A thought experiment

What if commercial real estate had collapsed first? It's collapsing now, and Clusterstock engages in a thought experiment:

Would we, instead, be worrying about the tidal waive of small, failing institutions? It's easy to imagine some of what people would be saying right about now:

  • There was no way regulators could have kept an eye on the thousands of tiny banks around the country! They should've been much more aggressive about having them merge.
  • Small banks are too exposed to a narrow market, and should have merged to diversify risk.
  • It's too hard to coordinate a thousand small banks in a time of crisis. A crisis confined to big banks would make it easier to get a handle on the problem.

And on and on the argument would go.

And they're right of course. That's what governments would have done. Bail out the banks at any cost for any reason at the expense of the taxpayer.