The Corner

Bernie Madoff is Back

And “Too Big To Fail” will live a long and happy life. That’s what George Mason University economist Garett Jones — my favorite neo-Keynesian economist — and DePaul University finance professor Rebel Coles — the guy with the best first name ever — argue in the Washington Times today:

Bank of America, Chase, Citigroup and Wells Fargo — the four largest bank holding companies in America — required massive government aid in late 2008. They barely survived into 2009. Now, somehow, these banks have reported upbeat results in the fourth quarter of 2009 — a shocking turnaround. Or was it?

Can these bank forecasts possibly be accurate, or have the banks hired Bernie Madoff to perform their forecasts? Sadly, it looks as if Bernie is hard at work, predicting an unrealistically bright future for these banks.

If we’re right, some of our biggest banks will be asking U.S. taxpayers for yet another bailout in the near future.

Sadly, they make a compelling case for their theory and leave us without a doubt that Chris Dodd’s financial-reform bill won’t put an end to private companies’ taking massive risks without fear because they know that the federal government has their back.

They continue:

The next wave of bank bailouts is surely coming — there are just too many bad loans already on the books and too many unemployed workers who won’t repay their loans. Only one question remains: Who will pay for the next big bank bailout — you and me or bank bondholders?

Jones and his co-authors Benjamin Klutsey and Katelyn Christ have been advocating an interesting idea as an alternative to TARP and to bailing these banks. It’s called speed bankruptcy. Read the details here and here.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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