I personally find the debate between a moral hazard and “too big to fail” a very interesting debate. The idea of anything being too important to all of society to question, criticize and punish is virtually nonexistent to me, but I think it is interesting that I find myself (and hopefully similarly-minded people) tend to question this a bit when it comes to global economics and the financial stability of the US. The AIG case had quite an impact on me just because I had a hard time (even as the esteemed hero Captain Hindsight) to imagine that no one seriously questioned what was happening. I also find it intriguing and disturbing that Congress and Wall Street have such a love affair that it can’t be broken without dragging everyone else down with it. I think exploring this further would prove to be quite a paper topic.

In this case, I am debating between analyzing why Lehman Brothers were allowed to fall, or whether I should focus on a survivor like Bank of America/Merrill Lynch or another large firm. I thought that the analysis of why AIG, an insurance company, turned into more of an investment bank was very insightful, but I would like to focus more this time purely on the impact of traditional banking/financial firms. The relationship between the CEO’s during the financial crisis was also intriguing to me. Did personal vendettas influence the collapse of Lehman Brothers? Was that the right decision? Should we in fact ignore irresponsible behavior because going after such behaviors could ruin us? Or is that what ruined us in the first place? What are the true impacts of letting such organizations collapse? Is it as big or as meaningless as either side plays out? I think this could prove to be a good paper topic, even though this is just an initial idea, but other thoughts are welcome as well.

6 responses »

  1. Wes says:

    I agree with you that this would be an interesting topic to write on for your second paper. The fact several banks, such as Bank of America, were to big to let fail is an issue in itself, but no one has really been able to determine why Lehman Brothers was the chosen bank to let fail. I think that you could propose several scenarios in your paper that could explain why this occured. Also, you could maybe go in a different direction and discuss how financial institutions have become so large that not only are they too big to fail, but they are also not susceptible to punitive measures handed out by regulatory angencies.

  2. Lindsey F. says:

    I think you might have to narrow your focus for the paper but these are all great ideas. I really like the way you describe the relationship between wall street and the government as a love affair. The whole connection between the two interests me and could also prove to be a good paper topic on its own. Clearly lobbying plays a big part in this relationship, but what else?

  3. Charles says:

    I think the tension between moral hazard and “too big too fail” is not only interesting but disturbing. In my opinion, I think digging deeper into the supposed “too big too fail” idea would be interesting. The reason why I think this would be important is because I have always wondered if these companies would have acted otherwise, if they knew that they weren’t too big too fail. Maybe it is worth investigating the feasibility of breaking up these big companies so they can not get to a point where they are “too big too fail”.

  4. ems033 says:

    Nice Paper topic. Moral hazard and the idea that certain institutions are “too big to fail” is definitely an interesting topic to explore. While I agree, from a domestic perspective, the fact that some of these institutions hold the weight of the system on their corporate shoulders, I think it could be interesting to examine them from a more global perspective and explore whether or not their “too big to fail” status can also be seen as an American strength in the global financial system – though it may too have its failings.

    Just an idea.

  5. Abby says:

    I also agree that this could be a very interesting paper topic, especially given that there is so much material to work with. My bet is that each of the questions you asked has enough information to make up its own paper. I also think that in order to delve into a topic deeply enough, you will need to choose just one of the major financial institutions to talk about.

    Good luck!

  6. Jordi says:

    Great questions. I don’t have a strong opinion about which of the “traditional” investment banks you might want to examine.

    My other class had SEVERAL posts you may want to look at for more info. THere was on Dick Fuld, one on Merril Lynch…

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