M504 – 'Too Big To Fail' Motion 2018

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Saracen's Fez
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M504 – 'Too Big To Fail' Motion 2018, Jammy Duel MP
This House believes that no business is too big to fail.

Ten years ago today Lehman Brothers filed for Chapter 11 bankruptcy protection, an event which turned a financial crisis into the worst global recession for three quarters of a century and it can be argued is responsible for Brexit, Trump, and the rise of populism across Europe. The immediate effect was a run on the banks and bailouts to save them.

The collapse of Lehman Brothers demonstrates how some businesses play a large enough role in the modern economy that their failure can lead to contagion and take a decade or more to fully recover from but there should be no businesses made immune to failure as a consequence. This house does however recognise that uncontrolled collapses of these businesses that are branded as too big to fail can rapidly lead to further deterioration of the financial sector and as such does not believe that these failing businesses should simply be allowed to collapse, rather a middle ground should be tread whereby the business is allowed to collapse in a controlled manner so as to maximise stability without granting immunity from failure.

This house finally believes that victims of contagion should not suffer as a consequence and as such measures should be taken to protect such businesses.
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Rakas21
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Define victims of contaigon?

Other than that, i could not agree more.
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04MR17
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I can get behind this.
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CatusStarbright
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Aye. Let's learn from the past and work to prevent another catastrophic recession from occurring in the future.
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username1899909
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I see no reason to oppose this, Aye.
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Jammy Duel
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(Original post by Rakas21)
Define victims of contaigon?

Other than that, i could not agree more.
It's a difficult one because it isn't always clear whether there were underlying issues and there was liability, for instance Lehman Brothers wasn't the only bank that made, shall we say, questionable decisions and was prone to collapse because of them, for instance some suggest RBS was in that sort of position, now was the need to bail out RBS for those reasons or because of the run on the banks? It could be argued either way, I would say the latter but there is no saying that they wouldn't have faced collapse anyway because of the former.
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Rakas21
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(Original post by Jammy Duel)
It's a difficult one because it isn't always clear whether there were underlying issues and there was liability, for instance Lehman Brothers wasn't the only bank that made, shall we say, questionable decisions and was prone to collapse because of them, for instance some suggest RBS was in that sort of position, now was the need to bail out RBS for those reasons or because of the run on the banks? It could be argued either way, I would say the latter but there is no saying that they wouldn't have faced collapse anyway because of the former.
I understand.

I personally would offer no protection for contaigon though. Banks choose how risky their loans and derivative purchases are and ultimately a bank with no bad loan exposure is a bank that wont suffer contaigon.

With RBS it owned both a sub-prime US lender and a Dutch bank with sub-prime exposure so it was sinking either way.
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Jammy Duel
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(Original post by Rakas21)
I understand.

I personally would offer no protection for contaigon though. Banks choose how risky their loans and derivative purchases are and ultimately a bank with no bad loan exposure is a bank that wont suffer contaigon.

With RBS it owned both a sub-prime US lender and a Dutch bank with sub-prime exposure so it was sinking either way.
Except it isn't necessarily due to risky behaviour, it could simply be a liquidity crisis induced by a run on the banks, they fall victim to the failure of another bank, how high does the reserve rate have to be set to prevent this, to completely remove it as a possibility it would have to be 100%
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Rakas21
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(Original post by Jammy Duel)
Except it isn't necessarily due to risky behaviour, it could simply be a liquidity crisis induced by a run on the banks, they fall victim to the failure of another bank, how high does the reserve rate have to be set to prevent this, to completely remove it as a possibility it would have to be 100%
In a worst case scenario you may be correct however as per the last financial crisis, there are methods open to government and central banks which prevent the risk of widespread bank runs. I am curious to as to what degree of protection you would propose.
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Andrew97
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Makes perfect sense.
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This motion is in cessation.
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#12
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Division! Clear the lobbies!
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