Now they're really too big to fail

October 20, 2008 | By Jim Kim

The idea of a moral hazard on Wall Street is not new, but it is relevant again, as the government keeps on bailing out out the top banks. To some, this is just plain wrong, despite the deleterious economic consequences, because Wall Street banks are never forced to own up to their actions. We'll see if any real prosecutorial activity emerges. Going forward, it will be even harder to let the top banks fail. Breakingviews notes that Bank of America, Wells Fargo and JPMorgan Chase (you also might as well throw in Citigroup) are so massive now that the first three may be up against the 10 percent limit on all domestic deposits. Which is to say that, at this point, there's no way the government can let them fail. Long term, once the crisis is over, will this encourage the sort of risky behavior that helped spawn the current mess?

For more:
- here's the Breakingviews article via the New York Times