Business Models?


The topic of the day is whether there’s some imbalance or unfairness between the government’s treatment of the automakers and the finance sector. And one frequent response from readers has been that at the end of the day the bankers have a viable business model and the automakers do not. And that dictates different treatment.

Now, I can’t imagine any way to ask for more trouble than to get into comparisons between the troubles of the automakers and the banks, with all the differences between them. As we know, US automakers have been in relative decline for three or four decades (judged in terms of market share vs. imports) and absolute decline for a while. But I’m curious about how much we know about the business model and viability of the banks. Surely, banks as such aren’t going anywhere. But these institutions?

One reader writes: “One easy answer to this question is that the banks have a viable
business model. They simply need to stop taking so much risk, and they’ll be immensely profitable given the current interests rates they’re borrowing at.”

But high levels of risk are at the root of the big banks’ high profits (at least until recently) and also of the current mess. So it’s not immediately clear to me how you just fiddle with the risk variable and that doesn’t leave the whole system fundamentally changed, with very different profit levels. It’s not precisely the same. But you could also say that all the automakers have to do is start selling more cars. Not so easily done. You can’t risk your cake and eat it too.

Just to anticipate a lot of email responses. I’m certainly not saying that the current crisis means that banking is no longer a viable business. But these kinds of banks — at this rough size, at these levels of leverage and risk, and at these levels of sustained profitability — is that still a viable model? Is a healthy one for the country?

Which brings me to a different but somewhat related point.

When do we downsize these banks? A key part of the crisis, perhaps the key part of the crisis is that these banks were so big that we could not let them endure the normal fate of failed businesses, which is to fail. So when do we break them up into more smaller entities? Yes, we’ve got our hands full now. But companies always fight being broken up. So it’ll be much harder if and when these companies struggle back to some level of health. So when does that happen?


Josh Marshall is editor and publisher of