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Greenspan: Let big banks fail

Alan Greenspan

Alan Greenspan

Former Federal Reserve chairman Alan Greenspan said recently that the financial overhaul under Dodd-Frank has done little to curb America’s “too big to fail” problem, adding that regulators should let big banks fail.

“My basic view is that we should not be supporting the banks the way we are,” Greenspan said, according to MoneyNews. “If you look at the big banks, you see a significant discount on what they’re paying for their liabilities relative to even the medium-size and the smaller banks.”

Greenspan said, however, that breaking up the largest financial institutions is a nonsensical idea, adding that a complex economy requires more advanced financial institutions to provide for its needs.

“But if push comes to shove and there was no other way to eliminate the too-big-to-fail problem, which is getting worse since the financial crisis, I would be in favor of breaking up the banks,” Greenspan said, MoneyNews reports. “I hate very much to see that happen. But it’s less worse.”

Greenspan said that while it’s “too soon to make such a judgment,” banks should be allowed to fail and enter into Chapter 11 liquidation, which he said has “worked for a very long time,” adding that the public will “get the best of both worlds.”

In December 2006, Greenspan said that the stock market was experiencing some “irrational exuberance,” an idea he no longer believes. He also said that following the economic troubles in Europe, the stock and housing markets still face significant recovery, according to MoneyNews.

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