'Liquidating' Big Banks

People are talking about an economic recovery, but we haven't fixed the banks yet. Where is the urgency?
The rise in the stock market has lulled some people into believing the crisis has abated. I read the data differently. Families are in more trouble than they were in a year ago, and a large part of the Wall Street boom is the consequence of government guarantees. That's not real recovery.

Congress is trying to reform financial regulation, and it can get a little abstract. Where should people focus?
To restore some basic sanity to the financial system, we need two central changes: fix broken consumer-credit markets and end guarantees for the big players that threaten our entire economic system. If we get those two key parts right, we can still dial the rest of the regulation up and down as needed.

Should the government step in and break up the biggest banks?
There are a lot of ways to regulate "too big to fail" financial institutions: break them up, regulate them more closely, tax them more aggressively, insure them, and so on... I want to see Congress focus more on a credible system for liquidating the banks that are considered too big to fail. The little guys aren't immortal; they pay for their mistakes. The big guys can't be immortal either. A free market cannot operate in a too-big-to-fail world.

The administration has been reluctant to pressure the banks because they say they need the financial system's cooperation in their recovery policies.
The notion that we need to ask the permission of the big banks about which approach to use is just wrong. Who's asking the American family which provisions are OK with them? I understand that we need to get the economy back on an even keel, and destroying large financial institutions isn't going to do that, but neither is destroying the American middle class.

Elizabeth Warren, Newsweek, 07-Dec-2009
Harvard Law professor charged with overseeing the government rescue of the financial system.