It's good to know that Neil Irwin has taken lessons learned from Vietnam and applied them to the financial industry. America cannot continue to destroy the financial village in order to save it.

Mega banks provide the same essential role in American society as villages did in Vietnam, providing vital economic services like asset bubbles, massive unemployment and outright theft of mortgaged homes from the American people themselves.

To casually allow their failure and government takeover is not to selectively destroy bad apple firms that dominant the industry while saving the system as claimed by Dean Baker.

Mega banks are like infrastructure, forming the foundation of capitalism itself. They cannot be separated from the likes of road, electric, water and communications infrastructure. When one goes down, they all go down.

Mega banks must be protected from failure at all costs -
especially systemic costs - in order to guarantee that the cost of failure is passed on to customers to the last dime, leaving them unscathed and healthy to inflict more costs to society in the future.

It's the American way. The bigger they are, the softer they fall.

How is it possible that, right in the midst of all our "brilliant economists" and "superb investigative reporters" that this myth and cover-up have persisted for so long? Banks are nationalized quite frequently throughout history and there are very few fatalities of any sort associated with these nationalizations. Watching this unfold under the cover provided by most economists, politicians, and "newspeople" was extraordinary. 1st an entire industry is involved in a massive counterfeit fraud that leads to (or seriously exacerbates) an enormous "bubble" that ultimately vaporizes nearly $8Trillion of mostly middle class wealth. Then unprecedented public resources are used to save the fortunes of wealthy investors from bearing any losses from the disaster! No one is held to account, and then the 15% of population forcibly unemployed or underemployed are forced to absorb a $5Trillion+ ($6Trillion? $7Trillion) output gap with trivial (relative to their losses) compensation.

When will the economists who acquiesced in this cover-up start explaining to the public what really happened here? When will they explained that it was $30Trillion of public money and guarantees that "saved" the financial system? When will they explain that nationalization (and the same $30Trillion in commitments and funding) would have protected the public interest whereas the alternatives used instead protected private interests at a huge cost to the public? When will they explain that wiping out the debts of these failed institutions would have reduced the cost to the public (and especially the middle class who owned very little of it) of dealing with this crisis? When will they explain that purging these institutions of the criminals that conducted and benefited from the fraud would have been the best thing to do to protect the "public interest," When will they explain how it would have be easy to restore and implement regulations that would have protected the public interest had the banks been nationalized? When will they explain that, had the government taken over these institutions from the criminals operating them, these criminals would not have been in a position to extend their criminal behavior through a massive mortgage foreclosure fraud campaign that resulted in millions of fraudulent foreclosures?

When will they explain that, had the government prosecuted the mortgage fraudsters instead of leading the cover-up, the evidence of the magnitude of the fraud would have come out in the process? The courts could have then come up with a method to allocate the losses of a massive criminal fraud among the real estate owners, mortgage investors, and the public at large. Instead they chose to allocate 100% of the losses to the real estate equity holders (up to the amount of their equity and any other life savings), and only then would the "investors" (many of which were now banks which were in on the fraud from the start) be subjected to any loss of their "investment"?

When will they explain that had the banks been nationalized and saved with public funds, they could then have been broken up and sold to private investors; and that all of the gains would then accrue to the public instead of the private, bailed out, investors.

When the arsonist is viewed as having saved the structure from total loss because he helped drag out the fire hose (for a huge fee), we have been pretty thoroughly hoodwinked. Ponzi and Maddoff are amateur pick-pockets in comparison.

We would most likely see something similar to what Argentina experienced when it defaulted on its debt in December 2001 and broke the link of its currency to the dollar or what Cyprus is seeing today.

Slightly off topic but our fearlessly adversarial press should demand of every public official - from Obama to Bernanke on down - that they go on record as to whether FDIC protected savings accounts could ever, under any circumstances, be taxed or confiscated or tampered with in any way, financial crisis or no financial crisis.

Apparently Argentina may not be as far out of the woods as Dean thinks; Felix Salmon
http://blogs.reuters.com/felix-salmon/
claims that they are likely to default in 2013. I can't judge that claim (except that any prediction by an economist is subject to severe discount), but it may be that Argentina has been extended aid and credit partly on the hope that its creditors will eventually get some compensation. If that hope is finally denied Argentina may have problems in the future.

Skeptonomist
The Argentina default goes back a long time. The suit is being brought by 2nd degree owners who bought up the bonds from those who would not accept Argentina's offers for a discounted byback.
For a reliable source of info regarding what is happening in Baja EEUU I rely on Otto at IncaKolaNews. He's not fond of Argentina as a place to put your money but even less fond of some of the predatory practices called "good business" by the vultures up here in the north.

Is Irwin's book even worth reading? I find some of his work at WonkBlog to be good, but he often parrots the line of neoliberals without providing context or adequate rebuttals.

Dear Dean,

Given your thesis here, how would this tie in with bank size--that desire to end too big to fail. Would smaller banks in this instance make such actions as nationalization of banks more logistically feasible, in addition to spreading the risk or limiting the contagion?

Or is bank concentration a benefit here?: taking over one big bank vs. a multiplicity of them?

But thanks for the clarification on the industry vs. the system.