17 Nov 2009

Too Big to Fail? Too small to save? Too inefficient to work with? Too old school to educate?

Policy makers hang on to the idea, or more like fear, that it is too risky to let big banks fail. There is a lot of talk and surmise that Lehman Brothers failure may have caused some of the precipitation last year. Not for sure.

This fear on the part of the policy makers has created a put option or a gamble of sorts for Wall Street. This TBTF policy has created loads of easy money. The printing press is running non-stop and the Fed is flying helicopters all over the country and sprinkling greenbacks (or may be just on the backyards of the big banks)

V-Shaped Recovery

With essentially zero-cost money, the likes of Goldman Sachs, are now taking bigger risks in the markets and other asset investments. Savers faced with zero yield on their deposits are also pushing to take on more speculative risks and risky investments.

If this TBTF policy is going to cripple us, then why let anything be too big? The Big ones think of it as a right to come hat-in-hand, at the slightest problem that they suspect is systemic. If the Government and the Fed have the obligation to save the Big ones when in trouble, do they also earn the right to NOT let them become too big? Sounds fair enough.

W-Shaped Recovery

Perhaps policy makers of the 21st century need to think about a TBTF premium and collect monies from financial companies that are beyond an acceptable size. Perhaps policy makers can collect this insurance premium or levy on a tiered basis that increases with the size. Maybe they also have a say on how big they can become.

The reluctance of the Fed to mop up the excess liquidity and the lack 

of any developing financial regulation are puzzling facts.

* Will this lead to Financial crisis 2?
* Is America disadvantaged by the sliding dollar?
* How will it affect your plans and forecasts?

Is the recovery V-shaped or W-Shaped?

If you are c-Level executive, you need to wonder about these issues in your intermediate and long-term planning process.

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