Re: So, Crony Capitalism doesn't work!
Such concepts like banks that are "too big to fail", prove this
Can't believe this still has to be explained.
The issue isn't that the banks are too big to fail, it's that banks have too many customers (you, me, small/large businesses). If a bank fails and takes a billions of dollars/pounds/euros debt down with it the people who lose out are the customers - there is a long queue and the bank customers are to be at the back of it. The houses you borrowed against are now assets of a liquidator and inevitably they will be sold to pay of some (probably foreign) investor and the whole things costs admin time and money. Outcome: everybody is poorer.
On the other hand if you rescue the bank you can fix it's fundamentals and eventually sell it off you can stand to make money, or potentially significant volumes of money, effectively for the tax payer. Yes, rescuing a failing bank is an investment in both it's customers and the bank itself.
RBS is the classic example in the UK - if it's shares are worth £5 each the taxpayer breaks even, any more they make a profit, i.e. we're richer than we were before. They've hit £4.03 and most investors can see a time when they'll hit the target, frankly they'd probably have been there already if it wasn't for the various banking scandals since. The share price has tripled from the lowest point, the gap is easily made up - and no customers ever lost their homes/savings/pensions/jobs so the state didn't have to invest in that directly where there would be no possibility to recover the costs.
The problem isn't rescuing banks, it's the effective lack of prosecution and consequences for people who let it happen in the first place; be it regulators or people who worked at those banks. That's where the cronyism has to be rooted out.