How big is too big? It’s hard to say, but today’s numbers fail the “write it down and push it across the table” test. You can always find someone who will look at the status quo and find it reasonable. But had that person been asked ten or twenty years ago to write down what number would have been “too big” and slide that paper across the table, chances are the figure would be well below what we see now. The same exercise can be performed today. Goldman Sachs grew from $178 billion in assets in 1997 to over $1.1 trillion at its peak; Morgan Stanley went from $302 billion to $1 trillion. Is that too big? Johnson and Kwak propose that no financial institution should be worth more than 4 percent of GDP (about $570 billion) and no investment bank more than 2 percent (Goldman Sachs and Morgan Stanley passed this threshold in the late 1990s); at that point, they argue, the systemic risk is too great.
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