Me no understand, doctor.
Alright. So the credit crunch was caused by people being a bit too clever, and not asking 'what if' ? But the reason governments are stepping in all over the place is because of the size of the exposures. If Northern Rock had been the Puddletown and Kingsbere, a small building society who foolishly demutualised then ran out of credit, they'd either have gone bust or another bank would have picked them up.
This applies in spades to Freddie, Fannie, Merril Lynch, AIG and now HBOS. They were so big, with so much business out there, that going bosoms up would threaten the survival of other major institutions.
"You owe the bank £50,000 and can't pay. You're in trouble"
"You owe the bank £5 billion and can't pay. The bank's in trouble"
So what's the solution of the great and the good ? In the case of Fannie, Freddie and AIG, hand over pots of taxpayer cash. In the case of Merrill and HBoS, merge them (with BoA and Lloyds respectively) to form even bigger financial entities.
Is it just me ? You've got something so big that its collapse threatens the system - and the solution is to make it bigger ?
I suppose if you want the Lloyds deal to go ahead it's probably not a good idea to start muttering about breaking it up, but surely post-kerfuffle any institution big enough - Fannie, Freddy, BoA, AIG, Lloyds/HBoS (I'm presuming NR wouldn't have been rescued without all those retail customers) - to cause major structural damage in the event of its death - surely anything that size needs to be split up - by legislative fiat if necessary - until the biggest companies are of a size where they can't take the whole economy down with them if they go.
It's not as if the Yanks lack practice at busting companies up. They just (I think) haven't done it for a while - not since Ma Bell. I'm not sure if antitrust law would cover such cases - so here's an opportunity for some legislation. OK, you lose some economy of scale and add some small amounts onto transaction costs, but think of all the taxpayer dosh you'll save.
Commenters are welcome to tell me
a) if this is nonsense - and if it is,
Nothing new several times over
2 hours ago