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Too Big to Fail Gets Bigger

I'm sure other people have made this point before, but the end of Lehman Brothers and the effective collapse -- both reputational and financial -- of Bear Stearns, Bank of America, Citigroup, Merrill Lynch and a handful of others have left the few banks with relatively unscathed reputations -- Goldman Sachs, J.P. Morgan, etc -- with vastly larger market share. That has, in the long run, made the too-big-to-fail problem even worse. If Goldman Sachs was important to the financial sector before, it's even more important now that a slew of its primary competitors have been gutted and it's been made to look -- wrongly, I think -- like Wall Street's final genius-firm.

All of which will make the details of the coming financial regulation legislation pretty interesting. There's been some talk over whether you increase the amount of capital that large firms need to keep on-hand such that they're simply more cushioned than small firms or such that there's literally a disincentive to grow too large. Goldman Sachs will be one of the first test cases.

By Ezra Klein  |  July 17, 2009; 12:19 PM ET
Categories:  Financial Regulation , Solutions  
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Comments

My guess is that health care legislation will exhaust Congress whatever the result and the willingness to do anything about financial regulation will fade to the point where the lobbyists will be free to run amok and defeat any, I mean any, changes to financial regulation. The Commodities Modernization Act of 2000, section 408 will remain the law.

Posted by: glewiss | July 17, 2009 1:24 PM | Report abuse

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