Expertise and judgment are two different things. The executives displayed poor judgment and in turn their boards and shareholders were not vigilant. For their errors, the owners should therefore pay the price in any restructuring.

    But that is not a predicate for having govt types run the banks, or to assume some equivalence of expertise.

  7. odograph says:

    Hmmm. Won’t a “tea party” fix everything?

  8. tom p says:

    Expertise and judgment are two different things.

    Business is business, gov’t is gov’t, never the twain shall meet.

    The problem, as always, is the interface between the 2. Corruption doth follow.