tag:blogger.com,1999:blog-5060417.post7772558164886109126..comments2023-11-05T06:18:25.377-06:00Comments on The Privatopia Papers: Banks 'Too Big to Fail' Have Grown Even Bigger - washingtonpost.comEvan McKenziehttp://www.blogger.com/profile/04479661304143631524noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-5060417.post-76092731277799076632009-08-31T15:24:08.929-05:002009-08-31T15:24:08.929-05:00According to author Barry Ritholtz, the big banks ...According to author <a href="www.ritholtz.com/" rel="nofollow">Barry Ritholtz</a>, the big banks lobbied hard for a change in the <a href="http://en.wikipedia.org/wiki/Net_capital_rule" rel="nofollow">Net Capital Rule</a>. Prior to the change by the SEC, the debt was limited to about 12 times the bank's net capital. But after the rule change, it rose to 40. Huge leverage with little protection against declines. <br /><br />"The U.S. Securities and Exchange Commission (“SEC”) made a change to its net capital rule in 2004 that is widely believed to have permitted Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley to increase their leverage." <br /><br />If banks become too big to fail, then the Net Capital Rule should require a smaller and smaller number (smaller leverage) with increasing size. <br /><br />This is another example where the lobbying leverage of big organizations has dumped on the citizens with government not understanding the risks to citizens who end up paying the bail out.Don Nordeenhttp://swagman.typepad.com/poa_governance/noreply@blogger.com