Sunday, April 25, 2010
Too Big to Fail, not really
What the phrase really speaks to are not indestructible corporations. Too Big to Fail identifies corporations that have discovered the Holy Grail of corporatists, that is Too Big to Pay for Their Mistakes a/k/a That is What The Rest of Us Are Here For. Gretchen Morgenson examines the problem and, sadly, finds the answer to why this is so.
Edward Kane, a finance professor at Boston College and an authority on financial institutions and regulators, said that it was not surprising that substantive changes for both groups are not on the table. After all, powerful banks want to maintain their ability to privatize gains and socialize losses.When The Powers That Be are major stakeholders in the status quo, that is all you are going to get.
“To understand why defects in insolvency detection and resolution persist, analysts must acknowledge that large financial institutions invest in building and exercising political clout,” Mr. Kane writes in an article, titled “Defining and Controlling Systemic Risk,” that he is scheduled to present next month at a Federal Reserve conference.
But regulators, eager to avoid being blamed for missteps in oversight, also have an interest in the status quo, Mr. Kane argues. “As in a long-running poker game in which one player (here, the taxpayer) is a perennial and relatively clueless loser,” he writes, “other players see little reason to disturb the equilibrium.”
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