» Posted by Martin Weil on March 25, 2009

"No private enterprise should be allowed to think of itself as "too big to fail." Federal deposit insurance, protecting a bank's depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge "group" runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.

Let's not be in such a big rush to knock down barriers. The Government's biggest financial mistake of the past generation was to raise deposit insurance to $100,000 while allowing housing S.& L.'s to plunge into commercial lending. That all but removed the element of risk from foolish or corrupt loans and helped bring on the S.& L. debacle.

Beware the slippery slope to crony capitalism...."

That's Safire in a 1998 NYT Op-Ed arguing against the proposed merger of Citibank and Travelers Insurance. His thesis - knocking down the walls between "safe" government-guaranteed banking and risk capital is a really bad idea. A lesson we are now having to relearn.

Thanks to The Big Picture for the pointer,.

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