During the 2008 financial crisis, Wall Street banks and other big financial institutions were deemed “too big to fail.” The crisis unleashed by the pandemic has broadened that status to a significant swath of the American private sector, the New York Times reported. In a bid to soften the coronavirus’s economic blow, the government has stretched its financial safety net wide — from strategically sensitive companies, to entire industries such as energy and airlines, to the market for corporate bonds. “The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,” said Luigi Zingales, a University of Chicago professor of finance who has long studied the interplay of government, regulation and the private sector. A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money. Jerome H. Powell, the Fed chair, has signaled that the central bank will continue to do so. On Monday, the stock market closed up 3.2 percent, bolstered partly by comments from Powell, who said that there was “really no limit” to what the central bank could do with its emergency lending facilities. Read more.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
