The chancellor of Germany, Angela Merkel, said Monday that "No bank should be allowed to become so big that it can blackmail governments," the Financial Times reports.
Here are some logical follow-up questions: Which, if any, banks does she think are now big enough to blackmail governments? How does she propose to shrink them? What happens to the banks if they don't go along with the plan to downsize? How does threatening to shrink the banks not constitute blackmail of the banks by the government? Does she think any banks have actually blackmailed governments in the past two years, or is this just a theoretical risk she is speaking of? If so, which banks blackmailed which governments? Why not prosecute the blackmailers for this crime (blackmail, after all, is a crime) rather than merely reduce the capacity of the blackmailers to blackmail again in the future? Blackmail is a two-way street in a way -- the blackmailer makes a threat and demands money, while the victim pays the money. Which governments paid the money rather than expose the blackmail? The usual formulation is that no bank should allowed to become too big to fail. How does the "big enough to blackmail" formulation differ from the "too big to fail" formulation in terms of political potency and policy implications?
